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A   TREATISE 


LAW  OF  INTERCORPOKATE   RELATIONS 


A 


TREATISE  ON  THE  LAW 


OF 


INTERCORPORATE  RELATIONS. 


BY 
WALTER   CHADWICK   NOYES, 

A  JUDGE  OF  THE  COURT  OF  COMMON  PLEAS  IN  CONNECTICUT. 


BOSTON: 

LITTLE,  BROWN,  AND   COMPANY. 

1902. 


7^%3  y 


i3U 


Copyright,  1902, 
By  Walter  Cuadwick  Noyes. 


T 


^Enibetsttg  ?|ress: 
John  Wilson  and  Son,  Cambridge,  U.  S.  A. 


DEDICATED 

TO   THE 

HONORABLE  AUGUSTUS  BRANDEGEE, 

AS   A   TRIBUTE    TO   A   LEARNED   LAWYER. 


735524 


P  TIE  FACE. 


The  modern  business  tendency  is  toward  concentration  and 
co-operation  instead  of  competition.  The  modern  business 
instrument  is  the  corporation.  The  development  of  the  tend- 
ency through  the  instrument  has  resulted  in  the  joining 
together,  in  varying  forms,  of  corporate  entities  and  proper- 
ties. Corporate  conjunction  involves  intercorporate  relations, 
and  the  legal  questions  growing  out  of  these  relations  furnish 
the  subject-matter  of  this  treatise. 

The  preparation  of  the  first  four  parts  of  this  work  has 
been  a  process  of  amplification ;  of  the  last  part,  a  process  of 
reduction.  The  conjunction  of  corporate  entities  through 
consolidation,  of  corporate  properties  through  sales  and  leases, 
and  the  concentration  of  corporate  control  through  holding 
shares,  are  outlined  in  general  treatises  upon  corporation  and 
railroad  law.  The  material  for  the  development  of  the  sub- 
jects, in  a  manner  commensurate  with  their  importance,  has, 
however,  only  been  found  through  a  systematic  examination 
of  original  sources. 

The  law  governing  combinations  of  corporations  is  more 
accessible,  but  less  adaptable.  The  value  of  a  mass  of  ap- 
parently conflicting  decisions  appears  only  when  it  is  reduced 
to  principles.  In  collecting  the  cases  much  assistance  has 
been  derived  from  the  general  treatises  upon  monopolies  and 
similar  subjects.  Especial  acknowledgment  is  due  to  Mr. 
Eddy's  valuable  work  upon  combinations  of  labor  and  capital 
("Combinations"),  although  its  underlying  theory  that  a  com- 
bination of  capital,  to  be  unlawful,  must  be  a  conspiracy,  is 
the  opposite  of  that  of  the  present  treatise.  The  theory  of 
this  treatise  is  that  tlie  validity  of  a  combination  depends 


viii  PREFACE. 

upon  considerations  of  public  policy.  Rules  of  public  policy 
are  formulated,  and  an  attempt  is  made  to  deduce  from  the 
cases  collected  principles  of  general  application.  No  con- 
sideration is,  however,  given  to  labor  combinations  and  other 
subjects  examined  in  the  general  treatises. 

The  statutes  of  all  the  American  States  and  many  English 
statutes,  governing  the  various  relations  of  coi-porations,  are 
collected  in  footnotes;  "and  the  cases,  where  numerous,  are 
arranged  under  the  names  of  the  respective  States.  By  this 
plan,  it  is  believed  that  the  statute  and  case  law  of  each  State 
may  be  readily  found. 

With  hardly  a  single  exception,  each  citation  has  been  care- 
fully verified  vidth  the  original  report,  the  date  of  the  opinion 
inserted,  and  parallel  references  added. 

A  treatise  of  this  nature,  prepared  amid  the  distractions 
incident  to  the  performance  of  other  duties,  cannot  be  free 
from  fault.  But  while  the  conclusions  may  not  always  follow 
from  the  premises,  and  the  theories  may  have  no  foundation 
at  all,  it  is  hoped  that  the  work  will  be  found  accurate  in 
stating  and  referring  to  the  decisions  of  the  courts.  And 
whatever  measure  of  accuracy  it  may  possess  is  due,  in 
no  inconsiderable  degree,  to  the  diligence  of  Mr.  Frank  L. 
McGuire,  of  the  New  London  (Conn.)  bar,  who  has  verified 
the  references  and  prepared  the  Table  of  Cases. 

W.  C.  N. 

Lyme,  Connecticut, 

September  1,  1902. 


CONTENTS. 


Page 
§§  1-6.    PRELIMINARY 3 

PART  I. 

CONSOLIDATION  OF  CORPORATIONS. 


CHAPTER  I. 

NATURE   OP   CONSOLIDATION. 

7.  Term  "  Consolidation  "  of  Uncertain  Meaning 11 

8.  Uses  of  the  Term  distinguished 1.3 

9.  Consolidation  as  a  Result  and  as  a  Process 14 

10.  An  Analogy  iu  the  Civil  Law .15 

11.  Merger 15 

12.  Amalgamation       ..." 16 

13.  Distinction  between  Consolidation  and  Sale 17 

14.  Distinction  between  Consolidation  and  Lease 18 

15.  Distinction  between  Consolidation  and  Control 19 

16.  Distinction  between  Consolidation  and  Combination '20 

CHAPTER  II. 

LEGISLATIVE   AUTHORITY   FOR   CONSOLIDATION. 

I.    Necessity  for  Legislative  Authority. 

17.  Consolidation  without  Legislative  Authority  ultra  vires 21 

18.  Consolidation  of  Qwasi'-public  Corporations  without  Legislative  Au- 

thority against  Public  Policy 23 

II.    Conferring  and  Withdraival  of  Legislative  Authority. 

19.  Power  of  Legislature  to  authorize  Consolidation 24 

20.  Legislative  Sanction  —  How  expressed 27 

21.  Public  Policy  regarding  Consolidation  of  Non-competing  Railroads     .  28 

22.  What  Railroads  may  consolidate  —  Statutory  Provisions 29 

2.3.     What  Business  Corporations  may  consolidate  —  Statutory  Provisions  36 

24.  Power  of  Legislature  to  withdraw  or  limit  Right  to  consolidate  — 

(A)  In  Absence  of  Reserved  Power 37 

25.  Power  of  Legislature   to  withdraw  or  limit  Right  to  consolidate  — 

(B)  In  Exercise  of  Reserved  Power 39 

26.  Power  of   Legislature  to  withdraw  or  limit  Right  to  consolidate  — 

(C)  In  Exercise  of  Police  Power 39 


X  CONTENTS. 

III.    Construction  of  Statutes  authorizing  Consolidation.  page 

§  27.    General  Rules  of  Construction 41 

28.  Coustructiou  of  Particular  Statutory  Provisions 43 

29.  Construction  of  Statutes  autiiorizing    Consolidation  of  Railroads  — 

Connecting  or  Continuous  Lines 45 

30.  Construction  of  Statutes  authorizing  Consolidation  of  Business  Cor- 

porations   48 

CHAPTER   III. 

CONSTITUTIONAL   AND   STATUTORY   RESTRAINTS   UPON 
CONSOLIDATION. 

§  31.     Public  Policy  regarding  Consolidation  of  Competing  Railroads  ...     49 

32.  Constitutional    and    Statutory    Provisions    against   Consolidation   of 

Competing  Railroads 62 

33.  Construction  of  Prohibitions — (A)  Meaning  of  Term  "Consolida- 

tion " 65 

34.  Construction   of    Prohibitions  —  (B)   Whether  a  Lease   amounts   to 

Consolidation 57 

35.  Construction    of    Prohibitions  —  (C)    Arrangements    amounting    to 

Consolidation 68 

36.  Construction  of  Prohibitions — (D)  Control  of  Competing  Railroads 

by  Holding  Corporation       61 

37.  Construction  of  I'roliibitions —  (E)  What  are  Competing  or  Parallel 

Railroads 62 

38.  Prohibition  of  Consolidation  of  Competing  Railroads  not  a  Regu- 

lation of  Interstate  Commerce 65 

39.  Constitutional    Proliibitious    against    Consolidation    of     Competing 

Carrier  Corporations  other  than   Railroads 66 

40.  Enforcement  of  Provisions  against  Consolidation  of  Competing  Lines    60 

CHAPTER   lY. 

ASSENT   OP    STOCKHOLDERS. 

§41.     Requisite  Number  of  Stockholders — (A)  Under  Laws  in  Force  at 

(Organization  of  Consolidating  Curjiorations 67 

42.  Requisite  Number  of  Stockholders  —  (B)  When  Unanimous  Consent 

is  necessary 70 

43.  Requisite  Number  of  Stockholders —  (C)  Under  Enactments  in  Exer- 

cise of  Reserved  Power 72 

44.  Power  of  Legislature  to  compel  Consolidation   under  its   Reserved 

Power   .         74 

45.  Assent  of  Stockholders  —  How  manifested.    Acquiescence.    Estoppel.  76 

46.  Rights  and  Remedies  of  Dissenting  Stockholders 77 

47.  Rights  and  Remedies  of  Dissenting  Subscribers 78 

48.  Procedure  in  Stockholders'  Actions 80 

49.  Laches  of  Stockholders 81 

50.  Can  a  Majority  effect  Consolidation  upon  giving  Security  to  Dissent- 

ing Stockholders  ? 81 

51.  The  Right  to  condemn  Stock 82 


CONTENTS.  XI 

CHAPTER  Y. 

METHOD    OF   CONSOLIDATION. 

Page 

84- 

Formal  Statutory  Requisites °* 

53.  When  Consolidation  is  effected 89 

54.  Construction  of  Statutes  prescribing  Mode  of  Consolidation     ...      90 
65.     What  Statutory  Provisions  Conditions  Precedent ^1 

What  Statutory  Provisions  not  Conditions  Precedent 93 


§52. 


66 


9i 


67.     Statutory  Provisions  for  Appraisal  of  Stock 

CHAPTER  VI. 

EFFECT   OF   CONSOLIDATION   UPON    STATUS   OF   CONSOLIDATING 
CORPORATIONS   AND   THEIR   STOCKHOLDERS. 

58.  Effect  of    Consolidation    may  be   Fusion,   Merger  or   Continued 

T^xistdic©      ,••• ,..•■• 

59.  Effect  of  Consolidation  depends  upon  Terms  of  Consolidation  Act     .      97 

60.  As  a  General  Rule,  Effect  of  Consolidation  is  Creation  of  New  Cor- 

poration and  Dissolution  of  Constituents 98 

61.  Exceptions  to  the  Rule  —  Merger  and  Continuance  of  Corporations       100 

62.  Construction   of    Particular    Consolidation   Acts.      Cases    showing 

Creation  of  Distinct  Corporation .101 

63.  Construction  of  Particular  Consolidation  Acts.    Cases  of  Absorption 

or  Merger •     • 

64     Effect  of  Valid  Consolidation  upon  Stockholders  of  Constituent  Cor- 

104 

porations 

CHAPTER  Vn. 

RIGHTS   AND    POWERS   OF   CONSOLIDATED   CORPORATION. 

I.   Statutory  Transmission  of  Propertij,  Franchises,  and  Privileges. 

§  65.     General  Rule.     Legal  Presumption • 106 

66.  Real  Estate  and  Rights  in  Streets 109 

67.  Choses  in  Action IJO 

68.  Subscriptions •'  iiq 

69.  Enforcement  of  Subscriber's  Obligations.    Conditional  Subscriptions  lid 

70.  Municipal  Aid ■■.'.■  ,,^ 

71.  Constitutional  Limitations  upon  Grants  of  Privileges  and  Immunities  117 

72.  Exemptions  from  Taxation .'     *     '     '  \]y, 

73.  Special  Privileges  and  Immunities  other  than  Tax  Exemptions    .     .  121 

II.   Powers. 

74.  Powers  of  Consolidated  Corporation.     In  General 121 

75.  Power  to  issue  Mortgage  Bonds 1*^ 

76.  Right  of  Eminent  Domain 1^ 

77.  Miscellaneous  Powers 


Xii  CONTENTS. 

CHAPTER   YIII. 

OBLIGATIONS   OF   CONSOLIDATED    CORPORATION 

I.    Direct  Obligali'ons.  Page 

§  78.     Constitutional  Limitations 126 

79.  As  a  General  Rule  Consolidated  Corporation  directly  assumes  all 

Obligations  of  Constituents 127 

80.  Obligation  to  perform  Public  Duties  of  Constituents 130 

81.  Liability  of  Consolidated  Company  to  Bondbolders  and  Preferred 

Stockholders  of  Constituents.     Other  Special  Contracts       .     .     .  131 

82.  Liability  for  Torts  of  Constituents 134 

83.  Kule  of  Liability  inapplicable  to  Consolidation  after  Foreclosure  Sale  135 

II.    Liens. 

84.  Conventional  and  Statutory  Liens 136 

85.  Equitable  Liens 137 

III.    Remedies  of  Creditors  of  Constituent  Corporations. 

86.  Remedy  of  Creditors  against  Consolidated  Corporation  —  At  Law  .  139 

87.  Remedy  of  Creditors  —  In  Equity 141 

88.  Remedy  against  Constituent  Corporation  if  not  dissolved    ....  142 

89.  Effect  of  Consolidation  u])oi)  Pending  Suits 143 

90.  Procedure  regarding  Pending  Suits 144 

91.  Allegation  and  Proof  of  Consolidation 145 

CHAPTER   IX. 

IRREGULAR   AND    INVALID    CONSOLIDATIONS. 

§  92.     Attempted  Consolidation  —  Status  of  Resulting  Organization     .     .  147 

93.  Effect  of  Unlawful  Consolidation 148 

94.  Effect  of  Irregular  Consolidation 150 

95.  Who  may  attack  Irregular  Consolidation 150 

96.  Estoppel  to  deny  Regularity  of  Consolidation 151 

97.  Accounting  after  Attempted  Consolidation 154 

98.  Fraud  in  Consolidation  Agreement 154 

CHAPTER   X. 

INTERSTATE   CONSOLIDATIONS. 

§  99.     Consolidation  of  Corporations  of  Different  States  —  How  authorized  155 

100.  Construction  of  Interstate  Consolidation  Statutes 156 

101.  Status  of  Interstate  Consolidated  Corporation 157 

102.  Effect  of  Interstate  Consolidation  upon  Status  of  Constituent  Cor- 

porations      161 

103.  Management  of  Interstate  Consolidated  Corporation 162 

104.  Rights  and  Powers  of  Interstate  Consolidated  Corporation      .     .     .  163 

105.  Duties  of  Interstate  Consolidated  Corporation  —  Taxation     .     .     .  164 

106.  Citizenship  of  Interstate  Consolidated  Corporation 165 

107.  Foreclosure  of  Mortgages  after  Interstate   Consolidation.    Juris- 

diction     167 


CONTENTS.  xiii 

PART  II. 

CORPORATE   SALES. 


ARTICLE   I. 
SALES  OF  CORPORATE  PROPERTY  AND  FRANCHISES. 


CHAPTER  XI. 

SALES  OF  CORPORATE  PROPERTY. 

I.    Sales  of  Property  of  Private  Corporations. 

Page 

§  108.    Power  to  purchase  and  sell  generally 170 

109.  Sale  of  Entire  Corporate  Property  by  Unanimous  Consent      .     .     .  171 

110.  Sale  of  Entire  Property  of  Prosperous  Corporation  by  Majority  Vote  172 

111.  Sale  of  Entire  Property  of  Losing  Corporation  by  Majority  Vote    .  175 

112.  Sale  of  Entire  Corporate  Property  by  Directors 176 

113.  Ratification  by  Stockholders  of  Sale  by  Directors 178 

114.  Remedies  of  Dissenting  Stockholders  in  Case  of  Invalid  or  Unfair 

Sales 179 

115.  Procedure  in  Stockholders'  Actions       181 

116.  Defences  to  Stockholders'  Actions.     Estoppel 182 

117.  Effect  of  Sale  of  Entire  Corporate  Property 184 

II.   Exchange  of  Property  of  One  Corporation  for  Stock  of  Another. 

118.  Transfer  of  Entire  Corporate  Property  without  Unanimous  Consent 

requires  Monetary  Consideration 184 

119.  Exchange  of  Property  for  Stock  ultra  vires 185 

120.  Exchange  of  Property  for  Stock  Infringement  of  Rights  of  Dis- 

senting Stockholders 186 

121.  Appraisal  of  Stock  of  Dissenting  Stockholders 189 

122.  Stock  received  upon  Exchange  belongs  primarily  to  Corporation     .  190 

III.   Rights  and  Remedies  of  Creditors. 

123.  Liability  of  Purchasing  Corporation  for  Debts  of  Vendor  Company  191 

124.  Fraudulent  Sales 193 

125.  Remedies  of  Creditors 196 

126.  Priority  of  Purchaser's  Mortgage  over  Claims  of  Vendor's  Creditors  198 

IV.   Sales  of  Property  of  Quasi-public  Corporations. 

127.  Indispensable  Property  cannot  be  alienated  or  taken  on  Execution 

without  Statutory  Authority 199 

128.  Test  of  Indispensability 201 

129     Sales  of  Surplus  Property 202 


Xiv  CONTENTS. 


CHAPTER  XII. 

SALES   OF   CORPORATE   FRANCHISES. 

I.   Transferability  of  Franchises. 

Psg» 

130.  Nature  of  a  Franchise 203 

131.  Franchise  of  Corporate  Existence 204 

132.  Transferability  of  Franchise  of  Corporate  Existence 206 

133.  Franchises  of  Corporations 207 

134.  Transferability  of  Franchises  of  Corporations 210 

IL  Legislative  Authority  for  Sale  of  Franchises. 

135.  Legislative  Authority  essential  to  Alienation  of  Franchises    ...  211 

136.  Unauthorized  Sale  of  Franchises — Ultra  Vires 212 

137.  Unauthorized  Sale  of  Franchises — Against  Public  Policy       .     .     .  213 

138.  Unauthorized  Sale  of  Franchises  —  Unlawful  Delegation  of  Powers  214 

139.  Legislative  Authoritj  essential  to  Purchase  of  Franchises      .    .    .  215 


ARTICLE  II. 

SALES  OF  RAILROADS. 


CHAPTER  XIII. 

CONTRACT   OF  SALE   AND   ITS   EXECUTION. 

I.  Nature  of  Sale  of  Railroad. 

§  140.     Conventional  and  Judicial  Sales  of  Railroads  distinguished    .     .    .    216 

141.  Distinction  between  Relation  of  Vendor  and  Vendee  and  other 

Intercorporate  Relations 217 

142.  Distinction  between  Sale  of  Railroad  and  Sale  of  Franchises  .     .     .    218 

IL  Grants  of  Power  to  sell  and  purchase  Railroads. 

148.  Statutory  Authority  essential  to  Sale  of  Railroad 218 

144.  Seller  must  have  Authority  to  sell  and  Buyer  to  buy 220 

145.  What  Railroads  may  be  the  Subject  of  Sale.     Statutory  Provisions  220 

146.  Construction  of  Statutes 227 

147.  Constitutional  and  Statutory  Prohibitions  of  Purchase  of  Compet- 

ing or  Parallel  Lines 229 

III.  Authorization  and  Execution  of  Contract  of  Sale. 

148.  Statutory  Requisites 229 

149.  Assent  of  Stockholders.   "Whether  Approval  of  Majority  is  sufficient  231 

150.  Acquiescence  of  Stockholders 232 

151.  Rights  and  Remedies  of  Dissenting  Stockholders 233 


CONTENTS.  XV 

CHAPTER  XIY. 

EFFECT   OF   EXECUTION   OF   CONTRACT   OP  SALE. 

I.  Riyhis  and  Liabilities  of  Vendor  Corporation, 

Pago 
§  152.     Sale  of  Railroad  aud  Eranchises   does   uot  teriuiuate  Corporate 

Existence 235 

153.  Rights  of  Vendor  Corporation  after  Authorized  Sale 236 

154.  Liabilities  of  Vendor  Corporation  in  Case  of  Authorized  Sale     .     .  237 

155.  Liabilities  of  Vendor  Corporation  in  Case  of  Unauthorized  Sale      .  238 

156.  Quo  Warranto  and  other  Proceedings  against  Vendor  Corporation  .  238 

II.  Rights  and  Liabilities  of  Vendee  Corporation. 

157.  Essential  Eranchises  pass  upon  Sale  of  Railroad 239 

158.  Rights  and  Powers  of  Vendee  Corporation  —  In  General    ....  239 

159.  Right  of  Eminent  Domain 240 

160.  Exemptions  from  Taxation 241 

161.  Right  to  Eix  Rates  of  Eare.     Chartered  Rates 242 

162.  Obligations  of  Vendee  Corporation  in  respect  of  Public  Duties  of 

Vendor 243 

163.  Vendee  Corporation  not  liable  upon  Obligations  of  Vendor  unless 

assumed  or  imposed  by  Law 244 

1G4.     Status  of  Foreign  Purchasing  Corporation 245 


PART   III. 
CORPORATE   LEASES. 


ARTICLE   L 


CHAPTER  XV. 

LEASES   OF   CORPORATE   PROPERTY   AND   FRANCHISES. 
I.  Leases  of  Property  of  Private  Corporation. 

165.  Power  to  lease  and  take  a  Lease  generally 247 

166.  Lease  of  Entire  Property  of  Prosperous  Corporation 248 

167.  Lease  of  Entire  Property  of  Losing  Corporation 250 

168.  Voidable  Leases 251 

169.  Remedies  of  Objecting  Stockholders 252 

II.  I^eases  of  Property  and  Franchises  of  Quasi-public  Corporations. 

170.  Distinction  between  Leases  of  Private  and  Q«as/-public  Corporations  253 

171.  Leases  of  Indispensable  Property  of  Q««si-public  Corporation     .     .  253 

172.  Leases  of  Surplus  Property 253 

173.  Leases  of  Franchises 255 

174.  Railroad  Leases  typical  of  Leases  of  Q«as«-public  Corporations      .  255 


xyi  CONTENTS. 

ARTICLE   II. 

LEASES   OF  RAILROADS   (INCLUDING  TRACKAGE   CONTRACTS). 


CHAPTER   XVI. 

NATURE    AND    AUTHORIZATION    OF   CONTRACT   OP   LEASE. 

I.  Nature  of  Lease  of  Railroad. 

Page 
§  175.     What  constitutes  a  Lease  of  a  Railroad 250 

176.  Distiuction  between  Relation  of  Lessor  and  Lessee  and  other  Inter- 

corporate Relations 258 

II.  Legislative  Authority  for  Lease  of  Railroad. 

177.  Lease  of  Railroad  invalid  without  Legislative  Authority     ....  258 

178.  Necessity  for  Legislative  Authority  to  take  a  Lease 2G1 

179.  Legislative  Ratification  of  Unauthorized  Lease 261 

180.  What  Railroads  may  be  leaseil.     Statutory  Provisions 202 

181.  Rule  of  Construction  of  Statutes 260 

182.  Construction  of  Statutes  —  (A)  Provisions  authorizing  Leases     .     .  207 

183.  Construction  of  Statutes  —  (B)  Provisions  not  authorizing  Leases  268 

184.  Construction  of  Statutes  —  (C)  Power  to  lease  Unfinished  Road     .  271 

185.  Construction  of  Statutes  —  (D)  Leases  of  Connecting  Lines  .     .     .  272 
180.  Constitutional  and  Statutory  Prohibitions  of  Leases  of  Competing 

or  Parallel  Lines 272 

187.     Long  Term  Leases  not  prohibited  by  Statutes  against  Perpetuities .    272 

CHAPTER   XVII. 

APPROVAL  AND  EXECUTION  OP  CONTRACT  OP  LEASE. 

I.  Assent  of  Stockholders  to  Railroad  Lease. 

§  188.     Necessity    for   Consent    of    Stockholders    to   Lease    of  Railroad. 

Power  of  Directors 273 

189.  Whether  Unanimous  Consent  is  necessary  unless  otherwise  provided 

190.  Requisite  Majority  prescribe  Terms  of  Lease 275 

191.  Remedies  of  Dissenting  Stockholders 277 

192.  Acquiescence  and  Laches  of  Stockholders 278 

II.  Method  of  approving  and  executing  Railroad  Leases. 

193.  Statutory  Requirements       279 

194.  Construction  of  Statutes  prescribing  Mode  of  Approving  and  Exe- 

cuting Leases 280 

195.  Formalities  attending  Execution  of  Lease  of  Railroad 282 

196.  Corporation  may  be  estopped  from  alleging  Irregular  Execution  of    283 

Lease 285 


CONTENTS.  xvii 


CHAPTER  XYIII. 

THE   CONTRACT    OF   LEASE. 

I.  Foi'in  and  Construction  0/  Railroad  Leases. 

Page 

§  197.     Form  of  Lease 286 

198.  Consideration 287 

199.  Rules  of  Construction  of  Leases 288 

200.  Construction  of  Particular  Leases 288 

201.  Lease  for  Longer  Term   than  E.\istence  of  Corporations  may  be 

valid 290 

202.  Partial  Invalidity  of  Leases.    Void  Restrictions 290 

203.  Dependent  and  Independent  Contracts 291 

II.    Covenants  in  Railroad  Leases. 

204.  Covenant  to  pay  Rent.     Assumption  of  Interest  Payments      .     .     .  292 

205.  Covenant  to  pay  Taxes 294 

206.  Covenant  not  to  assign 295 

207.  Covenant  to  make  Repairs 297 

208.  Covenant  to  pay  Damages  and  defend  Suits 297 

209.  Miscellaneous  Covenants 298 

CHAPTER   XIX. 

EIGHTS    AND   LIABILITIES   OF   LESSOR    CORPORATION. 

I.  Rights  a7id  Remedies  oj"  Lessor  Corporation. 

§  210.     Lessor  Corporation  retains  Prerogative  Powers  —  Right  of  Eminent 

Domain 299 

211.  Rights  of  Lessor  when  entitled  to  Share  of  Earnings  —  Equitable 

Lien 301 

212.  Rights  of  Stockholders  when  Rent  is  payable  in  Form  of  Dividends  303 

213.  Mortgage  of  Rent  Charge .     .  304 

214.  Remedies  of  Lessor  Corporation 304 

II.  Liabilities  of  Lessor  Corporation. 

215.  Obligations  of  Lessor  Corporation  to  State 306 

216.  Lessor   Corporation   cannot    avoid    Statutory   Obligations    unless 

exempted 307 

217.  Lessor  cannot  avoid  Primary  Obligations  unless  exempted      .     .     .     309 

218.  Liability  of   Lessor    for    Negligent  Operation   of  Railroad — (A) 

Under  Unauthorized  Lease 311 

219.  Liability   of   Lessor    for    Negligent   Operation   of  Railroad  —  (B) 

Under  Authorized  Lease 312 

220.  Liability  of  Lessor  for  Negligent  Operation  of  Railroad  —  (C)  To 

Employees  of  Lessee •     .     .     .     316 

221.  Liability  of  Les.sor  for  Negligent  Operation  of  Railroad  —  (D)  When 

it  shares  in  Control 319 

222.  Liability  of  Lessor  upon  Contracts  of  Lessee •     .     .  320 

223.  Liability  of  Lessor  for  Reconstruction  and  Repairs 321 

224.  Taxation  of  Leased  Railroads 322 


Xviii  CONTENTS. 

CHAPTER   XX. 

RIGHTS   AND   LIABILITIES   OF   LESSEE    CORPORATION. 

I.  Rights  and  Remedies  of  Lessee  Corporation. 

Page 
§  225.     Rights  of  Lessee  in  General.     Incidental  Franchises 324 

226.  Rights  of  Lessee  in  Matter  of  Tolls •     .     ,     .     325 

227.  Mortgages  of  Leases 326 

228.  Remedies  of  Lessee  Corporation 326 

n.  Liabilities  of  Lessee  Corporation. 

229.  Obligation  of  Lessee  to  perform  Lessor's  Public  Duties      ....     327 

230.  Statutory  Liability  of  Lessee 328 

231.  Liability  of  Lessee  for  Torts  in  Operation  of  Road  under  Author- 

ized or  Unauthorized  Lease 331 

232.  Joint  Liability  of  Lessor  and  Lessee 332 

233.  Liability  of  Lessee  for  Debts  of  Lessor 334 

CHAPTER   XXI. 

RAILROAD    LEASES    UNDER   RECEIVERSHIP. 

§  234.     Receiver  not  Assignee  of  the  Terra.     May  not  abrogate  Leases  as 

between  Parties 335 

235.  Receiver  may  elect  within  Reasonable  Time  to  assume  or  renounce 

Lease 337 

236.  Obligations  of  Receiver  pending  Election 339 

237.  Obligations  of  Receiver  after  Election 342 

238.  Lease  of  Railroad  by  Receiver 343 


CHAPTER   XXII. 

ULTRA    VIRES   AND   VOIDABLE   RAILROAD   LEASES. 

§  2.39.  Distinction  between  Ultra  Vires  and  Irregular  Leases 344 

240.  Enforcement  of  Executory  Ultra  Vires  Leases       346 

241.  Delivery  of  Possession  under  Ultra  Vires  Lease 348 

242.  Right  and  Duty  of  Disaffirmance 349 

243.  Recovery  of  Property  after  Disaffirmance 351 

244.  Recovery  on  Quantum  Meruit  for  Past  Use 353 

245.  Improvements  made  by  Lessee  under  Ultra  Vires  Lease      ....  355 

246.  Effect  of  Ultra  Vires  Lease  upon  Stock  Subscriptions 356 

247.  Guarantee  of  Ultra  Vires  Lease  void 357 

248.  Voidable  Railroad  Leases 357 

249.  Leases  of  Railroads  for  Purpose  of  suppressing  Competition  .     .     .  359 

250.  Remedy  of  State — Quo  Warranto 359 

251.  Remedy  of  State — Injunction 360 


CONTENTS.  xix 


CHAPTER   XXIII. 

LEASES  TO  FOREIGN  CORPORATIONS. 

Page 
§  252.     Authority  to  lease  must  be  derived  from  State  where  Railroad  is 

located 362 

253.  Authority  to  lease  to  Foreign  Corporation 363 

254.  Status  oi  Foreign  Corporation  leasing  Railroad 365 

CHAPTER  XXIV. 

TRACKAGE   CONTRACTS. 

§  255.    Nature  of  a  Trackage  Contract 366 

256.  Express   Authority    not    necessary   for  Execution    of    Trackage 

Contract 367 

257.  Execution  of  Trackage  Contracts 369 

258.  Assignability  of  Trackage  Contracts 370 

259.  Construction  of  Trackage  Contracts 371 

260.  Specific  Performance  of  Trackage  Contracts 374 

261.  Liability  of  Proprietary  Company  to  Third  Persons 375 

2'52.     Liability  of  Licensee  Company  to  Third  Persons 376 

263.     Liability  to  Employees 378 


PART  IV. 

CORPORATE   STOCKHOLDING  AND   CONTROL. 


CHAPTER   XXV. 

POWER  OF  CORPORATION  TO  HOLD  STOCK  IN  OTHER 
CORPORATIONS. 

I.  Rule  that  Statutory  Authority  is  essential. 

§  264.     Necessity  for   Statutory   Authority   to  purchase   Stock.     Rule  in 

United  States 380 

265.  Necessity  for  Statutory   Authority  to    purchase   Stock.     Rule   in 

England 382 

266.  Necessity  for  Statutory  Authority  to  subscribe  for  Stock     ....  383 

267.  Subscriptions  or  Purchases  through  Trustees  or  Agents      ....  384 

268.  Similar  Nature  of  Corporations  does  not  affect  Application  of  Rule  385 

269.  Expediency  of  Purchase  of  Stock  immaterial 387 

270.  Assumption  of  Power  to  hold  Stock  in  Articles  of  Association     .     .  388 


XX  CONTENTS. 

II.  Express  Power  to  acquire  Stock. 

Page 
§  271.     Corporations  may  acquire  Stock  in  other  Corporations  when  author- 
ized.    Statutory  Provisions 388 

272.  Power  to  subscribe  for  Slock  in  Foreign  Corporations 395 

273.  Construction  of  Statutes 3!i7 

274.  Construction  of  Constitutional  Prohibitions 399 

III.  Incidental  Power  to  acquire  Stock. 

275.  In  General 400 

276.  Incidental  Power  to  make  Investments  in  Stocks 401 

277.  Incidental  Power  to  take  Stock  in  Satisfaction  of  Debt 403 

27S.     Incidental  Power  to  lake  Stoik  as  Collateral 404 

279.  Incidental  Power  to  acquire  Stock  in  Connection  with  Consolidation 

or  Purcha.se 406 

280.  Incidental  Power  to  take  Stock  uj)on  a  Reorganization 407 

281.  Incidental  Power  to  take  Stock  in  Exchange  for  Corj)orate  Assets  408 

282.  Miscellaneous  lu.'stances  of  Incidental  Power  to  acquire  Stock      .     .  400 

283.  Presumption  of  Power  to  hold  Stock 410 

CHAPTER   XXVI. 

RIGHTS    AND   OBLIGATIONS   OF   CORPORATION   AS 
STOCKHOLDER. 

I.  Intra  Vires  Holdings. 

§284.     5<a?i(s  of  Corporation  holding  Stock 411 

285.  Nature  of  "  Holding  Corporations" 412 

286.  Rights  of  Foreign  Corporation  holding  Stock 413 

287.  Incidents  of  Ownership  attach  to  Intra  Vires  Holdings 417 

II.   Ultra  Vires  Holdings. 

288.  What  Incidents  of  Ownership  attach  to  Ultra  Vires  Holdings     .     .  418 

289.  Liability  for  Assessments  upon  67/raFiVes  Holdings 419 

290.  Ultra  FiVps  Contracts  for  Purchase  of  Stock  —  Collateral  Contracts  421 

291.  Independent  Contracts 422 

292.  Holding  Stock  to  prevent  Competition 423 

293.  Remedies  in  Case  of  Ultra  Vires  Stockholding       424 

CHAPTER   XXVII. 

CONTROL   OF   ONE    CORPORATION    BY    ANOTHER. 

§  294.     Meaning  of  Term  "  Control "       425 

295.  Distinction  between   Control   of   Corporation  and  Control  of  its 

Property 420 

296.  Distinction  between  Control  and  Community  of  Interest     .     .          .  427 

297.  Distinction  between  Control  and  Consolidation 428 

298.  Power  to  purchase  Stock  to  obtain  Control 428 

299.  Status  of  Corporations  as  Controlling  Stockholders 429 

300.  Trust  Relation  of  Controlling  Corporation  to  Minority  Stockholders  429 

301.  Remedies  of  Minority  Stockholders  of  Controlled  Corporation    .     .  431 


CONTENTS.  XX  i 

PART  V. 

COMBINATIONS   OF   CORPORATIONS. 


ARTICLE   I. 


COMBINATIONS   AS   AFFECTED   BY   PRINCIPLES   OF 
CORPORATION  LAW. 


CHAPTER   XXVIII. 

NATURE   AND   FORMATION    OF    COMBINATIONS. 

Page 

§302.     Definition  of  Term  "Combination" 433 

303.  Definition  of  Term  "  Association  " 434 

304.  Definition  of  Term  "  Trust " 435 

305.  Popular  Use  of  Word  "  Trust " 435 

300.     Definition  of  Phrase  "  Corporate  Combination  " 436 

307.  Evolution  of  the  Combination       436 

308.  Formation  of  Associations 437 

309.  Formation  of  Trusts 439 

310.  Formation  of  Corporate  Combinations 439 

311.  Analysis  of  Principles  determining  Legality  of  Combinations     .     .  440 

CHAPTER  XXIX. 

PRINCIPLES   OF   CORPORATION   LAW   AFFECTING  ASSOCIATIONS 
AND    TRUSTS. 

§  312.     Legality  of  Associations  not  generally  a  Question  of  Corporation  Law    441 

313.  In  Formation  of  Trust,  State  regards  Acts  of  Stockliolders  as  Acts 

of  Corporation 442 

314.  Trust  invalid  as  involving  Partnership  of  Corporations 444 

315.  Trust  invaliil  as  involving  Delegation  of  Corporate  Powers     .     .     .  446 

316.  Trust  invalid  as  involving  Practical  Consolidation 447 

317.  Rights  and  Liabilities  growing  out  of  Trusts 448 

CHAPTER  XXX. 

PRINCIPLES   OF   CORPORATION   LAW   AFFECTING   CORPORATE 
COMBINATIONS. 

§  318.     Corporate  Combinations  by  means  of  Purchasing  Corporations  — 

lu  General 450 

319.  Issue  of  Stock  for  Property  in  Formation  of  Corporate  Combination  450 

320.  Issue  of  Stock  for  Good-will  in  Formation  of  Corporate  Combination  453 

321.  Over-valuation  of  Property  acquired  by  Issue  of  Stock 455 

322.  Power  of  Vendor  Corporations  to  sell  Properties  for  Stock  of  Pur- 

chasing Corporation 457 

323.  Corporate    Combinations    through    Formation    of    Holding    Cor- 

porations     457 


xxii  CONTENTS. 


ARTICLE   II. 

COMBINATIONS   AS  AFFECTED  BY  PRINCIPLES  OF   COMMON 
LAW   AND   PUBLIC  POLICY. 


CHAPTER  XXXI. 

APPLICATION    OP   LAW   OF   CONSPIRACIES. 

Page 

§  324.     Definition  and  Classification  of  Conspiracies 468 

325.  Criminal  and  Civil  Conspiracies  distinguished 4tiO 

326.  A])plical)ility  of  Law  of  Conspiracies  to  Corporations 4tjl 

327.  Wliat  Combinations  are  Conspiracies 4(52 

328.  Modern  Combinations  of  Capital  seldom  Conspiracies 4U4 

CHAPTER   XXXII. 

APPLICATION   OF   LAW    OP   MONOPOLIES. 

§329.     Primary  Meaning  of  Term  "Monopoly  " 4G7 

3^30.     Growtli  of  Monopolies  — Their  Illogality 407 

331.  No  True  Monopolies  in  United  ^States.     Patents  and  other  Quusi- 

monopolies 460 

332.  Modern  Use  of  Term  "  Monopoly " 470 

333.  Direct  Test  of  Validity  of  Combination  not  whether  it  is  a  Monopoly  471 

CHAPTER   XXXIII. 

APPLICATION    OF   LAW   OP   CONTRACTS    IN    RESTRAINT   OF   TRADE. 

§334.     Definition  and  Nature  of  "  Contract  in  Restraint  of  Trade"   .     .     .  473 

335.  Connection  between  Contracts  in  Restraint  of  Trade  and  Corporate 

Combinations 474 

336.  Modern  Use  of  Phrase  "  Contract  in  Restraint  of  Trade  "  .    .     .     .  476 

337.  Direct  Test  of    Validity  of    Combination   not   whether   it   is   in 

Restraint  of  Trade 478 

CHAPTER   XXXIY. 

FORMULATION    OF   RULES   OP   PUBLIC    POLICY. 

§  338.     Definition  and  Nature  of  Public  Policy 479 

339.  Necessity  for  Rules  of  Public  Policy 481 

340.  Difficulty  of  Formulating  Rules  of  Public  Policy  concerning  Com- 

binations        482 

341.  Formulation  of  Rules.     Basis  in  Judicial  Decisions 482 

342.  Basis  of  Rules  — (A)  Case  of  the  Sugar  Trust 483 

34.3.     Basis  of  Rules— (B)  Case  of  the  Standard  OilTrust 485 

344.  Basisof  Rules  — (C)  Whiskey  Trust  Cases 487 

345.  Basis  of  Rules — (D)  Case  of  the  Preservers  Trust 489 

346.  Basisof  Rules— (E)  Case  of  the  Chicago  Gas  Trust 490 

347.  Basis  of  Rules —  (F)  Case  of  the  Diamond  Match  Company  .     .     .  492 

348.  Basis  of  Rules  —  (G)  Case  of  the  Glucose  Combination      ....  494 

349.  Basis  of  Rules  —  (H)  Miscellaneous  Cases 496 


CONTENTS.  Xxiii 

CHAPTER  XXXV. 

RULES  OP  PUBLIC  POLICY. 

Page 

§  350.     In  General 499 

351.  Distiuctiun  between  Rules  of  Public  Policy  applicable  to  Private 

and  Quasj-public  Corporations 500 

352.  Rules 500 

353.  Rules  Conservative  Standards 501 

354.  Analysis  of  Rule  governing  Private  Corporations.     Form  of  Com- 

bination immaterial 501 

355.  Analysis  of  Rule  —  Objects  and  Tendencies  of  Combinations      .     .  504 

356.  Analysis  of  Rule  —  Control  of  the  Market 506 

357.  Analysis  of  Rule  —  Extent  of  Territory 510 

358.  Analysis  of  Rule  —  Useful  Commodities 511 

359.  Analysis   of    Rule   of    Public   Policy   applicable    to    Q"«si-pul)lic 

Corporations 515 


CHAPTER   XXXVI. 

APPLICATION    OF   RULES    OF   PUBLIC   POLICY   TO    PARTICULAR 
CLASSES   OF    COMBINATIONS. 

§  360.  Associations  of  Manufacturers  and  Producers 516 

361.  Associations  of  Manufacturers  owning  Patents 518 

362.  Associations  of  Dealers 620 

363.  Associations  of  Railroad  Companies.    Traffic  Contracts  of  Connect- 

ing Lines 521 

364.  Associations  of  Railroad  Companies.    Traffic  Contracts  of  Compet- 

ing Lines.     Pools 523 

365.  Associations  of  Gas  Companies  and  other  Qaasj-public  Corporations    526 


CHAPTER   XXXVn. 

RIGHTS   AND   REMEDIES. 

§  366.     Rights  and  Remedies  of  Members  of  Illegal  Combinations.    In 

General 528 

367.  Rights  and  Remedies  between  Combination  and  its  Members       .     .  530 

368.  Rights  of  Receivers  and  Assignees 532 

369.  Collateral  Attack  upon  Combination.    Remedies  upon  Independent 

Contracts 533 

370.  Rights  of  Creditors 536 

371.  Rights  and  Remedies  of  Stockholders  of  Combining  Corporations  537 

372.  Remedies  of  State.     Quo  Warranto  against  Corporate  Combination  540 

373.  Remedies  of  State.    Quo  Warranto  against  Combining  Corporations  541 

374.  Remedies  of  State.     Injunction 543 

375.  Evidence 544 


Xxiv  CONTENTS. 

ARTICLE   in. 

LEGISLATION  AFFECTING   COMBINATIONS. 


I. 

FEDERAL  ANTI-TRUST  STATUTE. 

CHAPTER   XXXVIII. 

THE   STATUTE   AND    ITS   CONSTITUTIONALITY. 

Pace 

376.  The  Statute 546 

377.  Aualvsis  of  Statute 647 

378.  Object  of  Statute 649 

379.  Constitutionality  of  Act  —  ( .\)  Power  of  Con^jress  under  Commerce 

Clause  to  legislate  conceruing  I'rivato  Contracts  affecting  Inter- 
state Commerce 650 

880.     Constitutionality  of  Act —  (P»)  Power  of  Conpre.ss  under  Commerce 

Clause  to  prohibit  Combinations  of  Competing  Railroads    .     .     .     652 

381.     Coustitutiouality  of  Statute  —  (C)  Statute  is  Coustitutional    .     .     .     653 

CHAPTER   XXXIX. 

CONSTRUCTION    AND    APPLICATION   OF   FEDERAL   STATUTE. 

"82.  Title  of  Statute 554 

383.  Use  of  Phrase  "  Contract  in  Restraint  of  Trade  "        555 

384.  Meaning  of  Term  "  Monoj)olize  " 556 

385.  Meaning  of   Phrase,  "  Trade   or   Commerco  among  the    Several 

States "       558 

386.  Statute  applies  only  to  Restraints  upon  Interstate  or  International 

Trade  or  Commerce 560 

387.  Previous  Legality  or  Reasonableness  of  Restraint  immaterial       .     .     561 

388.  Combination  must  have  Direct  Effect  upon  Interstate  Commerce 

—  (A)  lu  General 562 

389.  Combination  must  have  Direct  Effect  upon  Interstate  Commerce 

—  (B)  Combinations  of  Manufacturers.  Distinction  between 
Manufacture  and  Commerce 564 

390.  Combination  must  have  Direct  Effect  upon  Interstate  Commerce 

—  (C)  Restraints  upon  Facilities  for  Commerce 569 

391.  Combination  must  have  Direct  Effect  upon  Interstate  Commerce 

—  (D)  Exchanges  and  Similar  Associations 571 

392.  Statute  applies  to  Combinations  of  Railroad  Companies  and  other 

Carriers 672 

89-3.     Form  of  Combination  immaterial.     Illegality  of  Corporate  Device 

394.  Statute  inapplicable  to  State's  Monopoly  and  to  Monopoly  under 

Patent 576 

395.  Statute  not  retroactive  but  applies  to  Continuing  Combinations      .     577 


CONTENTS.  ,  XXV 


CHAPTER   XL. 

RIGHTS,  REMEDIES,  AND    PROCEDURE   UNDER    FEDERAL   STATUTE. 

Page 
•396.     Invalidity  under  Federal  Statute  as  a  Ground  of  Collateral  Attack     578 

397.  Injunctive  Relief  Remedy  of  Government  only 580 

398.  Actions  by  Government  to  enforce  Forfeiture 582 

399.  Criminal  Proceedings — Indictments 582 

400.  Actions  at  Law  by  Private  Persons  —  Damages 583 

401.  Illegality  of  Combination  must  be  shown — Evidence 585 

402.  Parties  i)efendant 586 

403.  Effect  of  Voluntary  Dissolution  of  Combination  pending  Proceedings    587 

404.  Limitations  of  Actions 587 


11. 

STATE  ANTI-TRUST  STATUTES. 

CHAPTER   XLI. 

STATE   STATUTES    AND   THEIR   CONSTITUTIONALITY. 

§  405.     The  Statutes.     Scope  of  State  Lefrislation 588 

406.  Power   of   State   to   prohibit   Coml/mations   of    C^/zusZ-public    Cor- 

porations.    Power  over  Pro])erty  devoted  to  Public  Uses     .     .     .     605 

407.  Power  of  State  to  prohibit  Combinations  of  Corporations  in  Exer- 

cise of  Reserved  Power 608 

408.  Validity   of    State    Statutes    tested    by   Fourteenth    Amendment     609 

—  (A)  Right  to  Contract 611 

409.  Validity   of    State    Statutes    tested    by    Fourteenth   Amendment 

—  (B)  Police  Power  of  the  State 614 

410.  Validity   of    State    Statutes    tested   by   Fourteenth    Amendment 

—  (C)  Class  Legislation 619 

CHAPTER   XLH. 

CONSTRUCTION  AND  APPLICATION  OF   STATE   ANTI-TRUST   STATUTES. 

§  411.  Rule  of  Construction 619 

412.  Statutes  not  Regulations  of  Interstate  Commerce 619 

413.  Application  of  Statutes  to  Insurance  Combinations 620 

414.  Applicability  of  Statutes  to  Foreign  Corporations  doing  Business 

in  State 621 

415.  Statutes  have  no  Extraterritorial  Effect 623 

416.  Statutes  not  retroactive,  but  apply  to  Continuing  Combinations  .     .  624 

417.  Construction  and  Application  of  Miscellaneous  Statutes      ....  624 


XXvi  CONTENTS. 


CHAPTER   XLIII. 

RIGHTS,  REMEDIES,  AND   PROCEDURE   UNDER  STATE   ANTI-TRUST 

STATUTES. 

Pago 

§  418.    Invalidity  under  State  Statutes  as  a  Ground  of  Collateral  Attack    .  020 

419.  Crimiual  Proceedings 62'.J 

420.  Civil  Keiuedies ^^^ 

421.  Evidence ^j^ 

422.  Statutes  of  Limitation 6-^^ 

423.  Couclusiou ^^ 


Index 637 


TABLE  OF  CASES. 


(References  are  to  pages.) 


Page 
Abbott  I'.  American  Hard  Rub- 
ber Co.  176,  177,  179 
V.  Johnston,   etc.   Horse  R. 

Co.  22,  259,  311 

V.  New    York,    etc.   R.    Co. 

108,  124,  207 

V.  Omaha  Smelting,  etc.  Co.     204 

Abby  V.  Billups  248,  298 

Acker  v.  Alexandria,  etc.  R.  Co.       237 

Adams  v.  Yazoo,  etc.  R.  Co.         24,  37 

Addyston  Pipe,  etc.  Co.  v.  United 

States      475,  476,  506,  550,  551,  553, 

555,  560,  562,  565,  566,  568, 

586, 614 

Adelbert  University    v.   Toledo, 

etc.  R.  Co.  152,  156 

Adler  v.  Fenton  461 

Admiral,  The  1-^6 

^tna  Ins.  Co.  v.  Commonwealth    621 


Africa  V.  Knoxville 
Alderman  v.  People 
Aldnut  V.  Inglis 
Alexander  v.  Railway  Co 
Alexander  v.  Relfe 
Alexander  v.  Searcy 


110 
458,  459 
607 
69,  72 
197 
182,  184,  4-25, 
432 
Alford  V.  Chicago,  etc.  R.  Co. 
Alger  u.  Thatcher 
Altenburgh  v.  Grant 
Altoona,   etc.    R.   Co.   v.   Beech 

Creek  R.  Co. 
American     Biscuit,    etc.    Co.    ?'. 
Klotz  449,   477,  496,  513,  531, 

557 
American,  etc.  Co.  v.  Linn 
American  Fire  Ins.  Co.  v.  State 


373 
475 
456 


367 


431 
621, 
635 


American  Handle  Co.  i-.  Standard 

Handle  Co.  533,631,6-33,634 

American  Loan,  etc.  Co.  v.  Min- 
nesota, etc.  R.  Co.  23,  24,  28, 
42,  147,  149,  152,  156 
American    Preservers    Trust    v. 
Taylor  Mfg.  Co.             444,  445,  490. 
513,  531 


American  Soda  Fountain  Co.  v. 

Green 
American  Strawboard  Co.  v.  Peoria 

Strawboard  Co.  518,  528, 

American  Tube,  etc.  Co.  v.  Hayes 
American    Water  Works   Co.  v. 

Venner 
Ames  V.  Union  Pacific  R.  Co.     336, 

Ammant  v.  New  Alexandria  Turn- 
pike Co.  200, 

Anchor,  etc.  Mfg.  Co.  v.  Hawkes 

Anderson  v.  Jett 

Anderson  v.  Philadelphia  Ware- 
house Co. 

Anderson  v.  United  States        563, 


Page 

535 

627 
456 

423 

338, 
340 

201 
475 

507 

418 
569, 
571 


Angler  v.  East  Tennessee,  etc.  R. 

Co.  166, 245 

Anglo-Italian  Bank,  In  re  95 

Anheuser  Busch  Brew.  Ass'n  v. 

Houck  505,  513.  514,  5-34 

Anthonv  i-.  American  Glucose  Co.     191 
Appeal'  Tax   Court  v.   Western 

Maryland  R.  Co.  323 

Arbuckle  v.  Illinois  Midland  R. 

Co.  140,  142 

Archer  v.  Terre  Haute,  etc.    R. 

Co.  19,21,257 

Ardesco  Oil  Co.  v.  North  Ameri- 
can Oil,  etc.  Co.  171,  248 
Arkansas  Midland  R.  Co.  i;.  Berry  211 
Armstrong  v.  Karschner  237 
Armstrong  v.  Toler  534 
Arnot  V.  Pittston,    etc.  Coal  Co. 

513,  520,  534,  536 
Arrowsmith  v.  Nashville,  etc.  R. 

Co.  309,  310,  311,  312,  315,  332 

Arthur  v.  Commercial  Railroad 

Bank  218 

Ashbury   Carriage,    etc.    Co.    v. 

Riche  345,  346 

Ashhurst's  Appeal  184 

Ashley  v.  Ryan  65,  92,  159 

Aspinwall  v.  Ohio,  etc.  R.  Co.  162 

Assessors  v.  Morris,  etc.  R.  Co.        241 
Atchison,  etc.  R.  Co.  v.  Cochran      398 


xxviu 


TABLE   OF    CASES. 


Page 

Atchison,  etc.  R.  Co.  v.  Davis  -iM 

V.  Denver,  etc.  K.  Co.  44,  521, 

622 

V.  Fletclier  398,  407 

r.  Phillips  County  6U,  116 

Atkinson  v.  Marietta,  etc.  R.  Co.      200 

Athinta,  etc.  K.  Co.  v.  State  10^5 

Atlantic  Ave.  R.  Co.  i;.  Johnson       28'.) 

Atlantic,  etc.  R.  Co.  v.  Allen    120,  242 

V.  St.  Louis  ^" 

Atlantic,  etc.    Tel.  Co.  v.  Union 

Tacific  11.  Co.  254,  250 

Attorney  General  y.  Cliicago,  etc. 

U.  Co.  301 

V.  Delaware,  etc.  R.  Co.  300 

V.  Great  Eastern  R.  Co.     254,  301. 

30a 
t'.  Great  Northern  R.  Co. 


r.  Jamaica  Tond  Aqueduct 

V.  Mid-Kent  R.  Co. 

V.  Ueynohls 

f.  Tudor  Ice  Co. 

r.  Utica  Ins.  Co. 
Austin  r.  Sclitiman 

r.  Tecuniseh  National  Bank 
Ay  cock  V.  Raleigh,  etc.  R.  Co. 

Ayles  V.  South  Eastern  R.  Co. 


3(50, 
64:] 
301 
301 
300 
360 
360 
303 
193 
308, 
375 
37G 


B. 

Babcock  v.  Schuykili.etc.  R.  Co.      105 
Backus  V.  Detroit,  etc.  K.  Co.  310 

Badische  Anilin  und  Soda  Fabrik 

V.  Scliott  470 

Bagshaw  r.  Eastern  Union  R.  Co.     180 

Bailey  v.  Citizens  Gas  Liglit  Co.      155 

V.  Master  Plumbers'  Ass'n        625 

V.  Railroad  Co.  131 

Baker  v.  Grice  014 

V.  Harpter  193 

Baldwin  v.  Canfield  405 

Ball  Electric  Light  Co.  v.  Child        418 

Balliet  >:  Brown  177,  179 

Balsley  v.  St.  Louis,  etc.  R.  Co.     308, 

313 
Baltimore   v.  Baltimore,  etc.  R. 

Co.  397 

Baltimore,  etc.  R.  Co.  v.  Mussel- 
man  12,  144 
V.  Paul  317 
V.  Pausch  323 
V.  Worker  330 
Baltimore,  etc.  Tel.  Co.  v.  West- 
ern Union  Tel.  Co  527 
Bank  v.  Smith  342 
Banks  v.  Judah                            184,  195 
Bank  of  Augusta  v.  Earle    208.  204, 
362.  623 


Pajre 
Bank  of  Commerce  r.  Hart       386,  398 
V.  Tennessee  37 

Bank  of  Hindustan,  Higg's  Case, 

In  re  10,  18 

Rank  of  Middlebiiry  v.  Edgerton     200 
Harbier  r.  Coimolly 
Barclay  r.  Quicksdver  Min.  Co. 
Barley  r.  Southern  R.  Co. 
Barr  i-.  BartraMi,etc.  Mfg.  Co 
I'.  New  York,  etc.  R.  Co. 


010 
197 
229 
I'.iO 
358,  4'50. 
452 


Barnard  r.  Norwich,  etc.  R.  Co.        320 
Barnanl's  Banking  Co.,  In  re  382 

Barrows  v.  People's  Gas  Light, 

etc.  Co.  43 

Barry  r.  Merchants  Exch.  Co.  170 

Bartholomew    i-.   Derby   Rubber 

Co.  250 

Barton  v.  Enterprise,  etc.  Ass'n        175 
V.  Mulvane  025 

Bates  County  '•.  Winters  115 

Bath    Gas   Liglit    Co.   i-.    Claffy     255, 
347,  354 
Baxter    v.  Nashville,  etc.  Turn- 
pike Co.  200,  201 
1-.  New  York,  etc.  Co.  317 
Bcal  V.  Chase  475 
V.  Essex  Savings  Bank               418 
Bean  v.  Atlantic,  etc.  R.  Co.  308 
Beard  v.  Denis  475 
Beilford  R.  Co.  r.  Bowser                  274 
Beebe  '■.  Hatfield  453 
V.  Richmond  Light,  etc.  Co.       283 
Beeclier  r.  Marquette,  etc.  R.  Co.     279 
lieechley  v.  Mulville                  530,  620 
Beekman  r.  Hudson  River,  etc. 

R.  Co.  326 

Beggs  r.  Edison  El.  Light,  etc.  Co.      49 
Bell     V.     American     Protective 

League  330,  338,  340 

V.  Pennsylvania  R.  Co.         81,  153 

Beman  v.  Rufford  180,  181,  214, 

308 
Bement  v.  National  Harrow  Co.     577, 

579 
Benbow  v.  Cook  170 

Bene<]ict  v.  Heincberg  201 

Benedict  v.  Western  Union  Tel. 

Co.  527 

Benesh  v.  Mill  Owners  Mut.,  etc. 

Ins.  Co.  193 

Berlin  Machine  Works  v.  Perry        475 

Berry  i:  Broach  176,  183 

V.  Kansas  City,  etc.  R.  Co.     129, 

1.35,  140 

V.  Yates  384,  386 

Beveridge  i\  New  York  Elevated 

R.  Co.  268,  273,  304 

Bickley  v.  Schlng  456 

Bigbee,  etc.  Packet  Co.  v.  Moore 

418,  423 


TABLE   OF   CASES. 


XXIX 


Page 
Binney's  Case  170 

Birchtield  v.  Northern  Central  R. 

Co.  329 

Birmingham,  etc.  Co.  v.  Freeman     178 

Bish  V.  Johnson  69,  112 

Bishop  V.    American   Preservers 

Co.     4-44, 445,  449,  489,  513,  530,  584, 

622 
Bishop   V.   Brainerd    27,  75,  84,    101, 
112,  158,  161 
Black  V.  Delaware,  etc  Canal  Co. 
22,  23,  24,  41,  43,  46,  71,  74,  82,  83, 
156,  174,  175,  188,  200,  227,  251,  259, 
266,  267,  364 
Blair  v.  St.  Louis,  etc.  R.  Co.     194,  199 
Blake  v.  Winona,  etc.  R.  Co.  208 

Blanc  V.  Paymaster  Min.  Co.  196 

Blanchard  Gun  Stock,  etc.  Fact- 
ory V.  Warner  170 
Blatchford  v.  Ross     22,  69,  77,  80,  177, 

181 
Block  V.  Standard  Distilling  Co.  581 
Bloxham  v.  Metropolitan  R.  Co.  182 
Blue  Rapids  Opera  House  Co.  v. 

Mercantile  Bldg.  etc.  Ass'n  409 

Blundell's  Case  16 

Boardnian  v.  Lake  Shore,  etc.  R. 

Co.  26,  105,  133 

Bolm  Mfg.  Co.  r.  Hollis  459 

Bonsack  Mach.  Co.  v.  Smith  535 

Booe  V.  Junction  R.  Co.  78 

Booth  V.  Clark  385 

V.  Robinson  383 

Boston,  etc.  R.  Co.  v.  Boston,  etc. 

R.  Co.         43,  157,  229,  291,  295, 

296,  305,  371 

V.  Gilmore  201 

V.  New  York,  etc.  R.  Co.       42,  76, 

174,  179,  183,  184,  187,  232,  276, 

280,  340,  408 

Boston,  etc.  R.  Corp.  v.  Midland 

R.  Co.  109,  124 

Botts  V.  Simpsonville,  etc.  Turn- 
pike Road  Co.  71,  73,  77,  81 
Bouknight  v.  Cliarlotte,  etc.  R.  Co.   311 
Bowden  v.  Johnson  418 
Bower  v.  Burlington,  etc.  R.  Co. 

311,  319,  328 
Bowman  v.  Foster,  etc.,  Co.  409 

Boynton  v.  Roe  178 

Braceville  Coal  Co.  v.  People  608 

Bradfort  v.  Frankfort,  etc.  R.  Co. 

76,  91,  93,  154 

Branch  v.  Atlantic,  etc.  R.  Co.  76, 

137,  229 

V.  Charleston  120 

V.  Jesup  44,  150,  202,  212,  219, 

239,  451 

Brant  v.  Ehlen  451,  456 

Braslin  v.  Somerville  Horse  R.  Co. 

259,  313 


Page 
Bridgeport  v.  New  York,  etc.  R. 

Co.  204,  210,  218 

Briscoe  v.  Southern  Kansas  R.  Co. 

200,  267,  270,  311,  362,  364 
British    Nation,    etc.    Ass'n,   £x 

parte  386,  419 

Brooklyn,  etc.  R.  Co.,  In  re  290 

Brooks  V.  Cooper  479 

Brown  v.  Dibble  113,  145,  151 

V.  Duluth,  etc.  R.  Co.  183 

V.  Houston  565 

V.  Hannibal,  etc.  R.  Co.  309 

V.  Toledo,  etc.  R.  Co.  336,  341 

V.  Winnisiniet  Co.  254 

Brufett  V.  Great  Western  R.  Co.      135, 

184,  192,  236 

Brum  V.  Merchants  Mut.  Ins.  Co. 

128,  196 
Bruner  v.  Brown  451,  456 

Brunswick  Gas  Light  Co.  v.  United 
States  Gas,  etc.  Co.         202,  212,255. 
347,  349,  352,  353,  354,  355 
Byrne  v.  Schuyler  Electric  Mfg. 
Co.     173,  179,  180*  184,  186, 187,  381, 
386,  408 
Buck  Mountain  Coal  Co.  v.  Le- 
high Coal,  etc.  Co.  361 
Buckley  v.  Big  Muddy  Iron  Co.       180 
Buckner  v.  Richmond,  etc.  R.  Co.     317 
Budd  V.  New  York  606 
Buell  V.  Buckingham                   170,  176 
Buffalo,  etc.  R.  Co.,  hi  re  398 
V.  Dudley  73 
Buffalo    Lubricating   Oil   Co.   v. 

Standard  Oil  Co.  461 

Buford   V.   Keokuk,   etc.   Packet 

Co.  187,  409 

Bull  V.  Baltimore,  etc.   R.  Co.  143 

Burke  v.  Cleveland,  etc.  R.  Co.      45,  90 
Burkinshaw  v.  Nichols  452 

Burr  V.  Pittsburg,  etc.  R.  Co.  183 

Butler  V.  Rahen  290 

Button  V.  Hoffman  411 


Cain  r.  Syracuse,  etc.  R.  Co.  375 

Caledonian  R.  Co.  ij.  North  British 

R.  Co.  307 

Caledonian,  etc.  R.  Co.  v.  Magis- 
trates of  Helensburgh  347 
California  Bank  v.  Kennedy     381,  386, 
404,  405,  419,  420 
California     Central     R.     Co.    v. 

Hooper  125,  143 

Callahan  ?\  DonnoUy  475 

Callaway  v.  Foster  115 

Calumet  Paper   Co.  v.  Stotts  In- 
vest. Co.  405,  418 
Camden  v.  Stuart  453 


XXX 


TABLE   OF   CASES, 


Page 
Camden,  etc.    R.    Co.   v.   May's 

Landing  K.  Co.        215,  268,  348,  354 
Camdon  Safe  Deposit,  etc.  Co.  v. 

Burlington  Carpet  Co.  f>3,  123 

Cameron  v.  Havemeyer     448,  449,  484 
V.  New  York,  etc.  Water  Co. 

39,48 

Campbell  v.  Farmers,  etc.  Bank       102 

V.  Marietta,  etc.  K.  Co.      127,  228, 

242 
Canada   Life   Assur.  Co.  v.   Pell 

Mfg.  Co.  382 

Canal,  etc.  R.  Co.  v.  St.  Charles 

Street  R.  Co.  371 

Cantlon  v.  Eastern  R.  Co.  330 

Carey  v.  Cincinnati,  etc.  R.  Co.     99,  154 
Carr  v.  Le  Fevre  456 

Carson  v.  Iowa,  etc.  Co.  180 

Cars  well   v.   Farmers  Loan,  etc. 

Co.  336,  338,  339.  341 

Carter  v.  Producers,  etc.  Oil  Co. 

177,  398 
Carter-Crume  Co.  v.  Peurrung         503, 
518,  537 
Caruthers  v.   Kansas  City,  etc. 

R.  Co.  315 

Case  of  the  Monopolies  491 

Cashman  v.  Brownhe  109,  110 

Cass  V.  Manchester,  etc.   R.  Co. 

249,  274 
Catawissa  R.  Co.  v.  Philadelphia, 

etc.  R.  Co.  298 

Catskill  Bank  v.  Gray  536 

Central  Branch  Union  Pacific  R. 

Co.  V.  Western  Union  Tel.  Co.     256 
Central, etc.  Co.  v.  Farmers  Loan, 

etc.  Co.  342,  343 

Central,  etc.  R.  Co.  v.  Morris  260, 

271.  314,  320 
Central  Ohio  Salt  Co.  v.  Guthrie 

471,498,  505,508,513,  517 

Central  R.  Co.  v.  Brinson  313 

V.  Macon  45 

V.  Pennsylvania  R.  Co.      384,  385, 

414 

Central  R.  etc.  Co.  v.  Collins       51,  80, 

179,  180,  381,  385,  387,  388,  423,  424, 

537 

V.  Georgia  12,  13, 15,  97,  100, 

104,  108,  117,  118,  120 

V  Perry  375 
V.  Pettus  196,  334 
u.  Phinazee  311,313 
V.  Smith                                       445 

V  State  12,  99 
Central  Shade  Roller  Co.  i;.  Cush- 

man  438,  514,  516,  519,  545 

Central    Transportation    Co.    v. 

Pullman  Car  Co.      22,  200,  201,  215, 

258,  261,  266,  270,  279,  345,  347,  349, 

350,  352,  353,  356,  422 


Page 

Central  Trust  Co.  v.  Continental 
Trust  Co.  330,  338,  342,  343 

V  Oliio  Cent.  R.  Co.  525 

V.  Rochester,  etc.  11.  Co.  106 

v.  Western  North  Carolina 
R.  Co.  205 

Central  Trust,  etc.  Co.  v.  Wabash, 

etc.  R.  Co.  336,  343,  374 

Chandler  V.  Hanna  580 

Chapin  v.  Brown        470,  511,  513,  520, 

528 
Chapman  i;.  Douglass  County  352, 

354 
V.  Mad  River,  etc.  R.  Co.       71,  81 
Chappell  ".  Brockway  473,  508 

Charity  Ho.spital  c.  New  Orleans 

GasLigiit  Co.  99,130 

Charles  E.  Wiswall.  The    529,  534,  578 
Charles  River  Bridge  v.  Warren 

Bridge  209,  266,  467 

Charleston  r.  Branch  120 

Charlotte  First  Nat.  Bank  i-.  Char- 
lotte 78 
i;.  National  Exch.  Bank    403,  404, 

405 
Charlotte  etc.  R.  Co.  v.  Gibbes  99,  122 

131 
Charlton  v.  Newcastle,  etc.  R.  Co. 

24,  369,  525 
Chase  v.  Vanderbilt  126,  133 

Chattanooga,  etc.  R.  Co.  v.  Evans 

192,  194,  195,  197 
Chattanooga  Terminal  li.  Co.  i-. 

Felton  301 

Cheraw,  etc.  R.  Co.  i-.  Anson  99 

Chesapeake,  etc.  R.  Co.  v.  Griest 

192,  244,  245 

V.  Miller  135,  241,  242 

V.  Osborne  311 

V.  Virginia  120 

Chester  Nat.  Bank  v.  Atlanta,  etc. 

R.  Co.  314,  320,  321 

Chicago  i\  Cameron  182 

V.  Evans  224,  327 

Chicago  City  R.  Co.  v.  People  209 

Chicago,  etc.  R.  Co.  v.  Ashling     14,  18 

45, 100,  104,  143,  152 

V.  Auditor  General  158,  165 

V.  Ayres  521 

V.  Boyd  257 

V.  Butts  144 

V.  Chicago,  etc.  Coal  Co.  244 

V.  City  of  Ottumwa  295 

V.  Crane  306,  328 

V.  Denver,  etc.  R.  Co.         2»8,  371 

V.  Dunbar  203 

V.  Galey  _   128 

V.  Groves  377,  378 

V.  Illinois  Central  R.  Co.  300 

V.  Lundstrum  193,  245 

V.  Martin  377,  378 


TABLE   OP   CASES. 


XXXI 


Page 
Chicago,  etc.  R.  Co.  v.  Mitchell        377 
V.  Moffitt  108,  128,  129, 1:54 

V.  Posten  377,  378 

V.  Pullman  Southern  Car  Co.      475 
V.  Solan  26 

V.  Stafford  County  116,  151 

V.  Third  National  Bank  334 

V.  Union  Pacific  R.  Co.  255 

V.  Wabash,  etc.  R.  Co.        23,  516, 

525 
Chicago     Hansom     Cab    Co.    v. 

Yerkes  182 

Chicago   Gas  Light,  etc.   Co.  v. 

People's  Gas  Light,  etc.  Co.         255, 

516,  526 

ClioUette  V.  Omaha,  etc.  R.  Co.       213, 

237,  313 

Chouteau  v.  Dean  452 

Cincinnati,  etc.  R.  Co.  v.  Bunnell 

307,  328 

V.  Indiana,  etc.  R.  Co.  288 

V.  McKeen  421 

V.  Paskins  377 

V.  Townsend  377 

Citizens  State  Bank  t'.  Hawkins      381, 

403,  404,  405,  420,  429 

Citizens  St.  R.  Co.  i'.  Memphis        102, 

110, 117 

City  of  Atlanta  v.  Chattanooga 

Foundry,  etc.  Co.  587 

City  Fire  Ins.  Co.  v.  Currigi  354 

City  of  Palestine  v.  Barnes  200 

Clancy   v.    Unondaga   Fine    Salt 

Mfg.  Co.  528 

Clark  V.  Central  R.  Co.  66 

V.  Central,  etc.  R.  Co.  414 

V.  Chicago,  etc.  R.  Co.  378 

V.  Chne  Woven  Wire  Fence 

Co.  624 

Clarke  v.  Omaha,  etc.  R.  Co.     48,  212, 

219,  228,  271 

Clary  v.  Iowa  Midland  R.  Co.     307,  329 

332 

Claw  i;.  Van  Loan  220 

Clayton  v.  Ore  Knob  Co.  452,  456 

Clearwater  v.  Meredith     13,  24,  70,  71, 

72,  77,  78,  98 

Clement  v.  Canfield  329 

Cleveland  v.  Spencer  295 

Cleveland,  etc.  R.  Co.  v.  Berry        377 

V.  Bender  375,  376 

V.  Closser  515,  523 

V.  Erie  46 

V.  Prewitt  135 

Clinch  V.  Financial  Corporation     22, 

181,  189 

Clyde  V.  Richmond,  etc.  R.  Co.        342 

Coal  Creek,  etc.  Co.  v.  Tennessee 

Coal  etc.  Co.  248,  254 

Coe  V.  Columbus,  etc.  R.  Co.    200,  201, 

208,  212,  219 


Page 

Coe  I'.  East  &  West  R.  Co.  451 

V.  Errol  565 

Coffin  V.  Ransdell  451,  456 

Coggin  V.  Central  R.  Co.  134,  140 

Cohen  v.  Berlin  &  Jones  Env.  Co.     438, 

508,  517 

Coit  V.  Gold  Amalgamating  Co.      451, 

456,  467 

Cole  V.  Millerton  Iron  Co.         195,  198 

Coleman  v.  Eastern  Counties  R. 

Co.  357 

V.  Howe  457 

Coleson  v.  Blunton  285 

Colgate  V.  Baclieler  474 

Collins  V.  Chicago,  etc.  R.  Co.  146 

Colt  V.  Barnes  208 

Columbia  Carriage  Co.  v.  Hatch      625 
Columbia   etc.  Co.   v.  Kentucky 

Union  R.  Co.  326 

Columbia  Wire  Cloth  Co.  v.  Free- 
man Wire  Cloth  Co.  535,  624 
Columbus  R.  Co.  v.  Indianapolis 

R.  Co.  251 

Columbus,  etc.  R.  Co.  v.  Burke       381, 
386,  397 
V.  Powell  129 

V.  Skidmore  129,  132,  140,  147 

Comer  v.  Burton,  etc.  Co.  625 

Commercial  Fire  Ins.  Co.  v.  Mont- 
gomery Co.  383,  386,  397 
Commissioners  of  Tippecanoe  Co. 
V.  Lafayette,  etc.  R.  Co.    19,  44,  259, 
269,  275,  278,  279,  359 
Commonwealth  v.  Alger  605,  611 
V.  Atlantic,  etc.  R.  Co.     91, 92,  146, 

151 
V.  Chesapeake,  etc.  R.  Co.  285 
V.  Frankfort  Ins.  Co.  342 

I'.  Grinstead  631 

V.  Hemingway  414 

V.  Hunt  459 

V.  Judd  460 

V.  Lowell  Gas  Light  Co.  208 

V.  Nashville,  etc.  R.  Co.      241,  323 
V.  New  York,  etc.  R.  Co.  415 

V.  Northern  El.  Light,  etc.  Co.     49 
V.  Owensboro,  etc.  R.  Co.  242 

V.  Perry  609 

V.  Smith  206 

V.  Standard  Oil  Co.  415 

V.  Waterman  458 

Compton  V.  Wabash,  etc.  R.  Co.       15, 

18,  139 
Conant  v.  Bellows  Falls  Canal  Co.     283 
Coney  Island,  etc.  R.  Co.  v.  Brook- 
lyn Cable  Co.  366,  370 
Connolly   v.   Union   Sewer   Pipe 

Co.  534,  578,  615,  616 

Conro  V.  Port  Henry  Iron  Co.     249,  274 
Consolidated  Traction  Co.  v.  Eliza- 
beth 109 


xxxu 


TABLE   OF   CASES, 


Page 

Continental  Trust  Co.  v.  Toledo, 

etc.  K.  Co.     42,  45,  47,  14«,  150,  152, 

153,  156 

Cook  I'.  Detroit,  etc.  R.  Co.  135 

V.  Marshall  415 

V.  Miiwauitee,  etc.  li.  Co.  32'J 

Cooper  V.  Day  2»5 

i>.  Shropshire  Union  R.  Co.       Ill, 

125 
Copeland  v.  Citizens  Gas  Light 

Co.  240,  252 

w.  Memphis,  etc.  R.  Co.       157,158 

V.  Minoiifc  Min.  Co.  105 

Coquard  v.  National,  etc.  Co.     518,  5;j8, 

540,  5-11 

Cork,  etc.  R.  Co.,  In  re  ;!;')! 

V.  rattcrsua  1 12 

Corning,  lit  re  556,  583 

Council    Grove,   etc.    R.   Co.    v. 

Lawrence  144 

County  Court  v.  Baltimore,  etc. 

R.  Co.  405 

County   of    Gloucester   Hank   v. 

Ru.lry  iMetiiyr,  etc.  Co.  2.00 

County  of  Mobile  v.  Iviinhall  5(i0 

Couse  V.  Columbia  Powder  Mfp. 

Co.  r.t4,  195,  197 

Covington,  etc.  Turnpike  Co.  v. 

San  ford  CIO 

Craft  V.  McConoughy       465,  470,  513, 

520,  528 

Crawford  i\  Longstreet  248 

Craw  fords  vi  lie,     etc.      Turnpike 

Co.  V.  Fletciier  122 

V.  State  24 

Cullen  V.  Coal  Creek,  etc.  R.  Co.      425 

Cumberland  Coal  Co.  v.  Sherman     183 

Cumberland  R.  Co.  v.  Gettysburg, 

etc.  R.  Co.  521 

Cummings  v.  Union  Blue  Stone 

Ass'n  438,  512,  513,  617 

Cunkle  v.  Interstate  R.  Co.  144 

Curran  v.  Arkansas  142 

Curries'  (.".ise  456 

Currier  v.  Concord  R.  Co.  60,  66 


D. 


Dady  v.  Georgia,  etc.  R.  Co.        60,  69, 

276 

Dana  v.  Bank  of  United  States        171. 

178 

Daniels  v.  St.  Louis,  etc.  R.  Co.       121, 

248 

Darcy  v.  Allien  468 

Dartmouth    College     v.     Wood- 
ward 70,  381 

Davies,  Matter  of  624,  625 

Davis  V.  Gemmell  182 

V.  Massachusetts  610 


Page 

Davis  r.  Memphis,  etc.  R.  Co.  230 

V.  New  York  209 

V.  Old  Colony  R.  Co.         279,  345, 

351.  353 

V.  Providence,  etc.  R.  Co.  308, 

329,  330 

V.     United     States     Electric 

Power,  etc.  Co.        3b3,  417,  430, 

432 

Day  V.  New  Orleans  Pne.  Ry.  Co.     135 

V.  New  York,  etc.  R.  Co.     125,  143 

V.  Ogdensburg,  etc.  K.  Co.         l■^7, 

210,  208,271,  293,363 

V.  Postal  Tel.  Co.  337 

V.  Worcester,  etc.  R.  Co.  129 

D'-aderick  v.  Wilson  76,  177 

Dels,  lu  re  659,  581 

Delaware  R.  Co.  v.  Tliarp  1 12 

Delaware  R.  R.  Cases         70,  120,  158, 

163,  164,  165 

Delaware  etc.  R.  Co.  »•.  Frank  679 

Deiiike  r.  New  York,  etc.  Cement 

Co.  248,  250 

Dennehy  v.  McNulta  336,  633 

Denny  Ilotel  Co.  v.  Schram     383,  384, 

414, 429 

Denver,  etc.   R.   Co.  v.  Denver 

City  R.  Co.  209 

Deposit  Hank  r.  Barrett  407 

Desconibes  v.  V\''o()ds  184 

Dewey  r.  Toledo,  etc.  R.  Co.  407 

Diamond  Match  Co.  v.  Roeber         475, 
492,  508 
Dickerraan  v.  Northern  Trust  Co.    455, 

450 
Dickson  v.  Chicago,  etc.  R.  Co.  332 
Dietrichs  v.  Lincoln,  etc.  R.Co.  300 
Dimpfel  v.  Ohio,  etc.  U.  Co.         28,  89, 

154,  232 
Distilling,  etc.  Co.  v.  People     477,  489, 
604,  506,  540,  541,  545 
Ditchett  V.  Spuyten  Duyvil,  etc. 

R.  Co.  307,  310,  316,  329 

Dodge  v.  Wolsey  179 

Dolph  V.  Troy  Laundry  Mach.  Co. 

438,  614,  516 
Doremus  v.  Hennessey  461 

Dougan's  Case  16,  78 

Dow  V.  Biedleman  243 

V.  Northern  R.  Co.  259 

Downing  v.  Chicago,  etc.  R.  Co.     307, 

329 

V.  Lewis  62.') 

Drake  v.  Siebold  513 

DriscoU  V.  Norwich,  etc.  R.  Co.       312, 

31v< 
Dubuque,  etc.  R.  Co.  r.  Litchfield  266 
Dudley  v.  Kentucky  High  School 

74,  180 
Dueber  Watch  Case  Mfg.  Co.  v. 
Howard  Watch  etc.  Co.  661,  562, 565 


TABLE   OF   CASES. 


XXXIU 


Page 
Durtee  c.  Old  Colony  R.  Co.       73,  74, 

'276 
236 


De  Camp  v.  Alward  178, 

De  La  Vergne  Kefrigeratiiig 
Mach.  ("o.  V.  German  Sav- 
ings   Inst.  381,  398,  421, 

De  Witt  Wire  Cloth  Co.  v.  2vew 
Jersey  Wire  Cloth  Co.  438, 

4'j8,  506,  512,  514,  517 

Du  Pout  V.  Tilden 


E. 


428 

471, 
528 
456 


Earl  V.  Seattle,  etc.  R.  Co.  70,  259, 

368 
East  Alabama  R.  Co.  v.  Doe  200 

East  Anglian  R.  Co.  v.  Eastern 

Comities  R.  Co.  28,  259,  347 

East  Boston,  etc.  R.  Co.  v.  Eastern 

R.  Co.  210,  230 

East  India  Co.  v.  Sandys  467 

East  Lincoln  u.  Davenport  115 

East  Line,  etc.  R.  Co.  v.  Culber- 
son 312,  317,  318 
V.  Rushing         42,  63,  64,  213,  219, 
220,  228,  238 
V.  State      24,  42,  44,  45,  63,  64,  67, 
212,  220,  228,  238,  267,  359 
East  St.  Louis,  etc.  R.  Co.  v.  Ger- 

her  307 

V.  Jarvis  19,  66,  57,  63 

V.  Wabash,  etc.  R.  Co.  147 

East   Tennessee,   etc.   R.   Co.  v. 

Hamblin  Co.  241 

V.  Nashville,  etc.  R.  Co.  355 

Eastern      Counties     R.     Co.    v. 

Hawkes  354 

Eastern  Plank  R.  Co.  v.  Vaughan     388 
Eastern  Townships    Bunk  v.   St. 

Johnsbnry,  etc.  R.  Co.  293 

Eastern  Union  R.  Co.  v.  Cochrane     110 
EastDn  V.  Houston,  etc.  R.  Co.  342 

Easun  v.  Buckeye  Brewing  Co.        186 
187,  381.  408,  409 
Eaton,  etc.  R.  Co.  v.  Hunt         99,  100, 
132, 136,  167 
Eclipse  Tow  Boat  Co.  v.  Ponchar- 

train  R.  Co.  438,  521 

Edison  Electric  Light  Co.  v.  New 
Haven  El.  Co. 
V.  Sawyer-Man  Electric  Co. 


V.  U.  S.  El.  Lighting  Co. 

V.  Westingliouse 
Edwards  v.  Bringier  Sugar  Ext. 

Co. 
Edwards  v.  People 
Eel  River  Co.  v.  State 
Egerton  r.  Brownlow 
Eisel  V.  Hayes 


101 
469, 
535 
143 
143 

451 
116 
359 
479 
475 


Pacre 
Elkins  i,-.  Camden,  etc.  R.  Co.     180,  369, 
381,407.424,428 
Elmira  Rolling  Mill  Co.  v.  Erie 

R.  Co.  372 

Elvsville  Mfg.  Co.  v.  Oskisko  Co.  .383 
Elyton  Land  Co.  v.  Dowdell  173,  186 
Emery  v.  Ohio  Candle  Co.  613,  517, 
628,  529 
Empire   Assurance   Corporation, 

1,1  re  16 

Empire  Distilling  Co.  v.  McNulta 

336,  338,  339 
Empire  Mills  v.  Alston  Grocery  Co.  417 
Empire  Township  v.  Darlington  115 
Enfield  Toil  Bridge  Co.   v.  Hart- 

'ford,  etc.  R.  Co.  210 

Era  Ins.  Soc,  Re  22 

Ervin  v.  Oregon,  R.  etc.  Co.     172,  174, 

180,  181,  182,  430 

Evans  ik  Bailey  410 

V.  Boston  Heating  Co.  208 

V.  Interstate    Rapid  Transit 

Co.  143 

I'.  Sabine,  etc.  R.  Co.  318 

V.  Union  Pacific  R.  Co.  182 

Evansville,  etc.  R.   Co.   v.   Com- 
monwealth 241,  242 
Evving  V.  Composite  Brake  Shoe 

Co,  196 

Excliange  Bank  v.  Macon,  etc.  R. 
Co.  411 


Factors,  etc.  Ins.  Co.  r.  New  Har- 
bor Protection  Co.   24,  383,  384,  414 
Fairbanks  v.  Leary  465,  520 

Fame  Hose  Co.,  Appeal  of  18 

Fanning  v.  Osborne  220 

Farmers  Loan,  etc.  Co.  v.  Chicasro, 

etc.  R.  Co.  "       342 

V.  New  York,  etc.  R.  Co.  430 

V.  Northern  Pacific  R.  Co.  338, 340, 

341 

V.  St.  Joseph,  etc.  R.  Co.  275 

V.  Toledo,  etc.  R.  Co.  150,  152,  187, 

233,  234 

Farnum  v.  Blackstone  Cannl  Co.       161 

Earns  worth  v.  Western  Union  Tel. 

Co.  257 

Farwell  v.  Great  West.  Tel.  Co.       451 
Featherstonhaugh    i\   Lee   Moor 

Porcelain  Clay  Co.  248,  250 

Feey.  New  Orleans  Gas  Light  Co.     91, 
99,  102,  105 
Feital  r.  Middlesex  R.  Co.  331 

Feld  V.  Roanoke  Investment  Co.     177, 
183,  186 
Felton,  Receiver  v.  City  of  Cin- 
cinnati 322 


XXXIV 


TABLE   OF   CASES. 


Page 
Female  Orphan  Asylum,  lie  248 

Fernschild  v.  Yuengling  Brewing 

Co.  193 

Fidelity    InBurance,   etc.   Co.    v. 

Shenandoah  Valley  li.  Co.  284 

Fietsam  v.  Hay  203,  204,  205 

Financial  Corporation,  In  re  3«2 

Finnegan  v.  Norrenberg  148 

First  National    Bank   v.  Chatta- 
nooga, etc.  Co.  196 
V.  Nat.  Excli.  Bank                     381 
V.  North  Alabama,  etc.  Co.        1'J2 
Fischer  v.  West  Virginia  K.  Co.      2t)0, 

311 
Fislier  v.  Evansville,  etc.  R.  Co.  27,  G!), 

70,  76 
V.  New  York  Central,  etc.  R. 

Co.  125,  2«8,  324,  825 

Fitzgerald  v  Missouri  Pacific  R. 

Co.  158,  I'/J,  100,  102,  1G6,  426 

Fitzmauricc  ;-.  Haiioy  291 

Flagg  V.  Manhattan  R.  Co.  303 

Fogg  V.  Blair  192,  I'JO 

Fontaine  v.  Southern   Pacific  R. 

Co.  307 

Foote  V.  Emerson  530 

Ford  V.   Chicago  Milk   Shippers 

Ass'n  513,  624,  027,  628 

Foreman  v.  Bigclow  451 

Forrest  ?•.  Manchester,  etc.  R.  Co.  254 
Fort    Payne    Bank    v.    Alabama 

Sanitarium  195,  197 

Fort  Wayne,  etc.  R.  Co.  v.  Ileine- 

baugh  308 

Foss  V.  Cummings  528,  520 

Foster  v.  Fowler  200 

Fougeray  v.  Cord  180 

Fowle  v.  Parke  475 

Fox,  etc.  Steel  Co.  v.  Schoen  473,  518 
Franklin    Bank    v.    Commerical 

Bank  381,  387,  405,  419 

Franklin  Co.  v.  Lewiston  Savings 

Inst.  381,  386,  400 

Franklin  Life  Ins.  Co.  v.  Adams  134 
Frazier  v.  Railway  Company  213,  219 
Freeman  v.  Minneapolis,  etc.  R. 

Co.  259,  311,  304 

V.  Sea  View  Hotel  Co.  170 

Frenkel  v.  Hudson  451 

Friedenwald  Co.  v.  Asheville  To- 
bacco Works  198 
Frisbie  v.  United  States  609 
Frotliingham  r.  Barnej'  186 
Fry  V.  Lexington,  etc.  R.  Co.  72,  112 
Fuqua  v.  Pabst  Brewing  Co.            620 


Gaitlier  v.  Stockbridge 
Gale  V.  Troy,  etc.  R.  Co. 


335,  336 
143 


Page 

Galpin  v.  Abbott  285 

Galveston,  etc.  R.  Co.  v.  Cowdrey     261 

V.  Daniels  318 

V.  Gartesier  311 

I'.  Texas  37 

Gamble  v.  Queens  County  Water 

Co.  430,  452 

Gamewell  Fire  Alarm  Tel.  Co.  v. 

Crane  475 

Gardner  v.   Hamilton   Mut.  Ins. 

Co.  105 

V.  London,  etc.  R.  Co.  368 

Gates  i;.  Tippecanoe  Stone  Co.         456 

George  v.  Central  R.,  etc.  Co.  285, 430, 

431 
Georgia,    etc.    Banking    Co.    v. 

Smith  606 

Georgia,  etc.  R.  Co.  v.  Friddle         379 

V.  Wilks  126 

Georgia  Pacific  R.  Co.  v.  Gaines       65, 

126 
Gere  v.  New  York  Central  R.  Co.      19, 
68,  259,  268,  290 
German  American,  etc.  Ass'n  v. 

Droge  409 

Gibbons  v.  Ogden  559 

Gibbs  V.  Consolidated  Gas  Co.   40,  75, 
515,  526 
Gibbs  w.McNeeley  561,565, 568,  584,585 
Gilbert  v.  Washington  City,  etc. 

R.  Co.  344 

Gilliland  v.  Pittsburg,  etc.  R.  Co.    239, 

290 
Gilkle,  etc.  Co.  v.  Dawson,  etc. 

Co.  456 

Giozza  V.  Tiernan  010 

Globe  Tobacco  Warehouse  Co.  v. 

Leach  536 

Gloninger  v.  Pittsburgh,  etc.  R. 

Co.  239, 290 

Gloucester  Ferry  Co.  v.  Pennsyl- 
vania 560 
Gloucester  Isinglass,  etc.   Co.   v. 

Russia  Cement  Co.  514,  516 

Glymont  Imp.,  etc.  Co.  v.  Toller    76, 
183,  186 
Goodin  v.  Cincinnati,  etc.  Canal 

Co.  430 

V.  Evans  452 

Gottschalk  v.  Lincoln,  etc.  R.  Co.     301 

Gould  V.  Head  446,  448,  449 

V.  Langdon  131 

Graham   v.  Boston,  etc.  R.   Co.    162, 

261,  284 

Grand  Trunk  R.  Co.  v.  Central 

Vermont  R.  Co.  293,  342 

Gray   v.  De  Castro,   etc.   Sugar 

Ref.  Co.  484 

V.  Massachusetts  Cent.  R.  Co.    289 
V.  Oxnard  Bros.  528,  529,  532 

V.  National  Steamship  Co.         192 


TABLE   OF    CASES. 


XXXV 


Page 
Great  Eastern  R.  Co.  v.  Turner  382 
Great  Northern  R.  Co.  v.  Eastern 

Counties  R.  Co.       214,  260,  383 
r.  Manchester,  etc.  R.  Co.  369 

Great  Western   R.  Co.  v.  Bristol 

Port  R.  Co.  372 

V.  Metropolitan  R.  Co.  383 

Gregory  v.  Patchett  183,  430 

Green  r.  Coast  Line  R.  Co.  313 

Green  Bay,  etc.  R.  Co.  v.  Union 

Steamboat  Co.  369 

Green  County  r.  Conness     17, 103,  l(i4, 

108,  109 

Greene,  In  re     651,  556,  660,  562,  564, 

577,  683 

Greenville  Compress,  etc.  Co.  v. 

Planters,  etc.  Compress  Co.      22, 154 
Greenwood  v.  Freight  Co.  416 

Greer  v.  Payne  528,  529,  530 

r.  StoUer  570,  580,  587 

Grenell  v.  Detroit  Gas  Co.  195,  197 
Grice,  In  re  684,  609,  613,  615,  623 
Griffin  v.  Piper  513,  520 

Gross  17.  U.  S.  Mortgage  Co.  261 

Gubernator  v.   City  of  New  Or- 
leans 249 
Gue  V.  Tide  Water  Canal  Co.    200,  201 
Gulf,  etc.  II.  Co.  V.  Galveston,  etc. 

R.  Co.  373 

V.  Miami  Steamship  Co.    522,  523, 

575,  581 

V.  Morris       200,  213,  215,  219,  259 

V.  Newell  18,  24,  71,  135,  236 

V.  State  66,  60,  64,  (57 

Gunn  V.  Central  R.  etc.  Co.  445 

Gyger  v.  Philadelphia,  etc.  R.  Co.      63 


H. 


47,66 
332 
581 

72,  74 
331 
193 


Hafer  v.  Cincinnati,  etc.  R.  Co. 
Ilatr  V.  Minneapolis,  etc.  R.  Co 
Hagan  r.  Blindeil 
Hale  V.  Cheshire  R.  Co. 
Hall  V.  Brown 

V.  Herter 

V.  Sullivan  R.  Co.        207,  210,  261 

r.  Tanner,  etc.  Engine  Co.         170 

V.  White  531 

Hamilton  v.  Clarion,  etc.  R.  Co.     112, 

152 

V.   Savannah,  etc.  R.  Co.   60,  06, 
259,  381 

V.  Mut.  Ins.  Co.  V.  Hobart  72 

Hamlin  v.  Jerrard  136,  137 

Hammond  v.  Port  Royal,  etc.  R, 

Co. 
Hamp  V.  Mt.  Oliver  I.  R.  Co. 
Hancock  v.  Holbrook  176, 178,  184 

V.  Louisville,  etc.  R.  Co.       45,  417 
Hand  v.  Savannah,  etc.  R.  Co.         241 


244 

46 


Hanna  v.  Cincinnati,  etc.  R.  Co.     69, 
79,  114,  143 
V.  Railway  Co.  314,  317 

Hannibal,  etc.  R.  Co.  v.  Marion 

County  116 

Hanson  v.  Power  630 

Harbison  r.  Knoxville  Iron  Co.        611 

Harding  r.  American  Glucose  Co.    186, 

478,  480,  494.  502,  507,  613,  637,  638, 

539,  545,  622 

Hare  r.  London,  etc.  R.  Co.       51,361, 

438,  523,  524 

Harkness  v.  Manhattan  El.  R.  Co.    304 

Harmon  v.  Columbia,  etc.  R.  Co.   259, 

312,  314,  319 

Harrison  v.  Arkansas  Valley  R. 

Co.  128,  141 

Harshman  v.  Bates  County  116 

Hart  V.  Railroad  Co.  314 

Harter  v.  Kernochan  115,  116 

Hartford,    etc.    R.    Co.    v.    New 

York,  etc.  R.  Co.  621 

Hartford  Fire  Ins.  Co.  v.  Chicago, 

etc.  R.  Co.  254,  298 

V.  Raymond  621,  633 

Hartwell  v.  Buffalo,  etc.  R.  Co.  400 
Hastings    Malting     Co.    v.     Iron 

Range  Brewing  Co.        452,  466,  457 
Hatch  i\  American  Union  Tel.  Co.  191 
Hatcher    v.    Toledo,    etc.    R.    Co.    27, 
136,  261 
Havemeyer  v.  Superior  Court  542 

Hawes  r.  Oakland  179 

Hawkins  r.  Small  121 

Hawley  v.  Gray  Bros.  etc.  Co.  285 

Hayden  v.  Atlanta  Cotton  Factory    451 
V.  Official  Red  Book  and  Di- 
rectory Co.       173,  174,  176,  180 
Hayes  v.  Northern  Pacific  R.  Co.    307, 
309,311,315,  317 
V.  Ottawa,  etc.  R.  Co.         237,  356 
Hays  V.  lUinois,  etc.  Co.  213 

Hazard  v.   Vermont,  etc.  R.  Co.    257, 
271,  304 
Hazlehurst  v.  Savannah,  etc.  R. 

Co.  381,  385,  423 

Heath  v.  Missouri,  etc.  R.  Co.  236 

Heck  V.  Mci:ven  388 

Heims  Brewing  Co.  v.  Flannerv  349 
Hendee  v.  Pinkerton  202,  290 

Hendrie  v.  Grand  Trunk  R.  Co.  283 
Henry  i\  Pittsburgh,  etc.  R.  Co.  275 
Henrv  Countv  r.  Nicolay  115 

Heron  v.  St.  Paul,  etc.  R.  Co.  315,375 
Herriman  v.  Menzies  438,  470,  507, 

512,  545 
Ilervey  v.  Illinois  Midland  R.  Co.      46, 
233,  244 
Hess  Mfg.  Co.,  In  re  456 

Hibernia   Ins.   Co.  v.  St.    Louis, 
etc.  Transportation  Co.  194,  196 


XXXVl 


TABLE    OF    CASES. 


Higgins  V.  Downward 
Hill  r.  Beiicli 

V.  GrucU 

V.  Nisbet  155,  401, 

Hitchcock  r.  Barrett 

V.  Galveston 
Hoard  r.  Cliesapeake,  etc.  R.  Co. 
Hodder  v.  Kentucky,  etc.  R.  Co. 
Hodges   V.  New  England  Screw 

Co.  180,  187,  401,  402,  403, 

Hoffman  v.  Brooks  509,  510, 

Hollins  V.  Iron  Co. 

V.  St.  Paul,  etc.  R.  Co. 
Hohnan  c.  Johnson 
Holmes,  etc.  Mfg.  Co.  r.  Holmes, 

etc.  M.tal  Co.  171.  403,  408, 

Homo  Friend!}'  Soc.  r.  Tyler 
Hood  V.  New  York,  etc.  ll.  Co. 
Hoole  V.  Great  Western  R.  Co. 
Hoojier  r.  California  560, 

Hopkins  r.  St.  I'aul,  etc.  R.  Co. 

r.  United  Slates         5tjO,  5(31, 

of)'.). 

Home  )'.  Boston,  etc.  R.  Co.    15'.', 

162, 

V.  Railroad  Co. 
Horner  r.  Graves 
Houck  ('.  Anlieuser  Busch  Brew- 
ing Aas'n 

V.  Wriiiht 
Houston,   etc.   R.   Co.  v.   Shirlev 
ly,  i:i5, 
Howard  v.   Chesapeake,  etc.   R- 

Co.  312, 

Howe  V.  Boston  Carpet  Co.    403, 

Hubbard  v.  Chappell 

V.  Miller 
Huck  ('.  Chicago,  etc.  R.  Co. 
Huggins  v.  Milwaukee  Brewing 

Co. 
Hukill  V.  Maysville,  etc.  R.  Co. 

Humphreys  v.  Mooney 
L\  McKissock 
V.  Pegues 
V.  St.  Louis,  etc.  R.  Co.     282, 

Hunt  V.  American  Grocery  Co. 

Hunter  v.  Columbia,  etc.  R.  Co. 
Hutchins  v.  Hutcliins 
V.  Weldon 


I. 


Illinois  Cent.  R.  Co.  v.  Canouse  329 

Illinois,  etc.  R.  Co.  v.  Cook  70 
Imperial  Mercantile  Credit  Ass'n, 

In  re  189 


Page 
■ZM 
415 
l!t7 
406 
358 
354 
135 
284 

408 
514 
l'.i2 
182 
347 

423 
22 
400 
181 
610 
l:-!5 
563. 
571 
160. 
166 
162 
476 

613 
625 
18, 
140 

362 
404, 
40H 
14(5 
475 
3-3 

102 
312 
317 
414 
282 
242 
285. 
346 
176, 
178 
30tS 
461 
530 


Page 
Independent   Refiners'  Ass'n    r. 
Western   New    York,    etc.    R. 
Co.  525 

India   Bagging   Ass  n    v.    Koch     477, 
613,  520,  528 
Indianapolis,  etc.  R.  Co.  r.  .Jones 

129,  135,  140,  140 

V.  Solomon  375 

V.  State  200 

Indianola  R.  Co.  r.  Fryer    09,  140,  144 

Ingersoll  v.  Stockbridge,  etc.  R. 

Co.  308 

Inhabitants  of  Waldoborough   v. 

Kno.x,  t  ic.  R.  Co.  173,  270 

International,     etc.    li.     Co.     v. 

Hremond  76,  78,  81 

v.  Kckford  311 

V.  Moody  259 

V.  Thornton  320 

Interstate     Commerce    Com.     v. 

Te-xas,  etc.  R  Co.  157 

Irrigation  Co.,  /u  re  1^9 

Irvin  r.  New  Orleans,  etc.  R.  Co.      323 
Island    City    Savings     Bank    v. 

Schattchen  192 

Ives  ('.  Smith  625 


J. 


613, 


•Jackson  ?;.  Brick  Ass'n 

V.  Ludeling 
.lacksonville,      etc.     R.     Co.     r. 
Hooper  248,284,285, 

r.  Louisville,  etc.  li.  C(j. 
.Jeffersonville,  etc.  U.  Co.  i'.  Hen- 
dricks 
•Jemison  /•.  City  Savings  Bank 
Jersey  City  Gas  Co.  v.  Dwight 
Jersey    City    Gas    Light    (io.    v. 

United  Gas  Imp.  Co.  255, 

•Jessup  V.  Illinois  Cent.  R.  Co.     19, 
358.  426,  427, 
John   D.    Park    &   Sons  ("o     >: 
Nat.       Wholesale      Druggists 
Ass'n 
.John    Hancock,  etc.   Ins.    Co.   v. 

Worcester,  etc.  H.  Co.  108, 

Johnson  v.  Shrewsbury,  etc.   R. 
Co. 
V.  State  121, 

Johnston  r.  Markle  Paper  Co. 
Joint     Stock     Discount    Co.    v. 

Brown  382, 

Jones    V.   Arkansas    Mechanical 

and  Agricultural  Co. 
Jones  V.  Brim 

V.  Concord  R.  Co.  271, 

V.  Georgia  Southern  R.  Co. 


517 
430 

298 
2'JO 

1.35 
346 
208 

294 
184. 
429 


477 

132 

.368 
20'J 
452 

386 

195 
610 
458 
275 
318 


TABLE  OF  CASES. 


XXXVU 


P.ige 

Jones  V.  Guaranty,  etc.  Co. 

170 

V.  Lees 

475 

I'.  Whitcomb 

456 

Jordan  v.  Collins 

171 

Joy  V.  City  of  St.  Louis 

374 

Joy  V.  Jackson,  etc.  Plank  Road 

Co. 

170 

Judd  V.  Harrington    505,  508,  513 

520, 

528 

K. 

Kadish  v.  Garden  City,  etc.  Ass'n 
Kansas,  etc.  R.  Co.  v.  Smith 
Kavanaugli  v.  Omaha  Life  Ass'n 

48, 
Kean  v.  Johnson  71,  174, 

Kearney   v.   New  Jersey  Central 

R.  Co.  310, 

Kellogg  V.  Larkin  481,  509, 

Kelly  V.  Fletcher 
Kenebec,  etc.  R.  Co.  v.  Portland, 

etc.  R.  Co. 
Kennedy   v.    California    Savings 

Bank 
Kenosha,  etc.  R.  Co.  v.  Marsh      73, 
Kent  V.  Quicksilver  Mining  Co. 

Kent  Coast,  etc.  R.  Co.  v.  London, 

etc.  R.  Co. 
Kentucky,    etc.    Bridge    Co.    v. 

Louisville,  etc.  R.  Co. 
Keokuk,  etc.  R.  Co   v.  Missouri 
12,  97,99,  10.3,  108,  109,118, 
V.  Scotland  County  117, 

Kersey  Oil  Co.  v.  Oil  Creek,  etc. 

R.  Co.  275, 

Ketcham  v.  IMadison,  etc.  R.  Co. 
Key  City,  The 

Kidd  V.  Pearson  5G4, 

Killian  v.  Augusta,  etc.  R.  Co. 
Kimball  v.  Atchison,  etc.  R.  Co. 
62,  63,  66, 
?'.  Harman 
Kinion    v.   Kansas  Citv,  etc.  R. 

Co.  99,  143.  144, 

Kinney  v.  North  Carolina  R.  Co. 
Kip  V.  New  York,  etc.  R.  Co. 
Koehler  v.  Feurbach 
Kolil  V.  Lilienthal  171, 

Knoxville   v.   Knoxville,   etc.  R. 

Co.  42,  70,  74,  108, 

Knoxville   Iron  Co.  r.   Harbison 

610, 
Knonp  V.  Piqua  Branch  of  State 

Bank 
Knowles  v.  Sandercock     381,  383, 


Kroenert  v.  Johnson 


452, 


409 
144 
22, 
149 
175 

332 
520 
456 

261 

404 
112 

178, 
182 

283 

522 

242 
118 

279 
149 
136 

565 


398 
461 

145 

314 
300 
480 
190 

231 

611 

205 
386. 
400 
456 


Page 
3S3 
181 


Lagrone  v.  Zimmerman 
Lafayette  Co.  v.  Neeley 
Lafayette  Bridge  Co.  v.  City  of 
Streator  533 

Lake  Shore,  etc.  R.  Co.  v.  Ohio 
605; 
V.  People 
Lake    Superior,   etc.    R.    Co.   v. 

United  States 
Lancashire,  etc.  R.   Co.  v. 

Lancashire,  etc.  R.  Co. 
Langan  v.  Fraiiklj-n 
Langdon  v.  Branch 

V.  Vermont,  etc.  R.  Co. 
Lange  i\  Werk 
Langhorne  v.  Richmond,  etc.  R. 

Co.  128,  135,  139,  140,  146 

Langley  v.  Boston,  etc.  R.  Co.  321 

Lanier  Lumber  Co.  v.  Rees      383,  384, 

419 
Larocque  ;■.  Beauchemin 
Latham  v.  Boston,  etc.  R.  Co. 
Lathrop  v.  Commercial  Bank 

V.  Middleton 
Latimer  v.  Citizens  State  Bank 
V 
Lauman  v.  Lebanon  Valley  R.  Co. 

24.  71,81,99,174,179,  189 
Lawrence  v.  Kidder  475 

V.  Morgan's   Steamship  Co. 

208,  240 
V.  Saratoga  Lake  R.  Co. 
Lawry  v.  Williams 
Layng  v.  French  Spring  Co. 
Leathers  v.  Janney 
Leather  Cloth  Co.  v.  Lorsont 
Leavenworth  i\  Chicago,  etc.  1 

Co. 
Leavenworth  County  v.  Barnes 

V.  Chicago,  etc.  R.  Co. 
Lebeck  ik  Fort  Payne  Bank 
Lee  IK  Southern  Pacific  R.  Co. 
Leedam  v.  Plymouth  R.  Co.      200,  201 
Leep  V.  St.  Louis,  etc.  R.  Co.    608,  609, 

610 
Lehigh,  etc.  Mining  Co.  v.  Kelly  192 
Leonard  v.  New  York  Central,  etc. 

R.  Co.  377 

V.  Poole  528,  529 

Leslie  v.  Lorillard  475.  537,  545 

Levin  v.  Chicago  Gas  Light  Co.  537 
Levins  v.  People's  Grocery  Co.  195 
Lewis  r.  Clarendon  108,  116,  153 


627 

611 
165 


East 

373 
90,  95 

60,  66,  399 
304 
475 


452 
149 
170 
201 
398, 
405 


374 

285 
398 
171 
476 

03 

153 
1.50 
199 
309 


Liebke  r.  Knapp 

Liglitner  v.  Boston,  etc.  R.  Co. 

Linfiold  V.  Old  Colony  R.  Corp. 
Lipfield  r.  Charlotte,  etc.  R.  Co. 
Little  Rock,  etc.  R.  Co.  v.  Daniels 


452 
101. 
110 
331 
308 
309. 
315 


XXXVIU 


TABLE    OF    CASES. 


Little  Rock,  etc.  R.  Co.  v.  McGehee 
f.  St.  Louis,  etc.  R.  Co.     521, 

Liverpool,  etc.  Ins.  Co.  v.  Clunie 
Live  Stock  A.ss'n  »•.  Levy 
Livingston  County  r.  rortsmoutli 

First  Nat.  IJank  48, 

Llanelly,  etc.  R.  Co.  v.  London, 

etc.  R.  Co. 
Lloyd  V.  Preston 
Logan  V.  Courtown 

V.  North  Carolina  R.  Co.    314 
318. 
Logan  County  Bank  v.  Townsend 
Lonilon,  etc.  Bread  Co.,  In  re 
London,  etc.  R.  Co.  v.  Goodwin 
r.  London,  etc.  li.  Co. 
I'.  Southeastern  R.  Co. 
Lord  V.  Copi)er  Mines  Co. 
Loud  '•.  Pomona,  etc.  Co. 
Louisiana  v.  Wood  352,  353, 

Louisville,  etc.  R.  Co.  v.  Boney 

129,  140,  200, 
V.  Carson 

V.  Chesapeake,  etc.  R.  Co. 
V.  Coninionweaith 
V.  Cumberland,  etc.  R.  Co. 
V.  Gaines 
V.  Howard 

V.  Illinois,  etc.  R.  Co. 
V.  Kentucky     24,  20,  30,  40,  42 
51,  56,  01,  03,  65,  07,  215. 
361,  381,423, 
Louisville,  etc  R.  Co.  v.  Kentucky 
etc.  R.  Co. 
V.    Literary    Society  of   St. 

Rose 
V.  Louisville  S.  R.  Co. 
V.  Louisville  Trust  Co. 
V.  Mississippi,  etc.  R.  Co. 
V.  Palmes  241, 

r.  Summers  135, 

Louisville  Trust  Co.  v.  Louisville, 

etc.  R.  Co.  27,  152,  153, 

Louisville  Water  Co.  v.  Hamilton 

200, 
Lowenstein  v.  Evans 
Lowry  i\  Tile,  etc.  Ass'n    563,  572, 
Lufkin  Rule  Co.  i'.  Fringeli 


Page 
240 

622, 
523 
6.33 
438 

116 

371 
457 
385 
317, 
3.« 
405 
180 
110 
3ti'.> 
324 
100 
451 
35i 
108, 
201 
251 
373 
301 
280 
242 
71 
257 
.  43, 
261, 
428 

370 

400 
372 
262 
373 
242 
145 

406 

201 
571 
584, 
618 


M. 

Mack  y.  De  Rardeleben,  etc.  Co.  432 

Mackintosh  ;'.  Flint,  etc.  R.  Co.  18, 

170.  212,  219,  229,  381,  408 

Mncon,  etc.  R.  Co.  r.  Mayes  317 

Madison,  etc.  Plank  Road  Co.  v. 

Watertown,   etc.   Plank   Road 

Co.  357 


Page 
Mahaska  County  R.   Co.  v.  Des 

Moines  N'alley  R.  Co.  170,  228 

Mahoney  v.  Atlantic,  etc.  R.  Co. 

316,  332 

V.  Spring  Valley  Water  Co.       240 

Mallett  r.  Simpson  170 

Mallory  v.  Hanaur  Oil  Works  3-19, 

444.  445,  632 

Manchester,  etc.  R.  Co.  r.  Concord 

U.  Co.  55,  60,  351,  353,  607,  523 

Mansfield,  etc.   R.    Co.  v.  Brown       60, 

71,  90,  91,  112,  113,  151 

V.  Drinker  91,  92,  113,  151 

V.  IVtiis  114 

I'.  Stout  114,  151 

Marble  Co.  v    Harvey        381,  3h.5,  3h6, 

416.  421,  422,  4:^4 

Marhurv     ».     Kentucky      In  ion 

Land' Co.  20,  4(.0.  4f'6 

March  v.  Eastern  R.  Co.  Ibl,  271 

Marine  liank  v.  Ogden  445 

Market  St.  R.  Co.  v.   Hellman      26.  72, 
74.  <M),  04,  103,  104,   388.  807,  417.429 
Manjuelte,  etc.  U.  Co.  v.  Langton     146 
Marshall  r.  Western    Korth  Caro- 
lina R.  Co.  106 
Martin  r.  Continental   Passenger 
R.  Co.                                        232,  275 
V.  Ohio  Stove  Co.         381,  384,  428 
V.  Zelierbacli  100 
Mason  v.  Finch  75 
V.  Pewabic  Mining  Co.       179,   188, 

l!-9 
Matthews  v.  Mnrchison  417,  429 

Maunsell  v.  Midland  Great  West- 
ern R.  Co.  383 
Maybury  v.  Mut.  Gas  Light  Co.        208 
Mavor,  etc.  of  Colchester  v.  Law- 
ton  171 
Mayor,  etc.  of  New  York  v.  Miln     611 
Mayor,  etc.  of  Worcester  i-.  Nor- 
wich, etc.  R.  Co.              240.  300,  306 
Mayor,  etc.  v.  Twenty-Third  St. 

R.  Co.  327,  328 

McAlpine  i-.  Union  Pac.  R.  Co.  108 
McBlair  v.  Gibbes  634 

McCandless  v.  Richmond,  etc.  R. 

Co.  325,  365 

McCauley  r.  Columbus,  etc.  R.  Co.  27 
McCluer  v.  Manchester,   etc.  R. 

Co.  331 

McClure  v.  People's  Freight  R.  Co.  00 
McCoy  V.  Kansas  City,  etc.  R.  Co.  308 
McCray  c.  Junction  R.  Co.  71,  78 

McCurdy  v.  Meyers  174 

McCutcheon  v.  Merz  Capsule  Co.     186, 
381,  386,  402,  408,  423 
McGeorge  v.  Big  Stone  Gap  Imp't. 

Co.  183 

McGrath  v.  New  York  Central,  etc. 
R.  Co.  377,  378 


TABLE   OF   CASES. 


XXXIX 


McGregor  v.  Dover,  etc.  R.  Co. 

V.  Erie  R.  Co. 
McKusick  V.  Seymour,  Saben  & 

Co. 
McMahon  v.  Morrison      13,  98,  99, 
McMillan  v.  Carson  Hill  Union 
Min.  Co.  384, 

V.  Michigan,  etc.  R.  Co.    324, 

McMinnville,  etc.  R.  Co.  v.  Hug- 
gins 
McVioker  v.  American  Opera  Co. 

V.  Ross  81, 

Mead  v.  New  York,  etc.  R.  Co. 

122,  1(54, 
Mechanics  Sav.  Bank  v.  Meriden 

Agency  Co.  383, 

Medical  College  Case 
Meeker  v.  Winthrop  Iron  Co. 

258,  358,  359, 
Mellen  v.  Moline  Iron  Works 
Memphis,  etc.  R.  Co.  v.  Commis- 
sioners 206,  207, 
V.  Grayson  259, 
V.  Wood                                 424, 
Menasha  v.  Hazard 

V.  ^Milwaukee,  etc.  R.  Co. 
Menier    v.    Hooper's    Telegraph 

Works  180, 

Mercantile  Trust  Co.  i'.  Atlantic, 
etc.  R.  Co. 
V.  Baltimore,  etc.  R.  Co. 
V.  Farmers  Loan,  etc.  Co. 

339, 
V.  Missouri,  etc.  R.  Co. 
Mercantile,  etc.  Co.  v.  Southern, 

etc.  R.  Co.  341, 

Merchants,  etc.  Line  r.  Waganer 
Meredith  v.  Zinc  and  Iron  Co. 

514, 
Merrill  v.  Railroad  Co. 
Merz  Capsule  Co.  v.  U.  S.  Cap- 
sule Co.  396,  414,  531, 
Metcalf     V.     American     School 

Furniture  Co. 
Methodist,  etc.  Church  v.  Pickett 
Metropolitan  Concert  Co.  v.  Ab- 
bey 
Metropolitan  El.  R.  Co.  v.  Man- 
hattan R.  Co.  177,  275, 
Metropolitan  Trust  Co.  v.  Colum- 
bia, etc.  R.  Co.  291, 
Meyer  r.  Johnson    11,  14,  17,  100, 
206, 
V.  Staten  Island  R.  Co. 
Meyers  v.  Merillinn 
Middlesex  R.  Co.  r.  Boston,  etc. 

R.  Co.  259, 

Midland  R.  Co.  v.  Great  Western 
R.  Co. 
i;.  Manchester,  etc.  R.  Co. 


Page 
347 
236 

197 
142 

,386 
328, 
331 

343 

197 
189 
27, 
167 

409 
388 
252, 
430 
334 

241 
279 
431 
115 
135 

430 

342 
342 

338, 
340 
344 

342 

174 
507, 
517 
378 

615 

581 
148 

247 

283 

209 
104, 
239 
430 
529 

355 

369 
367 


Page 
Midland  R.  Co.  v.  Neath,  etc.  R. 

Co.  367 

Midland  Great  Western  R.  Co.  v. 

Leech  21,  113 

Milbank  v.  New  York,  etc.  R.  Co.    381, 
385,  405,  418,  419,  432 
Milhau  V.  Sharp  209 

Military  Interstate   Ass'n  v.  Sa- 
vannah, etc.  R.  Co.  384,  410 
Miller  v.  Green  Bay,  etc.  R.  Co.       376 
V.Lancaster                   99,108,111 
V.  New  York,  etc.  R.  Co.     311,  315 
V.  Rutland,  etc.  R.  Co.  206 
V.  Wheeler,  etc.  Co.  157 
Mills  V.  Central  R.  Co.       19,  24,  71,  81, 
82,  83,  259,  267,  276,  278,  279 
Miltenberger  v.  Logansport  R.  Co.     343 
Milwaukee,  etc.  R.  Co.  v.  Brooks, 

etc.  Works  340,  341 

Miner  v.  Belle  Isle  Ice  Co.  3-^9 

Miners  Ditch  Co.  v.  Zellerbach        170, 
210,  345,  409 
Minneapolis,  etc.  R.  Co.  t;.  Gard- 
ner 99,  107,  117 
Minnesota  v.  Northern  Securities 

Co.  61 

Mississippi,  etc.  R.  Co.  v.  Southern 

R.  Ass'n  335 

Mississippi  Valley  R.  Co.  v.  Chi- 
cago, etc.  R.  Co.  137 
Missouri  Pac.  R.  Co.  i'.  Humes        604 
V.  Meeh  158 
V.  Morrow  329 
V.  Owens           24,  57,  140,  200,  239 
V.  Texas,  etc.  R.  Co.                    525 
Mitchell  V.  Deeds                 27,  150,  261 
I'.  Reynolds                                   476 
Mobile,  etc.  R.  Co.  v.  Boring    108,  129 
V.  Gilmer                                      133 
Mogul  Steamship  Co.  v.  McGregor 

439,  462,  463,  466,  509 

Monroe  v.  Fort  Payne,  etc.  R.  Co.      93 

Montgomery,  etc.  R.  Co.  v.  Branch  141, 

142,  192,  196,  245 

Montgomery  Web  Co.  v.  Dienelt    195, 


198 
345 
182 
326 


Monument  Bank  v.  Globe  Works 
iMoore  v.  Mining  Co. 
Moran  v.  Pittsburg,  etc.  R.  Co. 
Morgan  v.  Louisiana  208,  211,  242 

IMorrill  v.  Railroad  Co.  56,  60 

V.  Smith  County     42, 116,  125,  154 
Morris  Run  Coal  Co.  v.  Barclay 

Coal  Co.  438,  464,  499,  508,  513, 

517,  528,  5.30 
Morville  v.  American  Tract  Soc.  351 
Moss  V.  Averell  1  '0 

Mowry  v.  Indianapolis,  etc.  R.  Co.     70, 
73,  75,  77,  82 
Moxie  Nerve  Food  Co.  v.  Baum- 

bach  414 


xl 


TABLE   OF   CASES. 


Page 
Mozley  v.  Alston  80,  181 

Mu'cTler  v.  K.ihshs  010 

Mullen  V.  Pliiladelpliia  Traction 

Co.  327 

Muller  V.  Dows  158,  106,  107 

Munn  V.  Illinois  000 

Mtinson  i;.  Syracuse,  etc.  R.  Co.  155 
Murch  ('.  Eastern  K.  Co.  325 

V.  Concord  R.  Co.  315.  310,  332 
Muscatine  Western  R.  Co.  v.  Hor- 

ton  230 

Myers  i;.  ]Murray,  etc.  Co.  157 


N. 

Naglee  v.  Alexamlria,  etc.  R.  Co. 

Nashua,  etc.  R.  Corp   v.  Boston, 
etc.  U.  Corp.  158,  101,  W\ 

428, 
Nashville,  etc.  R.  Co.  v.  Carroll 
Nassau  Bank  v.  Jones  340, 

385, 
Natlian  i'.  Tompkins  80, 

Natusch  r.  Irving 
National  Hank  r.  Case  405, 

National   Distilling  Co.  v.  Cream 

City  Importing  Co.         534,  535, 
National  Folding  Box,  etc.  Co.  v. 

Robv^rtson 
National  Foundry,  etc.  Works  v. 

Oconto  Water  Co. 
National  Harrow  Co.  c.  Bcment 

513,517,519,024, 

V.  Ilench  407,  510, 

r.  Quick  407,  519, 

National  Lead  Co.  i'.  Grote  Paint 

Store  Co.         4G1,  490,  503,  022, 

National  Tube  Works  >'.  Ballou 
Naiigatuck  R.  Co.  r.  Waterbury 

Button  Co. 
Navigation  Co.  v.  Winsor 
Neeley  v.  State 
Nol.son,  In  re 
Nelson  v.  Vermont,  etc.  R.  Co. 

312, 
Nester  v.  Continental  Brewing  Co. 

43d,  471,  470,  505,  513,  515,  517, 
529, 
New    Bedford    R.    Co.    v.     Old 

(Colony  R.  Co. 
New  Buffalo  v.  Iron  Co. 
Newcastle    Nortiiern    R.    Co.   v. 

Simpson 
New   Haven,  etc.  Co.  v.  Linden 

Spring  Co. 
New   Jersey  Midland   R.  Co.  v. 

Strait 


213, 
237 

.300, 
525 
333 

381, 
880 
182 
82 
418 

5G1 


418 
497, 

025 
,528 

535 

627, 
628 
196 

360 
475 
209 
562 
200, 
320 

.528, 
532 

140 
115 

353 

451 

111 


Page 
New  Jersey  Soutliern  R.  Co.  v. 

Long  IJrancti  Commrs.  209 

Newiand  Hotel  Co.  v.  Lowe  Furni- 
ture Co.  384,  3S6 
New  Orleans,  etc  R.  Co.  v.  Dela- 

more  200,  230,  240 

V.  Harris  71,  78 

New  Orleans  Gas  Light  Co.  v.  Hart  01 1 

V.  Louisiana  Light,  etc.  Co.        48, 

49.  102,  121 

New  Orleans,  etc.  Steamship  Co. 

V.  Owan  Dry  Dock  Co.       384,  386 
New  Vork  Central,  etc.  R.  Co.  v. 

Saratoga,  etc.  R.  Co.  100 

New  Y'ork,  etc.  Canal  Co.  v.  Ful- 
ton Bank  22,  445 
New  York,  etc.  R.  Co.,  In  re     300,  325 
I'.  New  York.  etc.  R.  Co.     42,  21.5. 
220,  228,  301,  336,  337,  338,  .340, 
.343,  522 
Niagara  Fire  Ins.  Co.  v.  Cornell      614, 
015,018 
Niantic  Savings  Bank  '•.  Douglass     116 
Nibbs  V.  Ciiicago,  etc.  R.  Co.  324 
Nichols  V.  Boston,  etc.  R.  Co.  331 
V.  New  Haven,  etc.  R.  Co.        242 
Nicoll  V.  New  York,  etc.  R.  Co.         170 
Nordenfelt  v.   Maxim-Nordenfelt 

Co.  474,  476 

Norfolk,  etc.  R.  Co.  v.  Pendleton     117, 

119,243 


North  Carolina  R.  Co.  r.  Drew 
Nortli     Carolina,    etc.    R.    Co.    v. 

Carolina  Central  R.  Co. 
Northern    Transportation   Co.  v. 

Chicago 
Northwestern   Mutual    Life   Ins. 

Co.  V.  Exchange  Real  Est.  Co. 


137 

210 

243 

451, 
456 


Norwalk     Savings    Bank    Co.   r. 

Norwalk  Metal  Spinning  Co.        409 
Nugent  V.    Boston,   etc.   R.  Co.     310, 
315,  318 
68,  78,  112,  115 
248 


V.  Supervisors 
Nye  I'.  Storer 


o. 

Oakdale  Mfg.  Co.  v.  Garst        508,  517 
Oceum  Co.  v.  A.  &  W.  Sprague 

Mfg.  Co.  2 18 

Oelbermann  v.  New  York,  etc.  R. 

Co.  397,  417.  424,  4-32 

Ogdensburg,  etc.  R.  Co.  v.  Ver- 
mont, etc.  R.  Co.  346 
Ohio,  etc.  R.  Co.  v.  Indianapolis, 

etc.  R.  Co.  368,  309 

V.  People  99,  158,  101,  104 

V.  Weber  164,  165 

V.  Wheeler  158,  102 


TABLE  OF  CASES. 


xU 


Page 
Olcott  V.  International, etc.  Tl.  Co. 

360,  o52,  353 

V.  Tioga  R.  Co.  3(57 

Old  Colony  R.  Co.  v.  Evans  170 

Olmstead  v.  Distilling,  etc.  Co.         533 

Ontario    Salt   Co.    v.   Merchants 

Salt  Co.  509,517 

Oregon,  etc.  R.  Co.  v.  Oregonian  H. 
Co.     44,  215,  2.59,  261,  2(i2,  206,  270, 
271,  317,  34»,  353,  3G3,  388 
Oregon     Sliort    Line   R.    Co.  v. 

Northern  Pacific  R.  Co.  523 

Orient  Ins.  Co.  v.  Daggs  610 

Ottawa,  etc.  R.  Co.  v.  Black  356 


Pacific  Factor  Co.  v.  Adler       513,  520, 

530 
r.  Levy  438 

Pacific  K.  R.  Cases  110, 150 

Pacific  R.  Co.  (.'.  Atlantic,  etc.  R. 

Co.  303 

V.  Renshaw  112 

Page  V.  Heineberg  170 

Paine  v.  Lake  Erie,  etc.  R.  Co.  108,  125 
Palmer  v.  Utah,  etc.   K.  Co.  312 

Panhandle  Nat.  Bank  v  l^mery  197 
Park  V.  New  York,  etc.  R.  Co.  336, 
337,  338,  340 
Parkersburg  i>.  Brown  351,  352,  354 
Parkinson  i-.  West  End  St.  K'.  Co.  132 
Parr  v.  Spartansburgh,  etc.  R.  Co.  314 
Parsons  v.  Tacoma  Smelting,  etc. 

Co.  251,  258 

Pastuer  Vaccine  Co.  v.  Burkey        620 

Patterson '?\  Crabb  625 

V.  Wabash,  etc.  R.  Co.  378 

Paul  V.  Baltimore,  etc.  R.  Co.    161,  166 

V.  Virginia  204 

Pauly  V.  Coronado  Beach  Co.  383, 

387,  419 

V.  State  Loan,  etc.  Co.  418 

Peabody  v.  Flint  181,  184 

i\  Westerly  Water  Works         174 

Pearce  v.  Madison,  etc.  R.  Co.    22,  70, 

149,  357 
Pearsall  v.  Great  Northern  R.  Co. 

37,  38,  39,  50,  58,  02,  66,  70 
Pearson  v.  Concord  R.  Corp.     381,  385, 
401,  402,  424,  428,  430 
Peik  V.  Chicago,  etc.  R.  Co.      158,  165 
Pell's  Case  453 

Pender  v.  Lushington  180 

Peninsular  R.  Co.  v.  Tharp  91,  113 

Penley  v.  Railroad  Co.  135 

Pennison  j;.  Chicago,  etc.  R.  Co.      192 

237 

Pennsylvania  College  Cases        26,  70, 

73,  75,  114 


P.ige 
Pennsylvania  Co.  v.  Ellett        31-3,  332, 

375,  37(5 
V.  Erie,  etc.  R.  Co.  335 

Pennsylvania  R.  (Jo.  v.  Common- 
wealth      20,  60,  62,  64,  67,  399, 
424,  425,  427 
V.  Greso  375,  376,  378 

V.  Slv  325 

V.  St.  Louis,  etc.  R.  Co.       44,  158, 
106,  167,  215,  259,  201,  266,  209, 
270,  285,  347,  348,  349,  3-52,  353, 
357 
V.  Tharp  91,  113 

Pennsylvania,  etc.  R.  Co.  v.  Har- 

kins  110 

Pennsylvania      Transportation 

Co.'s  Appeal  135 

Pensacola   Tel.   Co.    v.   Western 

Union  Tel.  Co.  565 

Peshtiso   Co.    V.    Great  Western 

Tel.  Co.  384,  387,  419 

Peitibone  v.  United  States  458 

People  r.  Albany,  etc.  R.  Co.      268,  327 

V.  American  Sugar  Ref.  Co.     484, 

542 

V.  Ballard     173,  176,  177,  187,  360 

V.  Boston,  etc.  R.  Co.  67 

V.  Calitbrnia  College  170 

V.  Chicago  Gas  Trust  Co.  381, 

385,  3b8,  397,  400,  401,  402,  403, 

423,  425,  470,  472,  479,  490,  540, 

543,  545 

I'.  Chicago  Live  Stock  Exch.     540 

V.  Colorado,  etc.  R.  Co.  327 

V.  Erie  R.  Co.  339 

V.  Kerr  209 

V.  Louisville,  etc.  R.  Co.  135 

V.  Met.  Kl.  R.  Co.  283 

V.  Milk  Exchange  513,  520 

V.  New  York,  etc.  R.  Co.     97.  100, 

103,  158,  165 

V.  North  River  Sugar  Ref.  Co.     61, 

439,  442,  444,  445.  446,  447,  448, 

449,  457,  471,  483.  504,  506,  514, 

516,  526,  527,  540,  542,  545 

V.  O'Brien  60 

V.  Pullman  Car  Co.     381,  386,  409 

V.  Rice  43,  49 

V.  Sheldon     460,  465,  505,  513,  520 

V.  Stanford  2'J9 

V.  Sutter  St.  R.  Co.  209 

V.  Turnpike  Road  Co.  443 

t'.  Wemple  49 

Peoria,  etc.   R.  Co.   r.   Chicago, 

etc.  R.  Co.  342 

V.  Coal  Valley  Mining  Co.  23. 

131.  213 

V.  Lane  313,  375,  376 

Perin  v.  Megibben  234 

Peters  v.  Boston,  etc.  R.  Co.      257,  207 

V.  Lincoln,  etc.  R.  Co.  282 


xlii 


TABLE    OF    CASES. 


Peters  v.  Railroad  Co. 
Petersburgli  v.  Petersburgh,  etc. 

R.  Co. 
Phelan  v.  Flazanl 
Phoenix    Fire,   etc.    In3.    Co.    v. 

Tennessee  241, 

Philadelpliia   v.    Thirteenth   St., 
etc.  Co. 

V.  Western  Union  Tel.  Co. 
Philaclcli)hia,  etc.  li. Co.  v.  Ander- 
son 331, 

V.  Appeal  Tax  Court 

V.  Catawissa  R.  Co.       78,  105, 

V.  Howard  100, 

V.  Maryland  120, 

Phillips  V.  Aurora  Lodge 

V.  Nortlicrn  li.  Co. 
Piatt  V.  Oliver 
Picard  v.  East  Tennessee,  etc.  R. 

Co.  241, 

Pick  r.  Northwestern  R.  Co. 
Pidcock  V.  Harrington 
Pierce  v.  Commonwealth 

V.  Concord  K.  Corp.  329. 

V.  Emery  170,  205, 

V.  Fuller 

V.  Milwaukee,  etc.  R.  Co 

r.  North  Carolina  R.  Co. 
Pierson  v.  xMcCunly 
Pinkerton  f.  Philadelphia   Trac- 
tion Co. 
Pinkncy,  In  re 
Pinkus     V.     Minneapolis    Linen 

Mills 
Pingree  v.  Michigan  Central  R.  Co. 
Pinto  Silver  Min.  Co.,  I\e 
Pittsburg  Carbon  Co.  v.  McMillan 

528,  532, 
Pittsburg,  etc.  R.  Co.,  Appeal  of 

V.   Bedford  R.  Co.    212,  213, 

V.  Bolner  307, 

V.  Campbell 

V.  Columbus,  etc.  R.  Co.     259, 
Pittsburg,  etc.  R.  Co.  v.  Garrett 
V.  Hanon  307, 

V.  Harbaugh 
V.  Kain 

'u.  Keokuk,  etc.  Bridge    Co. 
157,  215,  258,  261,  292,  352, 

Pittsburg,  etc.  R.  Co.   v.  Reich 

V.  Rothschild 

V.  Thomjison 
Plainview  v.  Winona,  etc.  R.  Co. 
Planters  Ins.  Co.  v.  Wickes 
Piatt  V.  New  York,  etc.  R.  Co. 

V.  Union  Pacific  R.  Co.     • 
Plymouth,  etc.  R.  Co.  v.  Colwell 

V.  Great  Western  R.  Co. 


Pape 
242 

119 
450 

.242 

43 

250 

,  332 
323 
324 
,  141 
,  lt;4 
248 
315 
530 

242 
127 
681 
23 
330 
,213 
475 
239 
314 
380 

315 

620 

184 

21 

184 

536 
158 

219, 
228 
328 
375 
283 
95 

,328 
320 
331 
43, 

354, 
422 

110. 
165 
107 
377 
193 
193 
143 
202 
200 
367 


Polhemus  v.  Fitchburg  R.  Co. 
Pond  V.  Vermont  Valley  R.  Co. 

278, 
Pondir  v.  New  York,  etc.  R.  Co. 

359, 
Port  Clinton  R.  Co.  v.  Cleveland, 

etc.  R.  Co. 
Port  Jervis,  etc.  R.  Co.  v.  New 

York,  etc.  R.  Co.  300,  307, 

Post  V.  Beacon  Vacuum  Pump, 

etc.  Co.  183,  186, 

Powell  V.  North  Missouri  li.  Co. 

Powers  V.  Kiiapp 

I'ratt  V.  Adams 

Prentice   v.    United   States,    etc. 
Steamsiiip  Co. 

Prescott,  etc.  R.  Co.  v.  Atchison, 
etc.  li.  Co.  521.  522. 

Price  V.  Holcnmb   172, 174, 175, 170 

I'riiigle  V.  Eltringham  Construc- 
tion Co.  173. 

Prospect  Park,  etc.  R.  Co.,  Matter 
of  41,  42, 

Prospect    Park,   etc.   R.    Co.   v. 
Coney  Island,  etc.  R.  Co. 

Providence   Coal   Co.    v.  Provi- 
dence, etc.  R.  Co.  100, 

Prouty  V.  Lake  Shore,  etc.  R.  Co. 
105,  133,  143, 

Pullan  V.  Cincinnati,  etc.  R.  Co. 

Pulhiian  V.  Upton 

Pullman     Car     Co.     v.     Central 
Transp.  Co.       347,  349,  350,  352. 

Pullman  Palace  Car  Co.  v.  Mis- 
souri Pac.  R.  Co.     20,  99,  102, 
133,  399,  420,  428, 


Q. 


Queens  Ins.  Co.  v.  Stiite    435,  512, 530, 
543,  559,  621 

Quested  v.  Newburyport,  etc.  R. 
Co.  308,  313 

Quincy,  etc.   R.   Co.   v.  Hum- 
phreys 335,  336,  337,  338,  340 

Quincy    Railroad  Bridge  Co.    v. 
Adams  County  158,  164 


R. 

Rabe  v.  Dunlap  SI 

Racine,   etc.   R.   Co.  v.   Farmer."* 
Loan,  etc.  Co.     27, 149, 152,  156,  158, 
161,  162,  164,  166,  261 
Rafferty  v.  Buffalo  City  Gas  Co. 

18,  508,  616,  526 


Pape 
133 

284 

,430 

10  J 

370 

188 
17. 
192 
456 
630 

198 

575 

,184 

174 

126 

373, 
374 

162 

145 
239 
418 

353 

129, 
429 


TABLE   OF    CASES. 


xliii 


Page 

Ragan  r.  Aiken  206 

Railroad  Co.  v.  Ailing  374 

V.  Brown  311,  319,  333 

V.  County  of  Otoe  115 

V.  Evans  143 

V.  Gaines  241,  242 

V.  Gebhard  362 

V.  Georgia    13,  14,  97,  09,  103, 1 10, 

117,  119 

f.  Hambleton  311,333 

r.  Harris  157,  158,  166 

r.  Hinsdale  213,  219,  236 

V.  Johnson  351 

V.  Matliers  291 

r.  Maine     98,   99,  102,   109,    117, 

119, 121 

V.  Whitton  158,  166 

Railroad  Co.  v.  Wood  307,  310 

Railway  Co.  v.  Allerton  274,  415 

V.  Campbell  308 

V.  Dunbar  312 

V.  Neel  372 

Ramsey  v.  Gould  180 

Reichwald  v.  Commercial  Hotel 

Co.  236,  451 

Reiff  V.  Western  Union  Tel.  Co.       256 
Reynolds  v.  Cridge  236 

V.  Stark  County  Comm'rs  171 

Rice  V.  Rockefeller  449,  487 

Richards  i'.  Merrimack,  etc.    R. 

Co.  200,  262 

Richardson  v.  Buhl     470,  492,  506,  513, 

530 
V.  Mellish  479 

V.  Sibley  213,  219,  236 

Richelieu    Hotel    Co.    v.    Inter- 
national, etc.  Co.  410 
Richmond,  etc.  R.  Co.  v.  Durliam, 

etc.  R.  Co.  366 

Ricketts  v.  Chesapeake,  etc.   R. 

Co.  260,  311 

Biddick  v.  Governor  580 

Ridgway  Township  v.  Griswold         80, 
99,  105,  108,  112 
Riggs  V.  Pursell  296 

Ritchie  v.  People  609,  612 

Robbins  v.  Shelby  Taxing  Dis- 
trict 565 
Robertson  v.  Parks                              460 
r.  Rockford                            108,116 
Rochester,  etc.  R.  Co.,  Matter  of     410 
Rodgers  u.  Wells  113 
Rogers  v.  Nashville,  etc.  R.  Co.    215, 
261,  275,  414,  415,  417,  430 
Rogersville,  etc.  R.  Co.  v.  Kyle        236 
Roman  v.  Dimtnick                             456 
Rome,  etc.  R.  Co.  v.  Chasteen          812 
Roper  V.  McWhorter                         260 
Rosenkrans  v.  Lafayette,  etc.  R. 

Co.  132 

Eousillon  V.  Rousillon  476 


Pace 
Royal  Bank  of  India's  Case     382,  405, 
417,  418 
Royal  British  Bank  v.  Turquand       345 
Runyan  v.  Coster's  Lessee  362 

Rutland  R.   Co.  v.   Central  Ver- 
mont R.  Co.  323 
Rutter  V.  Union  Pacific  R.  Co.  136 


Ryan  v.  Leavenworth 


406,  410 


Safety  Insulated  Wire,  etc.  Co.  v. 

Baltimore 
Sage  V.  Culver 

V.  Lake  Shore,  etc.  R.  Co. 

St.  Joseph,  etc.  R.  Co.  v.  Hum- 
phreys 338, 
V.  St.  Louis,  etc.  R.  Co. 
St.  Louis,   etc.   Drayage    Co.  v. 

Louisville,  etc.  R.  Co. 
St.  Louis,  etc.  R.  Co.  v.  Balsley 
V.  Berry  96,  102,  117, 

V.  Cleveland,  etc.  R.  Co. 
i;.  Curl  307,309,310,311, 

V.  Gill 

V.  Indianapolis,  etc.  R.  Co. 

V.  James 
V.  Marker 

V.  Miller  1.32, 

V.  Paul  608, 

V.  Ritz 

V.  Rowley  376, 

V.  Terre  Haute,  etc.  R.  Co. 
43,  44,   78.  215,  258,   261, 
269,  278,  279,  280,  347,  349, 
351,  352, 
St.  Paul,  etc.  R.  Co.,  In  re 
St.  Paul,  etc.  R.  Co.  v.  Parcher 
St.  Paul  Trust  Co.  v.  Wampach 

Mfg.  Co. 
Sala  V.  New  Orleans 
Salt  Lake  City  v.  Hollister        352, 
Salt  Lake  Hardware  Co.  v.  Tintic 

Mill  Co. 
San  Antonio  Gas  Co.  v.  State 

542, 
San  Francisco  v.  Spring  Valley 

Water  Works 
San  Francisco,  etc.  R.  Co.  v.  Bell 
Santa  Clara  Valley  Mill,  etc.  Co. 
r.  Hayes  438,507,511, 

Sappington  v.  Little  Rock,  etc.  R. 

Co.  133,  135,  192, 

Saugatuck  Bridge  Co.  v.  Town  of 

Westport 


346 
4o0 
158, 
164 

340 
296 

521 

203 
118 
343 
315, 
331 
243 
166, 
167 
157 
135 
140 
610 
320 
377 
42, 
267, 
350, 
3G4 
158 
241 

409 

38 

354 

456 

526, 
625 

134 
194 

51.3, 
517 

244 

236 


XilV 


TABLE   OF   CASES. 


Pape 
176,  178 
Jack- 


S;irgent  v.  Webster 

Savannah,    etc.    K.    Co. 
s'ltiville,  etc.  R.  Co. 

Sawyer  i'.  Dubuque  rrinting  Co. 

ScatttTgood  ('.  Kdpre 

Schemk  i\  Aixirewg 

SclnTinerliorn  r.  Vanderlioydcn 

Sclileider  v.  Dielman 

Scliniidt  r.  Louisville,  etc.  R.  Co. 

Scotlaml  County  v.  Thomas      115, 

Scott  r.  Ilanshear 
r.  Neeley 

Seariglit  v.  Payne 

Seaton  v.  Grant 

Seliars  r.  Ricliinonfl,  etc.  R.  Co. 

Sellers  i'.  LTnion  Lunihiring  Co. 

Seltna,  etc.  H.  Co.  r.  Harbin      lOa 

Seney  v.  Wabasli  Western  li.  Co. 

838,  340 

Sewell  V.  East  Cape  May  Beach 
Co.  176 

Seymour  v.  Spring  Forest  Ccm. 
As.s'n 

Shackleford  r.  Miss.  Cent.  R.  Co. 

Shaffer  c.  Union  .Minint;  Co. 

Sliamokin  Valley  R.  Co.  r.  Liver- 
more 

Shannon  r.  Stevenson 

Shapley  i'.  Atlantic,  etc.  R.  Co. 


341 

187 
272 
456 
303 
I'JG 
9G 
llfi 
116 
l!i6 
4. ',2 
182 
375 
208 
145 


236 

456 
143 

CU8 


202 
452 
206, 
262 

Shaw  V.  Norfolk  County  R.  Co.       123, 
136,  262 
V.  Quincy  Mininjj  Co.  157 

Sliellivville,  etc.  Turnpike  Co.  v. 

Barnes  24,  78 

SIkIiIoii,  etc.  Co.  v.  Eickemeyer, 

etc.  Co.  178,  183 

Shield  V.  Clifton  Hill  Land  Co.  452 

Shieldo  v.  Ohio  24,  25,  OS,  00,  100, 

102,  117,  122,  127,  416 

r.  State  O'J 

Shoemaker    v.    National     Mech. 

Bank  405 

Shrewj-bnrv,  etc.  R.  Co.  v.  Lon- 

don,"etc.  R.  Co.  524 

J-.  Stour  Valley  R.  Co.  20,  DO 

Simpson  V.  Denison  250,  270,  309 

V.  Westminster,     etc.    Hotel 

Co.  248 

Sinclair  v.  Missouri,  etc.  R.  Co.        375, 

377 
Singleton  i?.  Southwestern  R.  Co. 

200,  213.  219,  259,  313,  314,  319 
Sinking  Fund  Cases  416 

Skinner  v.  Smith  176,  250 

Skrainka  v.  Scharringliausen     438,517 
Slaugiiter  House  Cases  467,  468 

Slidciell  V.  Grandjean  266 

Slossen  v.  Burlington,  etc.  R.  Co.     330 
Small  V.  Minneapolis,  etc.  Co.  249, 

252,  539 


Smith  r.  Berndt 

V.  Bromley 

V.  (^hesafieake,  etc.  Canal  Co. 

I'.  Clark  County 

V.  Hurd 

i;.  Lake  Shore,  etc.  R.  Co. 

V.  Newark,  etc.  R.  Co.        384, 
402, 

V.  New    York     Consolidated 
Stage  Co. 

r.  People 

V.  Reading  City  Pass.  R.  Co. 
Snell  V.  City  of  Chicago. 
Snow  I'.  Boston,  etc.  R.  Co. 
Society  for  Savings  v.  Coite 
Solomons  r.  Laing 
Southall   V.   British   Mutual   Life 

Assur.  Soc. 
South  Carolina  R.  Co.  v.  Blake 
South   Carolina,    etc.    R.   Co.   v. 
Augusta,  etc.  R.  Co.      258, 

J-.  Carolina,  etc.  R.  Co.        257, 
South  Carolina  'ierniinal  Co.   r. 

South  Carolina,  etc.  R.  Co. 
South    Devon   R.  Co.  v.  Devon, 

etc.  R.  Co. 
South,  etc.   R.    Co.   v.   Highland, 

etc.  R.  Co. 
Southern    Indiana    Exp.    Co.    v. 

United  States  Kxp.  Co.     522.575 
Southern  R.  Co.  v.  North  Carolina 

R.  Co. 

r.  Franklin,  etc.  R.  Co.      289, 

Southern  Pacific  R.  Co.  v.  Equis- 

hel  227, 

Southgate  v.  Atlantic,  etc.  R.  Co. 
South  Side,  etc.  R.  Co.  i-.  Second 

Ave.  R.  Co. 
Southwestern      R.     etc.    Co.     »•. 

GeorL'ia  117, 

Sioux  City  Terminal  R.  etc.  Co. 

V.  Trust  Co.  of  North  Carolina 
Spangler  v.  Atchison,  etc.  R.  Co. 
S])argo's  Case 
Sparrow  v.  Evansville,  etc.  R.  Co. 

09, 
Spear  v.  Crawford 
Sl)encer   v.    World's    Columbian 

Exi)Osition 
Sprague  v.  Illinois  River  R.  Co. 

V.  National  Bank 
V.  Smith 
Springfield  Fire,  etc.  Ins.  Co.    v. 

Cannon 
Spring     Valley    Water    Co.     v. 

Schottler  208, 

Stafford  v.  TngersoU 
Staltz  V.  Baltimore,  etc.  R.  Co. 


P.ipe 
248 
347 
26 
110 
282 
160 
401, 
418 

177 
458 
46 
236 
184 
207 
42i 

18rt 
124 

288. 

289 

,298 

370 

367 

374 

581 

327 

297. 
305 

228 
145- 

370 

118 

239 
3:-!3 
452 

'^7, 
112 
170 

342 
70. 
112 
456 
331 

635 

416 
580 
332 


TxVBLE    OF   CASES. 


xiv 


Pa<»e 

Stanley  v.  Cleveland,  etc.  R.  Co.      o(37 

Stanton  v.  Allen  472,  506,  5o0 

State  V.  JEtnn.  Fire  Ins.  Co.  G25 

V.  American  Cotton  Oil  Trust    449, 

543 

V.  Associated  Press  619,  62o 

V.  Atchison,  etc.  II.  Co.     19,  4-5,  4(3, 

51,  55,  56,  57,  67,  259,  2b6,  267, 

359 
V.  Bailey  24,  78,  81,  99 

V.  Baltimore,  etc.  R  Co.     134,  140 
V.  Bank  of  ^Maryland  184 

V.  Bartlett  458 

V.  Beck  24 

V.  Buckeye  Pipe  Line  Co.  612 

V.  Butler  381,  386 

V.  Central  Iowa  R.  Co.  3i8 

V.  Central  R.  etc.  Co.  399 

V.  Chicago,  etc.  R.  Co.        92,  241, 

245 
V.  Cincinnati  Gas  Light  Co.  208 
V.  ConsoUdation  Coal  Co.  212,  219, 

228 
V.  Crawfordsville,  etc.  Turn- 
pike Co.  1.50 
V.  Dodge  361 
V.  Firemen's  Fund  Ins.  Co.  43-'), 
4G2,  612,  619,  620,  GUr,,  mi 
V.  Glidden  459 
V.  Greene  County  lit) 
V.  Ilousatonic  R.  Co.  257,  324 
V.  Keokuk,  etc.  R.  Co.  99,  103,  122 
V.  Lancashire  Fire  Ins.  Co.        619, 

623 

V.  Maine  Central  R.  Co.      99,  102, 

117,  118 

r.  Minnesota  Central  R.  Co.    288, 

359 
V.  Minnesota  Thresher  Mfg. 

Co.  210,  540 

V.  Montana  R.  Co.  58,  259 

V.  Morgan  240 

V.  McDaniel  419,  428 

V.  McMinnville,  etc.  R.  Co.      343, 

V.  Nashville,  etc.  R.  Co.  2-12 

V.  Nebraska     Distilling     Co.    477, 
487,  506,  513,  542,  545 
V.  Newman  417 

V.  Pawtuxet  Turnpike  Co.  238 

V.  Philadelphia,  etc.  R.  Co.        118, 

120 
r.  Phipps  622,  623 

V.  Portland  Natural  Gas,  etc. 

Co.  506,  507,  526,  542,  543 

V.  Richmond,  etc.  R.  Co.  268 

V.  Rives  200 

V.  Rohlffs  409,  417 

V.  St.  Paul,  etc.  R.  Co.  360 

!;.  Schlitz  Brewing  Co.       613,  615, 
622,  633 


Pape 
State  V.  Sherman  18,  99,  2U7 

V.  Shipi)ers  Compress  Co.  615 

V.  St.  Paul's  etc.  R.  Co.  360 

V.  Standard  Oil  Co.       62,  4-39,  44.3, 
444,  445,  446,  485,  513,  542,  543, 
545,  633 
V.  Vanderbilt        19,  45,  46,  47,  50, 
64,  67,  92,  151 
V.  Western  Irrigating  Canal 
Co.  171,  204,  206, 

208 
V.  Woodruff  120 

State  Treasurer  r.  Auditor  Gen- 
eral 24 
Stearns  v.   Atlantic,  etc.  R.   Co.     308 
V.  Morse                                         285 
Stephens    v.  Davenport,  etc.    R. 

Co.  328,  332 

r.  Southern  Pacific  Co.  2j8 

Sterling  Remedy  Co.  v.  Wyckoff    624 

Stevens  v.  Davison  275 

V.  Rowe  461 

V.  Rutland,  etc.  R.  Co.     71,  77,  82, 

180,  181 

Stewart's  Appeal  135,  220 

Stewart  c.  Chicago,  etc.  R.  Co.         328 

V.  Erie,   etc.    Transportation 

Co.  482,  521,  587, 

538 

V.  Lehigh  Valley  R.  Co.  364 

V.  Long  Island  R.  Co.  268 

Stickley  v.   Chesapeake,  etc.  R. 

Co.  311,333 

Stockton   V.   American    Tobacco 

Co.  510,  544 

V.  Central  R.  Co.        259,  361,  3(i4, 
543 
Stokes  V.  Detrick  179 

Stone  v.  Framingham  184 

Strait  V.  National  Harrow  Co.         497, 
519,  535 
Sturges  V.  Knapp  297 

Sumner  v.  Marcy  381,  886 

Sunflower  Oil  Co.  v.  Wilson  338 

Susquehanna  Bridge  Co.  v.  Gen- 
eral Ins.  Co.  284 
Susquehanna  Canal  Co.  r.  Bonham    201 
Sussex  R.  Co.  v.  Morris,  etc.  R. 

Co.  521 

Swan  V.  Scott  534 

Swan  Land  Co.  v.  Frank  196,  236 

Swansea,  etc.  R.  Co.  v.  Swansea, 

etc.  R.  Co.  367 

Swartwout  v.  Mich.  Air  Line  R. 

Co.  114,  143 

Sweeney  v.  Grape  Sugar  Refining 

Co.  195 

Swords  V.  Edgar  310 

Symnies  v.  Union  Trust  Co.     182,  183 
Syracuse,  etc.  R.  Co.,  Re  183 


xlvi 


TABLE    OF   CASES. 


Page 

Taff  Vale  R.  Co.  v.  Ryhmney  R. 

Co.  307 

Talmatie  v.  Tell  381,  401,  403,  4Uu 

Tagart  v.  Northern  Cent.  U.  Co.      l:J2, 

Ml 

Tarpey  v.  Deseret  Salt  Co.       lO'J,  160 

Tavior  V.  Blancliaril  475 

I'.  Howkcr  1U(3 

V.  Cliiccster,  etc.  R.  Co.  172 

V.  Earle  187,  408 

V.  North  Star  Gold  Mining  Co.  4(»8 

V.  Railroad  Co.  184,  279 

V.  Salmon  181 

Tecuniseli,  etc.  Bank  r.  Russell        385 

Tecuinseh  National  Hank  r.  IK-at     193 

Tennessee  I'.  Whitworih    108,117,118. 

242 

Terhune  v.  Midland  R.  Co.  165 

Terre,  Haute,  etc.  li.  Co.  v.  Cox      201, 

202,  302 

V.  Earp  112 

V.  l'cf)ria,  etc.  R.  Co.  370 

Terrill,  /„  re  566,  683 

Texas  Brewing  Co.  v.  Anderson       613 

?'.  Durratn  613 

Texas  Cent.  R.  Co.  v.  Lyons  244 

Texas,   etc.    R.  Co.  v.   Southern 

Pacific  Co.  (J.;,  (!4,  628 

Te.\as  Standard  Oil  Co.  r.  A  done    4-38, 
605,  506,  508,  610,  513,  617 
Thayer  v.  Flint,  etc.  R.  Co.  243 

Tlie  Elevator  Case  297,  .300 

Thomas  v.  Cincinnati,  etc.  R.  Co.    204, 

3.38 

V.  Citizens  R.  Co.  27'J 

V.  Railroad  Co.     23.  250,  2(50,  2til. 

202,  20'J,  270,  347,  349 

Thompson  v.  Abbott  108,  129 

V.  New  York,  etc.  R.  Co.  20'.) 

V.  Waters  170 

Threadgill  v.  Pumphrey  239 

Thome  v.  Lehigh  Valley  R.  Co.    308. 


329 

on 

421 
11. 


Thorpe  r.  Rutland,  etc.  R.  Co. 

Tilliughast  i\  Carr 

Tod  V.  Kentucky  Union  Land  Co 

19,  400,  400,  428 

Tode  V.  Gross  475 

Todhunter  r.  Des  Moines,  etc.  R. Co.  273 

Toledo,  etc.  U.  Co.  v.  Dunlap    124.  168 

V.  Kumbold  307,  308,  329,  331, 

375,  376,  .377 

Tomlinson  v.  Branch    66,  108, 109, 1 18, 

120,  130 

Tompkins  v.  Augusta  Southern 

R.  Co.  133,  135 

Town  of  Lakeview  v.  Rose  Hill 

Cemetery  Co.  611 

Town  of  Middletown  v.  Boston, 
etc.  R.  Co.  277 


Page 
Town    of    Westbrook'a    Appeal 

from  Conunissioners  257 

Townsend  i-.  St.  Louis,  etc.  Min- 
ing Co.  l'J8 
Tracey  v.  Talmadge                          .346 
r.  Troy.  etc.  U.  Co.                      329 
Trask  v.  .Maguiro                                 242 
V   Peekskill  Plow  U'orks  95 
Treadwell  v.  Sall.^l)u^v  Mfi;.  Co.    173, 
174,  l'70.  180,  ls7,  401 
Trenton  Pass.  R.  Co.  v.  Wilson         155 
Trenton  Potteries  Co  >'.  (  dvphant  475, 
502,  o<»8,  517,  518 
Trester  v.  Missouri,  etc.   R.  Co.    124, 

158,  103 
Trimm  v.  Marsh  296 

Tripp    V.  North     Western     Nat. 

Bank  178 

Trisconi  v.  Winship  174 

Troup  r.  Ilorbach  452,  456 

Troy  r.  Rutland  R.  Co.  214 

Troy,  etc    R.  Co.  i;.  Boston,  etc. 

n   Co.  212,  219,  208 

i:  Kerr  236,  259,  356 

Trust  Co.  V.  State  399,  643 

Trust   Co.  of  North  Carolina  v. 

Maidiattan  Trust  Co.  305 

Tuckahoe  Canal  Co.  r.  Tuckahoe, 

etc.  R.  Co.  210,218 

Tulare   Irr.  Dist.  v.  Kaweah  Ca- 
nal, etc.  R.  Co.  237 
Turner  v.  Slip  285 
Turnpike  Co.  r.  Illinois                      206 
Turnpike  Road  Co.  r.  Campbell       208 
Tuscaloosa  Ice  Mfg.  Co.  r.   Wil- 
liams                                                  617 
Tuttle  V.  Michigan  Air  Line  Co.      71, 
113,  151 
Tysen  r.  Wabash,  etc.  R.  Co.  138 


Underwood  r.  Barker  476 

Union  Bank  of  Chicago  v.  Kansas 

City  Bank  336 

Union  Bridge  Co.  i".  Troj',  etc.  R. 
^  Co.  284,  353 

L^nion,  etc.  Ass'n  v.  Masonic  Hall 

Ass'n  409 

Union  Pacific  R.  Co.  v.  Chicajjo,  etc. 

R.  Co.      254,  255.  284,  285,  286,  288, 

290,  346,  366,  368,  369,  371,  374 

V.  Gouchenour  111 

V.  Mc Alpine  137,  192 

Union  Sewer  Pipe  Co.  v.  Connolly    563, 

578 
Union  Trust  Co.  v.  Atchison,  etc. 
R.  Co.  527 

V.  illiuois  Mid.  R.  Co.  244 


TABLE  OF  CASES. 


xlvii 


Page 
United  Lines  Tel.  Co.  v.  Boston 

Safe  Deposit  Co.  414 

Unired  New  Jersey  R.  etc.  Co.  v. 

IJappook  142 

United  States  v.  Addyston  Pipe 

etc.  Co.  473,  475,  671,  682,  585 

V.  Cassidy  468,  459 

V.  Chesapeake,  etc.  Fuel  Co.     558, 

562,  508,  572 

V.  Coal  Dealers  Ass'n        549,  654, 

562,  603,  571,  5o2,  586 

V.  Debs  568 

V.  E.  C.  Knight  Co.     484,  612,  658, 

600,  661,  563,  564,  565,  568 

V.  Greenhut  556,  583 

V.  Hopkins  549,  686 

V.  Jellico  Mountain  Coal,  etc. 

Co.  553,  563,  571 

V.  Joint  Traffic  Ass'n         650,  552, 
553,  560,  562,  563,  572,  609,  614 
V.  Little  Miami,  etc.  R.  Co.        236 
V.  Nelson  583 

V.  Patterson  583 

V.  Southern  Pac.  Co.  27,  101 

V.  Trans-Missouri  Freight  Ass'n 
23,  480,  506,  515,  524,  549,  552, 
553,  564,  565,  561.  572,  673,  574, 
575,  576,  577,  581,  586,  687,  614, 
619 
V.  Union  Pacific  R.  Co.  527 

V.  Western  Union  Tel.  Co.         361 
V.  Workingnien's      Amalga- 
mated Council  586,  587 
United  States  Bank  v.  Dandridge    284 
United  States  Cliem.  Co.  v.  Provi- 
dent Chem.  Co.  518 
United   States   Mortgage  Co.  i'. 

Gross  261 

United  States  Trust  Co.  v.  Mercan- 
tile Trust  Co.  267,  295,  339 
V.  Wabash  Western  R.  Co.      336, 
338,  340 
University  of  Vermont  v.  Baxter    111 
Utica  National  Brewing  Co.,  In  re 

130,  142 


Valencia  County  v.  Atchison,  etc. 

R.  Co.  323 

Valley  R.  Co.  v.  Lake  Erie  Iron 

Co.  383,  384,  386,  387,  404 

Vance  v.  McNabb  Coal,  etc.  Co.      194, 

196 
Van  Cleve  v.  Berkey  456 

Van  Cott  V.  Van  Brunt  452 

Vanderpoel  v.  Gorman  177 

Van  Horn  v.  Van  Horn  460,  461 

Van  Steuben  v.  Central  R.  Co.  259 
Vaughn  v.  Comet,  etc.  Co.  198 


Page 
Venner  v.  Atchison,  etc.  R.  Co.         48, 

229,  425 
Vermont,  etc.  R.  Co.  v.  Vermont 

Central  R.  Co.  210,  267,  304 

Vilas  V.  Page  138 

Vinegar  Co.  v.  Foelirenbach  508 

Virginia,  etc.  R.  Co.  v.  Wai-liing- 

ton  316,  317,  318 

Visalia  Gas,  etc.  Co.  r.  Sims  255 

Vulcan   Powder  Co.  v.  Hercules 

Powder  Co.  617,  519,  528 


w. 


Wabash,  etc.  R.  Co.  v.  Ham      129,  138 
V.  I'eyton     259,  331,  332,  376,  377, 

378 

Wagner  v.  Marple  408 

V.  Meety  116 

Walburn  v.  Chevault  451 

Wall  V.  Chattanooga  Co.  193 

V.  London  Assets  Corp.  (No.  1) 

16,  406 
Wallace  v.  Long  Island  R.  Co.     45,  68, 

358 
Walsh  V.  Dwight  625 

Ward  V.  Byrne  476 

Warden  v.  Railroad  Co.  357 

Waref.  Grand  Junction  Water  Co.   180 
V.  Regent's  Canal  Co.  361 

Warficld  v.  Marshall  County  Can- 
ning Co.  192,  195 
Warren  v.  Mobile,  etc.  R.  Co.    129,  135, 

140 

Warrener  v.  Kankakee  County  42 

Washburn  v  Cass  County     48, 115,  150 

r.  Donnes  272 

V.  National  Wall  Paper  Co.       451, 

4-53,  464 

Washington  v.  Great  Northern  R. 

Co.  61,  68 

Washington  St.,  etc.  R.  Co.,  Mat- 
ter of  43 
Wasmer  v.  Delaware,  etc.  R.  Co.     332 
Waters-Pierce  Oil  Co.  v.  State          613, 
615,  620,  622,  633,  634 
V.  Texas                                        022 
Watson  V.  Harlem,  etc.  Nav.  Co.     434 
I'.  Richmond,  etc.  R.  Co.            332 
Watt's  Appeal                              183,  409 
Weatherby  v.  Baker                   452,  456 
Wehrhane  v.   Nashville,   etc.   R. 

Co.  407 

Welden  Nat.  Bank  v.  Smith     293,  302, 

303,  311,  342 

Wells  V.  Rodgers  94,  111 

Welsh  V.  Old  Dominion  Min.  & 

R.  Co.  206 

West  End,  etc.  R.  Co.  v.  Dam- 
eron  237 


xlviii 


TABLE   OF   CASES. 


West  River  Bridge  v.  Dix 
West  Virginia  Transportation  Co. 
V.    Ohio    River    Ripe    Line 
Co.  516, 

Western,  etc.  R.  Co.  v.  Cox 

V.  Smitii  129, 

Western  I'ennsvlvania  11.  Co  r. 

Jolinston         '  200, 

Western  Union  Tel.  Co.  v.  Ameri- 
can Union  Tel.  Co. 

V.  Burlington,  etc.  II.  Co. 
V.  Cliiciigo.  etc.  R.  Co. 
i\  LTiiinn  Pacific  R.  Co. 
Western    Woodenvvare  Ass'n    i'. 

Rtarkie 
Whipple  /'.  Union  Pacific  R.  Co. 

Wliite  ().  Albany  R.  Co. 

V.  Buss 

V.  Franklin  Bank 

V.  Marquardt 

V.  S_vracu.se,  etc.  R.  Co 
White  Mountains  R.  Co.  v.  White 

Mountains  R.  Co. 
Wliiie  Water,  etc.  Co.  v.  Valette 

AVhitman  i*.  Watkin 

Whitney  r.  Atlantic,  etc.  R.  Co. 

V.  Mayo 

V.  Slay  ton 
Wliitiaker  r.  Howe 
Whittendeii  Mills  v.  Upton 
Wiugiiis  Ferry  Co.  v.  Ohio,  etc. 

R.  Co. 
Wilbur  I'.  Trenton  Pass.  R.  Co. 
Williamson  v.  New  Jersey  South- 
ern R.  Co.  8y,  137, 
Wilmington,    etc.  R.  Co.  v.  Als- 

hrook 
Wilmington  R.  Co.  v.  Reid 
"Wilson's  Case 
Wilson  I'.  Central  Bridge  Co. 

V.  Gaines 

V.  Salamanca  69, 

Winch  V.  Birkenhead,  etc.  R.  Co. 

181,  214.  2G1, 
Winsor  v.  Bailey 
AVittenberg  c.  MoUyneaux 


Papie 
2U9 


627 

;«2 

132 

201 

527 
627 
527 
256 

517 
140, 
142 
207 
346 
3-^1 
404 
429 

236 
171, 
261 
397 
307 
181 
475 
476 
445 

267 

109 

152 

241 
70 

409 
174 
241 
116 
42, 
278 
182 
518 


Page 
Wolf  V.  Arniinus  Copper  Mine 

Co.  177 

Woolfolk  V.  January  452 

Wolverhampton,   etc.    R.  Co.    v. 

London,  etc.  R.  Co.  374 

Wood  V.  Bedford,  etc.  R.  Co.  227, 

228,  y71 

V.  Macon,  etc.  R.  Co.  219 

Woodcock  V.  First  National  Bank     422 

Woodruff  V.  Erie  R.  Co.       28,  51,  2(iH, 

339,  340,  347,  351 

Woods  V.  Lawrence  County  204 

Wragsi,  lie  452,  4-J() 

Wright  r.  Bundy  146,  2fc3 

r.  Kentucky,  etc.  R.  Co.  284 

r.  Milwaukee,  etc.  R.  Co.  20tJ 

V.  Orville  Mining  Co.  4:!0 

V.  Pipe  Line  Co.  422 

V.  Rider  474,  475 

Wyman  c.  American  Powder  Co.     451 

Wylie  V.  National  Wall  Paper  Co. 

635,  627 


Yates  V.  Van  De  Bogert  202 

Yazoo,  etc.  R.  Co   '•.  Adams         15,  37, 

77,96,  97,  98,  99,  102,  117,  119, 

241 

York,  etc.  R.  Co.  v.  Winans      200,  213 

Young  ('.  Erie  Iron  Co.  451,456 

V.  Rondout,  etc.  Gas   Light 

Co.  77 

i;.  Toledo,  etc.  R.  Co.  233,  234 

V.  Webster  City,  etc.  R.  Co.      206 
Youngman  v.  Elniira,  etc.  R.  Co. 

200,  201 


z. 


Zabriskie  v.  Cleveland,  etc.  R.  Co. 

181,  279,  345 
V.  Hackensack  R.  Co.     74,  77, 175, 

276 
Zimmer  v.  State     37,  99,  108,  117,  121, 

2UU 


INTERCOKPORATE  RELATIONS. 


INTERCORPORATE  RELATIONS. 


PRELIMINARY. 


§  1.  A  corporation  is  an  artificial  person,  created  by  law, 
having,  within  the  limits  of  its  chartered  powers,  the  rights 
of  a  natural  person  in  the  transaction  of  business.  It  is 
governed  by  the  general  rules  of  law  relating  to  rights  of 
property,'  contracts  and  torts  which  apply  to  individuals.  Its 
relations  with  other  corporations,  as  persons^  are  essentially 
the  same  as  the  relations  of  natural  persons. 

A  corporation  is  something  other  than  a  person.  It  pos- 
sesses the  property  of  immortality  — the  capacity  of  perpetual 
succession  —  and  may  act  with  certainty  in  reference  to  the 
future.  Its  possibilities  of  material  development,  through  the 
increase  and  disposition  of  shares,  may  be  as  unlimited  as 
its  duration.  Its  methods  of  control  and  management  are 
regulated  by  rules  applicable  to  it  alone.  While  the  relations 
of  corporations  with  each  other  as  persons  are  like  those  of 
individuals,  the  relations  of  corporations  as  corporations  are 
essentially  different.  The  welding  of  several  corporations 
into  one,  the  selling  and  leasing  of  corporate  franchises,  the 
acquiring  of  controlling  stock  interests,  the  combining  of 
corporate  properties — all  are  governed  by  principles  of  law 
either  inapplicable  or  applying  in  different  degree  to  the 
relations  of  individuals. 

Intercorporate  relations  of  this  character  grow  out  of  a 
variety  of  processes  which  may  be  classified  as  follows  : 

I.  The  union  of  stockholders,  properties  and  franchises  of 
several  corporations  in  a  single  corporation — consolidation. 

II.  The  absolute  transfer  of  the  franchises  and  property  of 
one  corporation  to  another —  sale. 

3 


§  2  INTERCORPORATE  RELATIONS. 

III.  The  transfer  for  stated  payments  of  the  franchises  and 
property  of  one  corporation  to  another  in  perpetuity  or  for  a 
term  of  years  —  lease. 

IV.  The  acquisition  by  one  corporation  of  shares  of  the 
capital  stock  of  another  —  corjyorate  stack/toldinij  or  control. 

V.  The  co-operation  of  several  corporations  to  accomplish 
a  given  purpose  —  combination. 

§  2.  The  consolidation  of  corporations  is  chiefly  exempli- 
fied by  railroad  companies  and,  to  a  far  less  degree,  by  other 
</uasj-public  corporations,  where  the  transmission  of  the 
franchise  is  of  essential  importance,  and  where  the  statutory 
method  of  effecting  such  transfer  must  be  strictly  followed. 

The  consolidation  of  railroad  companies,  occasioned  by 
their  peculiar  nature  and  use,  has  been  taking  place  for  a 
long  time.  In  their  early  days,  the  extraordinary  powers 
granted  to  them  —  the  right  to  condemn  lands,  take  tolls,  and 
exclude  all  other  cars  from  their  tracks  ^  —  and  their  con- 
stantly developing  necessity  to  the  life  of  the  people,  led  the 
legislatures  to  jealously  guard  the  granting  of  authority  to 
transfer  the  powers  so  intrusted.  But  it  soon  became  appar- 
ent that  the  uniting  of  short  connecting  roads  into  through 
lines  brought  about  increased  facilities  for  travel  and  lower 
rates,  and  authority  to  consolidate  came  to  be  granted  by 
special  laws  in  particular  cases.  Special  acts  were  followed 
by  general  laws  until,  at  the  present  time,  the  public  policy  of 
nearly  all  the  States,  as  indicated  by  their  statutory  provisions, 
is  in  favor  of  the  consolidation  of  connecting  railroads  which 
are  neither  competing  nor  parallel.  Under  this  policy  rail- 
road consolidations  have  taken  place  in  constantly  increasing 
numbers.  The  greater  companies  have  absorbed  the  smaller 
roads ;  the  local  roads  havo  been  united  into  the  througt 
line ;  the  through  line  has  become  a  part  of  the  railway 
system.     This  process  of  absorption  is  continually  going  on, 

^  In  Lake  Superior,  etc.  R.  Co.   r.  country,    railroads   were    regarded    as 

United    States,   93   U.   S.  442    (1S7G),  public' liigh ways  upon   which  all   per- 

Mr.  Justice  Bradley  notices  the  some-  sous  could  ruu  their  vehicles  upon  the 

what  curious  fact  that  in  the  earliest  payment   of    tolls.     This    theory   was, 

English  railway   acts,  and  in  some  of  however,  abandoned  at  an  early  day. 
the    first    charters    granted    in    this 

4 


PRELIMINARY.  §  4 

The  great  railway  system  of  to-day  becomes  but  a  unit  in  a 
greater  system  to-morrow.  The  semi-transcontinental  line 
of  the  present  will  form  a  part  of  the  line  from  ocean  to  ocean 
of  the  future.  That  all  the  railroads  of  the  United  States 
may  be  consolidated  into  four  or  five  mammoth  systems  is 
more  than  a  mere  possibility. 

§  3.  The  relation  of  vendor  and  vendee  between  corpora- 
tions as  continually  arising  in  the  transaction  of  business,  is, 
manifestly,  governed  by  general  legal  principles  applicable 
both  to  individuals  and  corporations.  But  while  an  individ- 
ual, without  restraint,  may  sell  and  dispose  of  all  his  property, 
the  right  to  sell  all  its  assets  and  render  itself  incapable  of 
performing  the  functions  for  which  it  was  created,  exists  in  a 
quasi-puhWc  corporation  only  when  expressly  conferred  by 
legislative  authority,  and  may  be  exercised  by  a  strictly 
private  corporation  only  by  the  unanimous  consent  of  its 
stockholders  or  as  a  means  of  liquidation. 

The  sale  of  corporate  property  for  stock  in  the  purchas- 
ing corporation  —  a  familiar  process  in  modern  industrial 
enterprises  —  involves  not  only  the  power  of  the  vendor 
corporation  to  take  the  stock,  but  the  right  of  its  minority 
stockholders  to  object  to  the  embarkation  of  corporate  assets 
in  new  adventures. 

The  sale  of  corporate  franchises,  especially  those  of  railroad 
companies,  has  been  illustrated  most  frequently  by  judicial 
sales  under  mortgage  foreclosures,  but  as  such  sales  involve 
the  relations  between  a  corporation  and  its  creditors  rather 
than  intercorporate  relations,  they  fall  outside  the  scope  of 
this   treatise. 

Private  sales  of  railroads  have,  however,  not  been  un- 
common, and  general  statutes  exist  in  many  States  authoriz- 
ing the  purchase  by  one  railroad  company  of  the  road  and 
franchises  of  another  forming  a  connecting  or  continuous 
line  with  its  own.  The  result  to  the  public  from  such  a  sale 
and  purchase  in  the  increase  of  facilities  for  travel  is  the 
same  as  that  following  a  consolidation. 

§  4.  A  lease  executed  by  one  corporation  to  another,  of  a 
portion  of»its  property,  incidental  to  the  transaction  of  the 

5 


§  4  INTERCORPORATE    RELATIONS. 

business  for  which  it  was  organized,  creates  the  relation  of 
landlord  and  tenant  between  them  and  is  governed  by  the 
general  principles  of  law  applicable  to  that  relation.  A  lease 
by  a  prosperous  corporation,  however,  of  its  entire  property 
constitutes  such  a  departure  from  the  purposes  for  which 
it  was  incorporated  that  it  requires  the  unanimous  consent 
of  its  stockholders ;  and  such  a  lease  by  a  failing  corporation 
can  only  be  justified  when  it  appears  to  be  the  best  method  of 
realizing  upon  the  corporate  assets.  Principles  of  corporation 
law  relating  to  the  powers  of  corporations  and  the  rights  of 
minority  stockholders  may  determine  the  validity  of  such 
leases. 

The  practical  results  of  a  consolidation  of  railroads,  the 
increase  in  facilities  for  travel,  the  lowering  of  rates,  the 
establi.shment  of  the  through  line  or  transcontinental  system 
—  all  the  results  apparent  from  a  point  of  view  outside  the  cor- 
poration—  may  be  as  well  obtained  by  a  lease  of  corporate 
franchises  and  property  for  an  extended  period,  whereby  the 
affairs  of  the  lessor  and  lessee  corporations  are  placed  under 
one  management,  as  by  a  strict  consolidation  according  to  the 
provisions  of  a  consolidation  statute.  The  result  from  a  point 
of  view  inside  the  corporation,  and  the  relations  of  the  cor- 
porations, are,  however,  essentially  different.  In  the  case  of 
a  consolidation  the  two  companies  become,  as  it  were,  part- 
ners in  a  new  enterprise.  In  the  case  of  a  lease  their 
relations  are  contractual  and  their  interests  as  lessor  and 
lessee  are,  to  an  extent,  antagonistic. 

In  determining  the  rights  of  lessor  and  lessee  under  a  lease 
of  railroad  property  and  franchises,  in  the  usual  form,  the 
general  principles  of  law  governing  the  relations  of  landlord 
and  tenant  have  little  applicability.  Such  leases  can  only  be 
executed  by  the  sanction  of  the  legislature.  In  them  pro- 
visions thought  essential  in  ordinary  leases  are  often  omitted. 
A  lease  for  the  usual  term  —  nine  hundred  and  ninety-nine 
years  —  is  equivalent  to  a  grant  of  the  fee.  "  It  would  carry 
us  to  a  time  as  remote  in  the  future  as  the  time  of  Alfred  the 
Great  is  distant  in  the  past."  ^ 

1  Van  Syckel,  J.,  in  Black  v.  Delaware,  etc.  Canal  Co.,  24  N.  J.  Eq.  465  (1873). 
6 


PRELIMINARY.  §  6 

§  5.  Upon  the  principle  that  a  corporation  may  not  apply 
its  funds  to  objects  other  than  those  defined  by  its  charter,  it 
is  a  general  rule  of  law  that  one  corporation,  in  the  absence 
of  express  statutory  authority,  cannot  hold  stock  in  another 
corporation.  Such  authority,  however,  may  often  be  found  in 
special  charters,  and  appears  in  the  general  laws  of  the  States 
where  most  of  the  great  corporations  are  organized,  and,  under 
such  laws,  corporations  have  been  organized  for  the  special 
purpose  of  holding  stock  in  other  corporations. 

Corporations  of  this  nature  are  denominated  "  holding 
corporations,"  and  present  the  latest  phase  of  corporate  de- 
velopment. By  means  of  one  of  these  corporations,  the  prac- 
tical consolidation  of  competing  railroads  has  been  attempted 
notwithstanding  constitutional  inhibitions  against  consolida- 
tion. By  means  of  another,  the  greatest  industrial  com- 
bination in  the  world  has  been  effected. 

Where  several  corporations  hold  stock  in  another  corporation, 
or  where  they  are  mutually  interested  in  each  other's  shares, 
a  "  community  of  interest "  may  be  said  to  exist.  Where 
one  corporation  purchases  a  majority  of  the  stock  of  another 
company,  it  acquires  control.  The  control  so  acquired  is 
not  consolidation.  Theoretically  each  corporation  continues 
a  separate  and  distinct  existence.  Practically,  they  act  to- 
gether for  a  common  purpose,  and  the  minority  stockholders 
in  the  controlled  corporation  too  often  have  occasion  to  de- 
maud  that  its  affairs  be  managed  in  the  interests  of  its  stock- 
holders and  not  in  the  interest  of  another  company. 

The  peculiar  value  of  the  holding  corporation  to  the  finan- 
cier is  that  by  means  thereof  he  obtains  the  maximum  of 
control  at  the  minimum  of  expense.  By  controlling  one 
corporation  which  holds  control  of  another  he  may  obtain 
practical  control  of  the  latter  at  little  more  than  half  the  cost 
of  direct  control. 

§  6.  Tiie  union  of  corporate  properties,  as  distinguished 
from  the  union  of  shareholders  and  franchises,  is  chiefly 
exemplified  in  the  case  of  industrial  corporations.  In  ex- 
ceptional instances  consolidation,  according  to  statutory  pro- 
visions, has  been  effected  by  such  corporations.     Generally, 

7 


§  6  INTERCORPORATE   RELATIONS. 

as  they  rarely  have  franchises  to  be  preserved,  the  uniting  of 
corporate  properties  only  has  been  attempted.  The  present 
method  of  accomplishing  such  result  has  come  about  through 
a  process  of  evolution.  At  first,  a  simple  association,  with- 
out community  of  financial  interest,  was  formed  by  corporations 
in  the  same  line  of  business  for  the  purpose  of  maintaining 
prices  or  limiting  production.  These  associations  were,  as  a 
rule,  held  by  the  courts  to  be  unlawful  combinations  tending 
to  create  monopolies.  To  meet  these  objections  "  trusts " 
were  created,  whereby  a  union  of  interests  was  effected  by  the 
depositing  of  stock  of  several  corporations  in  the  hands  of 
a  trustee  for  a  common  purpose.  "  Trusts "  in  their  turn 
were  held  to  be  unlawful  combinations,  as  well  as  repugnant 
to  elementary  principles  of  corporation  law,  and  finally  the 
present  method  was  evolved  of  forming  a  purchasing  or  hold- 
ing corporation  to  acquire  the  property  or  stock  of  the  several 
corporations. 

The  association  of  industrial  corporations,  by  whatever 
means  accomplished,  has  been  induced  by  the  constantly  in- 
creasing tendency  in  modern  business  life  toward  a  unification 
of  interests  and  concentration  of  control.  This  tendency,  while 
of  somewhat  recent  inception,  has  been  developed  with  phe- 
nomenal and  startling  activity  in  America  since  the  conclusion 
of  the  Spanish  war.  Manufacturing  and  mercantile  corpora- 
tions of  great  magnitude,  throughout  the  United  States,  have 
been  united  into  greater  companies  covering  wider  fields,  and 
these,  in  turn,  have  been  combined  into  vast  aggregations  of 
capital  control^ng  whole  branches  of  industry. 

The  principles  of  law  governing  combinations  of  corpora- 
tions are  similar  to  those  controlling  combinations  of  indivi- 
duals. In  the  test  of  threatened  injury  to  the  public,  however, 
the  danger  of  a  combination  may  lie  in  its  corporate  charac- 
ter. The  real  menace  of  the  huge  corporate  combination  lies 
in  its  enormous  collateral  and  inherent  power  —  for  evil  or 
good — which  no  individual  or  combination  of  individuals, 
as  such,  could  ever  possess.  That  many  combinations  have 
not  worked  injuriously  to  the  interests  of  the  public  is 
unquestionably  true ;  that  many  others,  from  an  economic 
8 


PRELIMINARY.  §  6 

standpoint,  are  essentially  vicious,  cannot  be  denied.  Their 
regulation,  control,  or  suppression  presents  a  serious  prob- 
lem, legal  as  well  aa  economic. 

In  the  absence  of  a  controlling  statute  the  validity  of  a 
combination  is  determined  by  rules  of  public  policy.  The 
rule  that  combinations  for  the  elimination  of  competition  are 
against  public  policy  and,  therefore,  unlawful,  is  uniformly 
stated,  but  not  uniformly  applied.  Upon  similar  facts,  courts 
of  different  States  have  reached  dissimilar  conclusions,  al- 
though applying  the  same  stated  principles.  The-  public 
policy  of  a  State  as  indicated  by  its  legislative  enactments  is 
generally  reflected  in  the  decisions  of  its  courts.  While  the 
State  may  not  expressly  define  its  policy,  that  which  it  fosters 
and  derives  its  revenue  from  has  seldom  been  declared  un- 
lawful. 

Federal  control  over  combinations  must  be  confined  to 
those  which  affect  interstate  or  foreign  commerce.  The 
power  of  Congress  in  the  matter  is  derived  from  the  "  com- 
merce clause  "  of  the  Constitution,  and  the  Supreme  Court  of 
the  United  States  has  held  that  such  power  does  not  extend 
to  manufacturing  corporations  because  manufacture  is  not 
commerce.  No  application  of  the  "  general  welfare  clause  " 
of  the  Constitution  could  justify  an  act  of  Congress  relating 
to  the  control  of  such  combinations  which  would  not  equally 
justify  federal  regulation  of  divorces  and  other  matters  dis- 
tinctively within  the  power  of  the  State.  Congress  may,  how- 
ever, regulate  everything  directly  connected  with  the  sale  and. 
transportation  of  goods  from  one  State  to  another,  and  the 
Sherman  law  is  an  effective  instrument  for  the  suppression 
of  combinations  contravening  its  provisions. 

The  legislatures  of  the  States  must  afford  the  remedy  for 
the  evils  arising  from  combinations  of  corporations  not  en- 
gaged in  interstate  commerce.  They  may  control  by  positive 
enactments  domestic  corporations  ;  by  inhibitions,  those  of 
other  States.  The  contention  that  under  the  Fourteenth 
Amendment  the  State  is  powerless  to  prevent  the  control  of 
domestic  corporations  passing,  directly  or  indirectly,  into  the 
hands  of  foreign  corporations  is  not  well  founded.     It  ignores 

9 


§  6  INTERCORPORATE    RELATIONS. 

the  vital  fact  that  a  corporation  is  a  creature  of  the  State. 
The  State  may  treat  the  acts  of  the  stockholders  as  the  acts 
of  the  corporation  and  may  forbid  the  transfer  of  shares  for 
the  purpose  of  forming  an  unlawful  combination  within  or 
without  its  borders.  The  right  to  issue  stock  is  itself  a 
franchise  and  the  State  may  attach  such  conditions  to  its 
exercise  as  it  may  deem  expedient. 

The  primary  difficulty  in  the  way  of  effective  legislation  is 
not  in  the  want,  but  in  the  exercise,  of  power.  The  State 
legislatures  can  afford  adequate  remedies  against  the  evils 
of  combination  if  they  will  act  fearlessly  and  deal  with  com- 
binations of  labor  in  the  same  manner  as  with  combinations 
of  capital,  and  place  the  farmer  and  the  manufacturer  upon 
the  same  plane  as  producers  —  if  they  will  hew  to  the  line 
and  cease  enacting  unconstitutional  class  legislation. 


10 


CHAP.  I,]        NATURE  OF  CONSOLIDATION. 


PAET   I. 

COKSOLIDATION   OF  COEPORATIONS. 


CHAPTER   I. 

NATURE   OP   CONSOLIDATION. 

§    7.  Term  "  Consolidation  "  of  Uncertain  Meaning. 

§    8.  Uses  of  the  Term  distinguished. 

§    9.  Consolidation  as  a  Result  and  as  a  Process. 

§  10.  An  Analogy  iu  the  Civil  Law. 

§  II.  Merger. 

§  12.  Amalgamation. 

§  13.  Distinction  between  Consolidation  and  Sale. 

§  14.  Distinction  between  Consolidation  and  Lease. 

§  15.  Distinction  between  Consolidation  and  Control. 

§  16.  Distinction  between  Consolidation  and  Combination. 

§  7.  Term  *^  Consolidation  "  of  Uncertain  Meaning.  —  The 
terra  "  consolidation "  as  used  in  statutes  and  charters  au- 
thorizing the  union  of  several  corporations  has  not  acquired, 
either  as  a  result  or  as  a  process,  a  recognized,  judicial  defi- 
nition.i  Extended  discussion  of  its  meaning  has  only  served 
to  demonstrate  its  uncertain  signification, 

1  In  Meyer  v.  Johnston,  64  Ala.  603  and  with  enlarged    powers,  while    the 

(1879),  it  was  held  that  the  words  "con-  others    are   merged   in    and  absorbed 

solidate  "  and  "  consolidation,"  as  used  by  it. 

in   statutes    authorizing    and  ratifying  Tod  v.  Kentucky  Union  Land   Co., 

the  union  or  combination  of  several  rail-  57   Fed.  56  (1893):  "The  meaning  to 

road  corporations    into    one,  have    not  be  attached  to  the  term  '  consolidation  ' 

acquired  a  recognized  judicial  construe-  as  used  in  a  law  authorizing  the  consol- 

tiou,  which  imports  that  all    the  com-  idation  of  two  or  more  corporations  is 

panics  are  dissolved  and   merged  into  uncertain.     It  depends  often  upon  the 

one  new  company  ;  on  the  contrary,  the  particular  terms  of  the  act  giving  the 

terms    are    generally    applicable    to  a  power,  and  the   legal   effect   resulting 

union  of  two  or  more  companies  in  such  from  consolidation  will  largely  depend 

a  way  that  one  of  them  is  continued  iu  upon  the  character  of  the  consolidation 

existence,,  though  under  a  new  uame,  authorized  by  the  permission  as  well  as 

11 


INTERCORPORATE   RELATION'S. 


[part  I. 


Tlicre  being  no  definition  of  the  \rord  generally  applicable,* 
its  meaning,  in  any  case,  will  depend  upon  the  terms  of  the 
particular  act  authorizing  the  consolidation,  and  the  legal  re- 
sult of  any  consolidation  will  be  determined  by  the  language 
of  the  statute  under  which  the  consolidation  took  place  and 
by  the  acts  and  agreements  of  the  contracting  corporations 
relating  thereto.^ 


npon  the  contract  actually  entered  into 
by  the  consolidating  companies.  Gen- 
erallj  the  merging  of  the  companies 
into  a  new  and  distinct  corporation  is 
contemplated  and  is  the  legal  result. 
Not  infrequently  the  absorption  of  one 
corporation  by  the  other  is  the  conse- 
quence of  consolidation."' 

In  Central,  etc.  Co.  r.  Georgia,  34 
Ga.  -tU  (1875),  (reversed  92  U.  S.  605 
(1875)),  Judge  McCay,  concurring,  dis- 
cusses the  meaning  of  "  consolidation  " 
and  distinguishes  it  from  the  English 
term  "  amalgamation." 

1  The  following  definitions  of  "  con- 
solidation "  as  applied  to  corporations 
have  l)cen  given : 

"  The  union  or  merger  into  one  cor- 
porate body  of  two  or  more  corporations 
which  have  been  separately  created  for 
similar  or  connected  purposes."  Black's 
Law  Diet,  sub  nntn.  "  Consolidation  of 
Corporations." 

"  Any  conjunction  or  union  of  the 
stock,  property,  or  franchises  of  two  or 
more  corporations  whereby  the  conduct 
of  their  affairs  is  permanently,  or  fox  a 
long  period  of  time,  placed  under  one 
management."  1  Beach  on  Railways, 
§  535  ;  1  Beach  on  Corporations,  §  326. 

"  The  consolidation  of  corporations 
means,  generally,  the  combination  of 
two  or  more  corporations  of  the  same 
or  different  States,  by  an  agreement, 
between  them,  under  legislative  author- 
ity, by  which  their  rights,  franchises, 
privileges,  and  property  are  united,  and 
become  the  rights,  franchises,  privileges, 
and  property  of  a  single  corporation, 
composed  generally,  although  not  nec- 
essarily, of  the  stockholders  of  the 
original  corporations."  2  Clark  &  Mar- 
shall on  Corporations,  §  348. 

12 


Consolidation  is  "a  method  pro- 
vided by  law  for  the  formation  of  a 
co-partnership  between  railroad  corpora- 
tions by  which,  if  the  expression  may 
be  u.sed,  they  p<K)l  their  franchi.<es  and 
property  and  are  enabled  to  act  in  com- 
plete harmony  under  one  head  as  a 
unit."  Phinizy  v.  Augusta,  etc.  R.  Co., 
62  Fed.  684  (1894). 

This  comparison  by  Judge  Siraonton 
of  a  consolidated  corporation  to  a  part- 
nership should,  however,  be  considered 
merely  as  illu.strating  some  of  its  fea- 
tures, and  not,  in  any  sense,  as  defining 
its  powers.  While  the  illustration  is  not 
inapt  and  is  frequently  used,  "  a  com- 
pany of  companies"  more  correctly  de- 
scribes a  con.solidated  corporation  than 
a  "partnership  of  corporations." 

In  Baltimore,  etc.  K.  Co.  v.  Mns- 
selman,  2  Grants Cas.  (Pa.)  352  (1856), 
the  following  curious  illustration  of  the 
nature  of  consolidation  appears  :  "  It  is 
not  a  case  of  death,  for  the  new  corpor- 
ation lives  from  the  life  of  the  old  one : 
tiieir  lives  are  transferred  into  it ;  and 
unlike  ordinary  cases  of  metempsychosis 
this  translation  is  accompanied  by  full 
consciousne.ss  of  the  former  state,  and 
its  liabilities." 

2  In  Keokuk,  etc.  R.  Co.  i>.  Missouri, 
152  U.  S.  305  (1894),  (U  Sup.  Ct.  Rep. 
592),  Mr.  Justice  Brown  said  :  "  In  the 
numerous  cases  which  have  arisen  in 
this  court  as  to  the  effect  of  consolida- 
tion upon  the  existence  and  status  of 
the  constituent  companies  it  has  been 
held  that  the  question  of  the  dissolution 
of  such  corporations  depends  upon  the 
language  of  the  statute  under  which  the 
consolidation  took  place." 

For  full  consideration  of  this  subject 
see  ch.  6,  post :  "  Effect  of  Consolidation 


CHAP.    I.]  NATURE   OF   CONSOLIDATION.  §  8 

The  term  "consolidation"  as  used  in  constitutional  and 
statutory  inhibitions  is  also  said  to  have  quite  a  different 
meaning  from  the  same  term  as  used  in  statutory  authoriza- 
tions.i 

§  8.  Uses  of  the  Term  distinguished.  —  The  word  "  consolida- 
tion "  is  applied  to  various  processes  by  which  corporations 
may  be  united  and  to  various  results  attained  thereby ;  ^ 

A.  Two  corporations  may  be  combined  by  their  fusion  into 
a  third  corporation  created  in  their  stead.  This  results  in 
the  surrender  of  the  vitality  of  the  old  corporations,  the  ex- 
tinguishment of  their  special  privileges  and  exemptions,  and 
the  springing  into  existence  eo  instanti  of  a  new  corporation 
with  such  powers  and  privileges  as  may  be  conferred  upon  it  by 
the  act  authorizing  the  consolidation.^  The  dissolution  of  all 
the  old  corporations  and  the  creation  of  the  new  one  are  the 
essential  features  of  this^f^process,  which  has  been  said  to  con- 
stitute consolidation  according  to  the  "  American  view."  ^ 

B.  There  may  be  an  absorption  of  one  company  by  another 
whereby  the  former  is  dissolved  and  passes  out  of  existence 
while  the  latter  continues  to  exist  with  enlarged   powers.^ 

upon  Status  of  Consolidating  Corporations  ^  The  effect  of  the  consolidation  was 

and  their  Stockholders."  "  the   dissolution   of    the    corporations 

1  See  post,  §  33  :  "  Construction  of  previously  existing,  and  at  the  same 
Prohibitions  —  (A)  Meaning  of  Term  instant  the  creation  of  a  new  corpora- 
'  Consolidation' "  tion,  with  property,  liabilities,  and  stock- 

2  In  Railroad  Co.  r.  Georgia,  98  holders  derived  from  those  then  pass- 
U.  S.  362  (1878),  Mr.  Justice  Strong  ing  out  of  existence."  McMahon  r. 
said:  "It  is  conceded  that  under  this  Morrison  16  Ind.  172  (1S61),  approved 
act  a  consolidation  took  place.  It  is  in  Clearwater  v.  Meredith  1  Wall, 
therefore  a  vital  question.  What  was  its  (U.  S.)  40  (1863).  See  also  post,  §  60 : 
effect?  Did  the  consolidated  com-  "Asa  General  Rule  Effect  of  Consolida- 
panies  become  a  new  corporation,  hold-  tion  is  Creation  of  New  Corporation  and 
ing  its  powers  and  privileges  as  such  Dissolution  of  Constituents." 

under  the  act  of   1863  ?     Or  was  the  *  "  In  the  American  %-iew,  therefore, 

consolidation  a  mere  alliance  between  it  would  seem  that  the  dissolution  of  all 

two  pre-existing  corporations,  in  which  the  corporations  and  the  creation  of  one 

each  preserved  its  identity  and  distinc-  new  one  are  essential  to  consolidation." 

tive  existence  1     Or,  still  further,  was  Green's  Brice's  Ultra  Vires    (2d   ed.), 

it  an  absorption  of  one  by  the  other.  631. 

whereby  the  former  was  dissolved,  while  °  In  Central  R.,  etc.  Co.  v.  Georgia, 

the   latter   continued   to   exist  ?      The  92  U.  S.  673  (1875),  it  was  said  that  the 

answer  to  these  inquiries  must  be  found  consolidation  there  under  consideration 

in  the  intention  of   the  legislature  as  was  intended  to  effect  at  most  a  "  mer- 

expressed  in  the  consolidation  act."  ger    of    the  .  .  .  Companv    with    the 

13 


§  9  INTERCORPORATE   RELATIONS.  [PART   I. 

The  word  "  cousolidation  "  has  been  said  to  be  inapplicable 
to  a  union  of  this  cliaracter,^  bat  such  use  of  the  term  is  gen- 
eral, and  is  supported  by  the  highest  authorities. 

C.  A  confederation  of  several  corporations  may  be  formed, 
in  which  each  preserves  its  legal  identity  and  distinctive  exist- 
ence,^ as  exemplified  in  the  union  of  corporations  of  different 
States.^  Such  an  alliance  is  sometimes  called  a  "  consolida- 
tion," but,  except  in  the  case  of  an  interstate  consolidation, 
it  would  seem  that  such  use  should  be  avoided  if  the  term 
"  consolidation"  is  ever  to  have  a  well-derined  meaning. 

§  9.  Consolidation  as  a  Result  and  as  a  Process.  —  Consolida- 
tion may  be  regarded  both  as  a  result  and  as  a  process.  As 
a  result  the  meaning  of  the  term  is  uncertain,  because  it  is 
applied  to  different  effects  produced  by  different  means ;  as  a 
process  it  is  equally  indefinite,  because  it  is  employed  to  de- 
scribe different  means  for  producing  different  results.  As  a 
result  and  as  a  process,  consolidation  may  be  broadly  described, 
but  not  defined,  in  the  following  language  of  the  Supreme 
Court  of  Alabama : 

"  When  the  rights,  franchises^  and  effects  of  two  or  more  cor- 
'porations  are,  by  legal  authority  and  agreement  of  the  parties, 
combined  and  united  into  one  whole,  and  committed  to  a  single 
corporation,  the  stockholders  of  ivhich  are  composed  of  those 
{so  far  as  they  chose  to  become  such)  of  the  companies  thus 
agreeing,  this  is  in  law  and  according  to  a  common  understand- 
ing, a  consolidation  of  such  companies ;  whether  such  single 
corporation,  called  a  consolidated  company,  be  a  neiv  one  then 
created,  or  one  of  the  original  companies  continuing  in  existence 
with  only  larger  rights,  capacities,  and  property. ^^  * 

other,  a  mode  of  transfer  of  that  Com-  it  had  been  each  would  have  preserved 

pany's  franchise  and  property  and  pay-  its  separate  existence  as  well  as  its  cor- 

ment  therefor  with  stock  of  the  Cen-  porate  name." 

tral  Company."  ^  Post,    eh.  10:    "Interstate   Consoli- 

See  also  Meyer  v.  Johnston,  64  Ala.  dation." 

603  (1879).  *  Meyer  v.    Johnston,   64   Ala.   656 

1  Green's  Brice's  Ultra  Vires  (2d  ed.,)  (1879). 

631.  In  Chicago,  etc.  R    Co.  v.  Ashling, 

2  Railroad  Co.  v.  Georgia,  98  U.  S.  160  111.  382  (1896),  (43  N.  E.  Rep.  373), 
362  (1878):  "Nor  was  it  a  mere  alii-  the  Court  quoted  the  above  extract 
ance  or  confederation  of   the  two.     If  from  Meyer  v.  Johnston  and  said :  "  We 

14 


CHAP.   I.]  NATURE   OF   CONSOLIDATION.  §  11 

§  10.  An  Analogy  in  the  Civil  Law. — The  nature  of  COn- 
fc5olidation  may  be  indicated  by  adopting  the  terminology  of 
the  civil  law  and  describing  it  as  a  process  whereby  the  uni- 
versitas  juris  of  several  corporations  is  transferred  to  one. 
This  phrase  expresses  the  legal  conception  of  a  university  or 
bundle  of  rights  and  liabilities  belonging  to  one  person  and 
constituting  his  legal  personality  ;  and  when  these  are  trans- 
ferred to  another  he  is  said  to  take  per  universifatem,  that  is, 
he  succeeds  to  the  personality  of  the  other  and  is  clothed  with 
his  rights  and  duties.^  So,  by  consolidation,  one  corpora- 
tion acquires  the  rights  and  property  of  several  and  becomes 
responsible  for  their  obligations.  It  succeeds  to  their  legal 
personality,  and  may,  appropriately,  be  said  to  take  per 
universitatem. 

§  11.  Merger. — The  word  "merger"  is  used,  in  statutes 
authorizing  the  union  of  corporations,  to  describe  the  process 
whereby  the  shares  or  the  property  and  franchises  of  one  or 
more  corporations  are  absorbed  by  another  which  continues 
in  existence  with  its  original  powers  and  with  additional 
rights  and  privileges  derived  from  the  others.^  This  is  a 
process  of  absorption  to  which,  as  has  been  noted,  the  term 
"  consolidation  "  is  generally  applied,  but  to  which  the  terra 
"  merger "  is  equally  appropriate.  In  fact,  had  the  word 
"  consolidation "  been  used  only  to  describe  the  process  of 
fusion  and  the  word  "  merger "  been  applied  to  the  process 
of  absorption,  confusion  would  have  been  avoided. 

concur  in  this  view  as  a  general  state-  These  become    merged  and   extinct." 

ment  of  the  law,  subject,  however,  to  Tomlinson  v.  Branch,  15  Walh  (U.  S.) 

modification     by    the     statutes    under  465  (1872).     And   in   the   very   recent 

which  the  consolidation  is  effected."  case  of  Yazoo,  etc.  R.   Co.   v.  Adams, 

1  Compton  r.  Wabash,  etc.  R.  Co.,  45  180  U.  S.  19  (1901),  (21  Sup.  Ct. 
Ohio  St.  592  (1888),  (16  N.  E.  Rep.  Rep.  240),  Mr.  Justice  Brown  said: 
110).  "But  if,  as  was  the  case  in  Tomlinson 

2  When  one  railroad  company  is  v.  Branch,  one  road  loses  its  identity 
merged  in  another  the  rights  and  privi-  and  is  merged  in  another,  the  latter 
leges  of  the  former  are  transferred  to  preserving  its  identity  and  issuing  new 
the  latter  company  to  be  holdeu  in  the  stock  in  favor  of  the  stockholders  of  the 
same  manner  and  subject  to  the  same  former,  it  is  not  the  creation  of  a  new 
obligations  as  before,  except  "those  corporation  but  an  enlargement  of  the 
corporate  rights  and  franchises  of  the  old  one."  See  also  Central  R.,  etc.  Co. 
old  company  which  appertain  to  its  ex-  v.  Georgia,  92  U.  S.  665  (1875). 
istence  and  functions  as  a  corporation. 

15 


S  12 


INTERCORPORATE   RELATIONS. 


[part  I. 


§  12.  Amalgamation.  —  111  England  the  union  of  several 
incorporated  companies  is  generally  effected  under  authority 
to  "  amalgamate  "  contained  in  the  different  Companies'  Acts.* 
The  word  '•  amalgamation"  belongs  to  the  language  of  physical 
science,  so  that  its  use  to  denote  the  coalition  of  corporations 
has  occasioned  considerable  discussion  among  the  English 
judges  and  it  has  been  said  that  "  nobody  really  knows  what 
amalgamation  means."  ^  An  amalgamation  is  said  to  take 
place,  however,  where  two  or  more  "  companies  agree  to  aban- 
don their  respective  articles  of  association  and  to  register 
themselves  under  new  articles  as  one  body.  That  would  be  a 
new  company  formed  by  the  coalition  or  amalgamation  of 
the  two  old  companies."^  While  such  use  of  the  term  is 
undoubtedly  correct  it  is  not  applied  by  the  English  courts  to 
such    instances  alone,  but   is   used    synonymously   with   the 


1  Railway  Clauses  Act,  1863  (26  & 
27  Vict.,  ch.  9-2,  §  37):  "For  the  pur- 
poses of  tliis  part  of  tliis  Act,  cuiu- 
paiiies  sliall  be  deemed  amalgamated 
by  a  special  Act,  in  either  of  the  fol- 
lowing ca.ses:  (1)  When  by  the  spe- 
cial Act  two  or  more  companies  are 
dissolved,    and    the    members    thereof 


tide  entitled  "Amalgamation  of  Com- 
panies," 17  Sol.  J.  &  Hep.  362  :  "  Nearly 
six  years  have  elapsed  since  Lord 
Hatherly  professed  himself  utterly  at 
a  loss  to  define  wliat  the  '  amalga- 
mation '  of  Joint  Stock  Comi)auie8  is. 
The  words  to  which  we  refer  will  be 
found   prefacing   the   judgment   In  re 


respectively  are  united  into  and  incor-     Empire  Assurance  Corporation  L.  R., 


porated  as  a  new  company.  (2)  When 
by  a  special  Act  a  company  or  com- 
panies is  or  are  dissolved,  and  the 
undertaking  or  undertakiugs  of  the  dis- 
solved company  or  companies  is  or  are 
transferred  to  another  existing  com- 
pany, with  or  without  a  change  in 
the  name  of  that  company." 

2  Dougan's  Case,  28  L."  T.  Rep.  62 
(1873),  42  L.  J.  Ch.  460,  (on  appeal, 
8  Ch.  App.  540) :  "  On  the  general 
principle  the  case  seems  to  me  this  : 
Two  companies  may  be  united  either 
by  fusion  into  a  third,  or  by  one  ab- 


4  Eq.  341  (1867)  :  'It  is  difficult,'  said 
his  Honour,  then  Vice  Chancellor  Wood, 
'to  say  wliat  the  word  "amalgamate" 
means.  I  confess  at  this  moment  that 
I  have  not  the  least  conception  of  what 
the  full  legal  effect  of  tiie  word  la.' 
Six  years  have  elapsed  and  so-called 
'amalgamations'  we  have  had  by  the 
score,  but  from  a  definition  of  tha 
word,  or  a  right  understanding  of  its 
meaning,  we  seem,  if  possible,  further 
removed  than  ever.  .  .  .  '  Nobody,' 
said  Lord  Westbury  in  Blundell's  Case 
(17  Sol.  J.  &  Rep.  87),  'uses  it  with 


sorbing  the  other.  The  former  pro-  any  definite  meaning,'  and  the  word 
cess  seems  to  correspond  most  nearly  which  his  Lordship  has  suggested  to 
with   the   popular  sense   of  the   word    replace  it  ...  is  a  '  welding.' " 


'  amalgamation,'  and  I  believe  nobody 
really  knows  what  'amalgamation' 
means." 

The  remarks  of  the  English  judges 
and  the  uncertain  meaning  of  the  term 
"  amalgamation  "  are  discussed  in  an  ar- 

16 


See  also  Wall  o,  London,  etc.  Assets 
Corp.  (No.  1),  67  L.  J.  Ch.  596  (1898), 
2  Ch.  469 ;  79  L.  T.  (n.  s.)  249,  47  Wkly. 
Rep.  219. 

8  In  re  Bank  of  Hindustan,  Higg's 
Case,  2  Hem.  &  M.  666  (1865). 


CHAP.    I.] 


NATURE   OF   CONSOLIDATION. 


§13 


American  term  "  consolidation."  ^  A  distinction  has  been 
drawn  between  them  bj  an  eminent  writer  and  the  term 
"  amalgamation"  has  been  given  a  somewhat  wider  meaning,^ 
but  such  distinction  does  not  exist  as  the  terms  are  used  at 
the  present  time.  A  comparison  of  recent  American  and 
English  cases  will  show  that  precisely  the  same  results  have 
been  obtained  under  authority  to  consolidate  in  America  as 
under  authority  to  amalgamate  in  England,^ 

§  13.  Distinction  between  Consolidation  and  Sale.  —  A  con- 
tract between  two  corporations  for  the  purchase  and  sale  of 
corporate  property  or  franchises  involves  no  coalition  of  inter- 
ests. The  vendor  corporation  parts  with  its  property.  The 
vendee  corporation  pays  the  consideration.  The  transfer 
affects  in  no  way  the  status  or  continued  existence  of  either 
corporation. 

Consolidation,  on  the  other  hand,  involves  a  union  of  cor- 
porate interests,  is  without  consideration  as  between  the 
corporate  entities,  and  may  terminate  the  existence  of  one 
or  all  of  the  constituent  corporations.  "  Consolidation  is  not 
sale."  4 


1  In  Mever  v.  Johnston.  64  Ala.  603 
(1879),  the  use  of  the  term  "  amalgama- 
tion "  in  England  is  fully  discussed. 

^  Green's  Brice's  Ultra  Vires  (2d 
ed.)  (18S0),  631,  note:  "The  term 
'amalgamation'  is  seldom  applied  to 
corporations  in  this  country.  That 
which  takes  its  place  as  much  as  any 
is  '  consolidation.'  But  though  it  is 
difficult  accurately  to  define  amalgama- 
tion as  commonly  used  in  English  law,  it 
certainly  has  a  wider  meaning  than  con- 
solidation has  with  us.  Coasolidation 
would,  e.  g.,  be  inapplicable  to  a  union 
of  two  or  more  companies,  in  such  a  way 
that  one  of  the  original  corporations 
only  was  continued  in  existence,  while 
the  others  were  merged  or  absorbed  in 
it.  An  absorption  of  one  corjjoration 
by  another  would,  according  to  some  of 
the  decisions,  be  an  amalgamation  in 
England  ;  but  it  would  not  be  a  consol- 
idation here."  On  the  other  hand,  in 
the  case  of  Powell  v.  North  Missouri  R. 


Co.,  42  Mo.  63  (1867),  it  was  said  th.it 
"an  amalgamation  implies  such  a  con- 
solidation as  to  reduce  the  companies 
to  a  common  interest "  and  that  where 
"  by  the  very  terms  of  the  statute  and 
the  deed  the  first  corporation  was  extin- 
guished and  the  second  only  continued 
to  exist "  it  was  something  more  than  a 
mere  amalgamation  or  consolidation. 

3  1  Beach  on  Railways,  §  535. 

*  Green  County  v.  Conuess,  109 
U.  S.  106  (1883),  (3  Sup.  Ct.  Rep.  69), 
where  Mr.  Chief  Justice  Waite  said: 
"  If  only  a  sale  of  the  road  to  another 
company  had  been  authorized  and  made, 
then  it  might  very  plausibly  have  been 
contended  that  the  purchasing  company 
took  and  held  it  under  its  own  charter 
only,  without  the  franchises  and  privi- 
leges connected  with  it  in  the  hands  of 
the  vendor  company ;  but  '  consolida- 
tion '  is  not  sale,  and  when  two  com- 
panies are  authoritized  to  consolidate 
their  roads,  it  is  to  be  presumed  that 

17 


§1^ 


INTERCORPORATE   RELATIONS. 


[part  I. 


In  Compton  v.  Walxish,  etc.  R.  Co}  the  Supreme  Court  of 
Ohio  said :  "  Whilst  the  transaction  has  some  of  the  features, 
it  is  wantin<5  in  the  essential  elements,  of  a  sale.  A  sale 
implies  a  vendor  and  a  vendee,  and  by  it  the  former  sells  and 
transfers  a  thing  that  he  owns  to  the  latter  for  a  price  paid  or 
to  be  ])aid  to  himself.  The  vendor  parts  with  nothing  but  his 
property,  and  for  it  receives  a  quid  pro  quo.  Such  is  not  the 
case  where  companies  are  consolidated  under  this  statute.  It 
is  true  that  the  owner  of  each  constituent  road  parts  with 
its  property.  But  it  does  much  more  ;  it  not  only  ])arts  with 
its  property,  but  ceases  to  be  a  juristical  entity,  capable  of 
owning  or  accjuiring  property.  It  does  not,  and  could  not 
receive  any  consideration  for  the  transfer,  because  it  is  extin- 
guished and  dissolved  by  the  act  of  its  stockholders  in  assent- 
ing to  the  proposed  agreement.  It  is  futile  to  attempt  to 
urge  that  the  consideration  is  received  by  the  stockholders. 
They  are  not  the  corporation,  nor  do  they  represent  it  in  its 
relation  to  its  creditors." 

§  14.  Distinction  between  Consolidation  and  Lease.  —  The 
same  distinction  may  be  drawn  between  a  lease  of  corporate 

the  franchises  and  privileges  of  each  franchise  and  property  of  a  railway 
continue  to  exist  in  respect  to  the  company  conveys  the  franchise  and 
several  roads  so  consolidated."  property  to  the  purcliaser,  still  tiie  cor- 

lu  re  Bank  of  Hindustan,  Iligg's  porate  existence  of  the  sold  out  corn- 
Case,  2  Hem.  &  M.  666  (1865) :  "Take     pany  remains." 

See  also  Mackintosh  i'.  Flint,  etc. 
R.  Co.,  34  Fed.  582  (1888)  ;  State  v. 
Sherman,  22  Ohio  St.  428  (1872); 
Houston,  etc.  R.  Co.  v.  Shirley,  54  Tex. 
125  (1880);  Rafferty  v.  Buffalo  City 
Gas  Co.,  37  App.  Div.  (N.  Y.)  618 
(1899),  (56  N.  Y.  Supp.  288).  Com/mre 
Chicago,  etc.  R.  Co.  v.  Ashling,  160 
111.  373  (1896),  (43  N.  E.  Rep.  373), 
where  it  was  held  tliat  a  consolidation 
and  not  a  sale  was  effected  bv  the  trans- 


the  assets  and  liabilities  —  that  I  can 
understand ;  but  that  is  not  any  such 
amalgamation  as  Mr.  Jessel  suggests, 
but  is  simply  a  sale  of  its  business  by 
one  company  to  the  other  ....  The 
actual  contract  in  this  case  was  a  simple 
sale  of  the  business  of  one  company  to 
the  other,  and  not  an  amalgamation  in 
any  sense." 

Gulf,  etc.  R.  Co.  V.  Newell,  73  Tex. 
3.34  (1889),  15  Am.  St.  Rep.  788  (11  S. 
W.  Rep.  342):  "A  railway  company  fer  of  all  the  stock,  property  and  fran- 
by  buj'ing  the  stock  of  another  and  by  chises  of  one  corporation  to  another  in 
buying  the  corporate  franchise  and  exchange  for  its  stock  issued  to  the 
property  of  the  other,  it  having  the  stockholders  of  the  former  corporation, 
power  to  buy,  only  becomes  the  owner  Also  Appeal  of  Fame  Hose  Co.,  6  Leg. 
of  such  franchise  and  property.  Owner-  Gaz.  (Pa.)  79  (1874). 
ship  alone  does  not  operate  a  consolida-  i  Compton   v.  AYabash,  etc.  R   Co., 

tion  of  that  bought  with  the  purchaser.     45  Ohio  St.  615  (1888),  (16  N.  E.  Rep. 
.  .  .  While   an   execution  sale   of   the     110). 

18 


CHAP.  I.] 


NATURE  OF  CONSOLIDATION. 


§15 


property  and  franchises  and  a  consolidation  of  corporations  as 
between  a  sale  and  consolidation. 

In  the  case  of  a  lease  the  interests  of  the  corporations  as 
lessor  and  lessee  are,  to  an  extent,  antagonistic,  and  the  lessor 
company  parts  with  the  control  of  its  property,  and,  for  the 
terra,  receives  a  rental  in  lieu  thereof.  Consolidation,  on  the 
other  hand,  by  whatever  means  accomplished,  results  in  a 
union  of  corporate  interests  and  stockholders,^  and  the  stock- 
holders of  consolidating  companies,  through  their  acquisition 
of  shares  in  the  new  corporation,  still  retain,  to  a  certain 
extent,  control  of  their  original  corporate  property.  "  Power 
to  consolidate,"  said  the  Supreme  Court  of  New  Jersey  in 
Mills  V.  Central  R.  Co.^  "  is  power  to  take  in  a  partner  or  go 
in  as  a  partner,  while  power  to  lease  is  power  to  dispose  of 
the  whole  concern  to  a  stranger." 

§  15.  Distinction  between  Consolidation  and  Control.  — 
While  one  corporation  by  purchasing  a  majority  of  the' shares 
of  another  company  may  obtain  control  of  the  latter,  tlie 
result  is  radically  different  from  a  consolidation.^     In  consoli- 


^  "  The  distinguishing  feature  of  a 
consolidation  is  the  union  of  the  share- 
liolders  of  the  two  companies  thereby 
forming  one  company."  2  Morawetz 
on  Priv.  Corp.,  §  939,  note  2,  citing 
Houston,  etc.  R.  Co.  v.  Shirley,  54  Tex. 
125  (1880). 

2  Mills  V.  Central  R.  Co.,  41  N.  J. 
Eq.  7  (1886),  (2  Atl.  Rep.  45.3.) 

In  State  v.  Vanderbilt,  37  Ohio  St. 
638  (1882),  the  distinction  between  a 
lease  and  consolidation  is  presented  from 
a  different  point  of  view :  "  By  force  of 
such  lease,  the  right  to  the  use  of  the 
road  passed  from  the  lessor  to  the  lessee, 
according  to  such  terms  and  conditions 
with  respect  to  the  use  as  are  proper  in 
a  lease ;  but  nothing  else  passed.  The 
lessee  is  the  assignee  for  a  term  or 
period  of  the  lessor,  —  his  bailee  to  hold 
possession  for  him.  The  power  to  lease 
does  not  imply  a  power  to  consolidate, 
nor  does  the  power  to  consolidate  imply 
a  power  to  lease  but  these  powers  are 
distinct  and  independent." 

See  also  Commissioners  v.  Lafayette, 


etc.  R.  Co.,  50  Ind.  110  (1875)  ;  Gere  v. 
New  York  Central  R.  Co.,  19  Abb.  N.  C. 
210  (1885) ;  Arclier  v.  Terre  Haute,  etc. 
R.  Co.,  102  111.  493  (1882). 

Upon  the  principle  tliat  constitutional 
prohibitions  against  tiie  consolidation 
of  competing  railroads  must  be  liberally 
construed  for  the  preservation  of  com- 
petition, it  has  been  held  that  a  lease  of 
a  competing  railroad  comes  within  such 
a  prohibition.  State  v.  Atchison,  etc. 
R.  Co.,  24  Neb.  143  (1888),  (38  N.  \Y. 
Rep.  43)  ;  East  St.  Louis,  etc.  R.  Co.  v. 
Jarvis,  92  Fed.  743  (1899).  The  cor- 
rectness of  this  construction  is  con- 
sidered in  another  section.  See  post, 
§  34  :  "  Construction  of  Prohibitions  — 
(B)  Whether  a  Lease  amounts  to  Con- 
solidation." 

^  The  mere  fact  that  one  corporation 
has  obtained  control  of  the  stock  in 
another  corporation  is  not,  of  itself, 
sufHcient  to  show  a  consolidation  of  the 
two .  corporations.  Jessup  v.  Illinois 
Cent.  R.  Co..  36  Fed.  735  (1888). 

In  Tod  V.  Kentucky  Union  Land  Co., 

19 


§  16  INTERCORPORATE    RELATIONS.  [PART    I. 

dation  there  is  a  union  of  corporate  interests  and  stockliolders. 
In  the  case  of  the  acquisition  of  stock  the  purchasing  corpora- 
tion becomes  merely  a  stockholder  and  the  rights  of  the 
corporations,  as  such,  remain  unchanged.  Control  is  not 
consolidation  ;  it  is  not,  strictly  8j)eaking,  even  a  conjunction 
of  corporate  properties.  As  said  by  Mr.  Chief  Justice  Waite 
in  Pullman  Car  Co.  v.  Missouri  Pacific  R.  Co.,^  in  reference 
to  a  stockholding  corporation  :  "  Its  rights  and  its  powers  are 
those  of  a  stockholder  only.  It  is  not  the  corporation,  in  the 
sense  of  that  term  as  applied  to  the  management  of  the  cor- 
porate business  or  the  control  of  the  corporate  property." 

§  lb.  Distinction  between  Consolidation  and  Combination.  — 
Combination  is  co-operation  and,  broadly  speaking,  a  consoli- 
dated corporation  illustrates  the  extreme  development  of  the 
idea  of  co-operation  with  reference  to  corporations.  In  this 
treatise,  however, — following  the  common  usage  —  the  term 
combination  is  used  to  describe  any  union  of  corporations 
entered  into  by  mutual  agreement  for  supposed  mutual  advan- 
tage, not  amounting  to  consolidation.^ 

The  distinction  may  be  sharply  drawn.  The  validity  of  a 
consolidation  depends  upon  the  existence  of  statutory  authority 
therefor.  Questions  of  public  policy  regarding  consolidation 
are  not  material.  Unless  authorized  by  statute  a  consolidated 
corporation  cannot  be  created ;  if  authorized  it  is  not  against 
public  policy,  for  that  which  the  statute  permits  cannot  be 
against  public  policy. 

The  validity  of  a  combination,  on  the  other  hand,  generally 
depends  upon  considerations  of  public  policy.  Statutes 
seldom  authorize,  but  often  prohibit,  the  combination  of 
corporations.^ 

57   Fed.   58  (1893),   reversed  sub  nom.  Co.  v.  Commonwealth  (Pa.  1886),  7  Atl. 

Marbury  v.  Kentucky  Union  Land  Co.,  Rep.  368. 

62  Fed.  335  (1894),  acquisition  of  sub-  2  gge  post.  Part  V.,  "  Combinations  oj 

stantially  all  the  stock  of  one  corporation  Corporations." 

by  another  was  held,  under  the  circum-  *  An  alliance  or  voluntary  union  be- 

stances   there  shown,    to   amount  to  a  tween  two  railway  companies  with  re- 

"  temporary  consolidation."  spect  to  traffic  does  not  amount  to  an 

^  Pullman  Car  Co.  v.  Missouri  Pac.  amalgamation.    Shrewsbury,  etc.  R.  Co. 

R.  Co.,  115  U.  S.  597  (1885),  (6  Sup.  Ct.  v.    Stour  Valley   R.   Co.,  2    De    Gex, 

Rep.  194).     Compare  Pennsylvania  R.  M.   &    G.   880   (1852),   21    Eng.   Law 

20 


CHAP.    II.]      LEGISLATIVE   AUTHORITY   FOR   CONSOLIDATION.      §  17 

CHAPTER   II. 

LEGISLATIVE   AUTHORITY   FOR  CONSOLIDATION. 

I.    Necessity  for  Legislative  Authority. 

§17.     Consolidation  withont  Legislative  Authoritj  ultra  vires. 
§  18.     Consolidation  of  Quas^'-public  Corporations  without  Legislative  Aathority 
against  Public  Policy. 

II.    Conferring  and  Withdrawal  of  Legislative  Authority. 

§  19.     Power  of  Legislature  to  authorize  Consolidation. 

§  20.     Legislative  Sanction  —  How  expressed. 

§  21.     Public  Policy  regarding  Consolidation  of  Non-competing  Railroads. 

§  22.     What  Railroads  may  consolidate  —  Statutory  Provisions. 

§  23.     What  Business  Corporations  may  consolidate  —  Statutory  Provisions. 

§  24.     Power  of  Legislature  to  withdraw  or  limit  Right  to  consolidate  —  (A) 

In  Absence  of  Reserved  Powar. 
§  25.     Power  of  Legislature  to  withdraw  or  limit  Right  to  consolidate  —  (B)  In 

Exercise  of  Reserved  Power. 
§  26.     Power  of  Legislature  to  withdraw  or  limit  Right  to  consolidate  —  (C)  In 

Exercise  of  Police  Power. 

III.    Construction  of  Statutes  authorizing  Consolidation. 

§  27.     General  Rules  of  Construction. 

§  28.     Construction  of  Pai'ticular  Statutory  Provisions. 

§  29.  Construction  of  Statutes  authorizing  Consolidation  of  Railroads  —  Connect- 
ing or  Continuous  Lines. 

§  30.  Construction  of  Statutes  authorizing  Consolidation  of  Business  Corpora- 
tions. 

I.      Necessity  for  Legislative  Authority/. 

§  17.  Consolidation  without  Legislative  Authority   ultra   vires. 
—  The  charter  of  a  corporation  read  in  connection  with  the 

&  Eq.  628.  See  also  Midland  Great  ment  are  inconsistent  with  the  idea  of 
Western  R.  Co.  v.  Leech,  3  H.  L.  Cas.  consolidation.  It  follows,  then,  it  was 
872  (1852).  simply  a  contract  for  connecting  the 
A  temporary  co-operation  under  one  roads  of  the  respective  companies,  so  as 
management  does  not  constitute  a  con-  to  secure  a  continuous  line  between  dis- 
solidation.  Archer  v.  Terre  Haute  R.  tant  terminal  points." 
Co.,  102  111.  503  (1882),  (7  Am.  &  A  business  arrangement  made  under 
Eng.  R.  R.  Cas.  249),  where  the  court  .special  statutory  authority,  with  a  view 
said  :  "  Both  corporations  retained  their  to  operating  the  road  of  another  corn- 
separate  existence,  and  it  does  not  pany  as  a  branch  line,  does  not  effect  a 
appear  it  was  ever  contemplated  the  consolidation.  Pingree  v.  Michigan 
two  roads  should  he  merged  into  one  Central  R.  Co.,  118  Mich.  314  (1898), 
and  both  corporations  pass  to  one  man-  (76  N.  W.  Rep.  635). 
agemeut.    The  very  terms  of  the  agree- 

21 


§17 


INTERCORPORATE  RELATIONS. 


[part  I. 


general  laws  aj)i)licable  to  it,  is  the  measure  of  its  powers. 
The  enumeruticn  therein  of  powers  cunferrod  implies  the 
exclusion  of  other  powers,  and  a  corporation  can  e.xercise  no 
authority  not  granted  to  it,  expressly  or  by  necessary  im- 
plication, in  its  charter  or  other  legislative  act.^ 

There  is  also  said  to  be  an  implied  contract  as  well  between 
the  corporation  and  the  State  as  between  the  corj)oration  and 
its  stockholders  that  its  corporate  property  and  franchises 
shall  only  be  appropriated  to  uses  authorized  by  its  charter, 
and  any  acts  of  the  corporation  outside  the  limits  so  pre- 
scribed are  ultra  vires."^  Consolidation  necessitates  the  em- 
barkation of  corporate  properties  upon  a  new  undertaking  — 
a  joint  adventure  instead  of  an  individual  enterprise — and 
is   ultra   vires  unless  authorized  by  legislative   authority.^ 

In  so  far,  also,  as  consolidation  involves  the  creation  of  a 
new  corporation,  legislative  authority  is  as  essential  as  it  is 

'  Central   Transp.    Co.   v.    Pullman     sul)joct  the  capital  of  the  one  to  auswur 


Car  Co.,  1.39  U.  S.  24  (1891),  (11  Sup. 
Ct.  Rep.  478). 

"  A  charter  being  a  contract  giving 
a  corporation  all  the  powers  which  it 
can  exercise,  any  alteration  wliich  tlie 
corpor.ation  desires  to  inalte  tlierein 
must  in  the  first  place  have  the  sanction 
of  the  legislature."  Green's  Brice's 
Ultra  Vires   (2d  ed.),  632. 

2  Black  V.  Delaware,  etc.  Canal  Co., 
24  N.  J.  Eq.  405  (1873);  Abbott  v. 
Johnston,  etc.  Horse  R.  Co ,  80  N.  Y. 
27  (1880),   (36  Am.  Rep.   572). 

8  In  Pearce  v.  Madison,  etc.  R.  Co., 
21  How.  (U.  S.)  442  (1858),  Mr.  Justice 
Campbell  said :  "  The  rights,  duties, 
and  obligations  of  the  defendants  are 
defined  by  the  acts  of  the  Legislature  of 
Indiana  under  which  they  were  organ- 
ized, and  reference  must  be  had  to 
these  to  ascertain  the  validity  of  their 
contracts.  They  empower  tlie  defend- 
ants respectively  to  do  all  that  was  nec- 
essary to  construct  and  put  in  operation 
a  railroad  between  the  cities  which  are 
named  in  the  acts  of  incorporation. 
Tiiere  was  no  authority  of  law  to  con- 
solidate these  corporations  and  to  place 
both  under  the  same  management,  or  to 

22 


for  tlie  lial»ilities  of  the  other." 

See  also  New  York,  etc.  Canal  Co.  v. 
Fulton  Bank,  7  Wend.  (N.  Y.)  412 
(1801);  Blatchford  v.  Ross,  54  Barb. 
(N.  Y.)  42  (1869) ;  Greenville  Compress, 
etc.  Co.  V.  Planters'  Compress,  etc.  Co., 
70  Miss.  669  (1893),  (13  So.  Rep.  879, 
35  Am.  St.  Rep.  681);  Kavanaugh 
V.  Omaha  Life  Assn.,  84  Fed.  295 
(1897);  Home  Friendly  Soc.  v.  Tyler 
(Com.  PI).,  9  Pa.  Co.  Ct.  Rep.  617 
(1891).  Re  Era  Ins.  Soc,  30  Law  J. 
Eq.  (N.  s.)  137  (1860),  (6  Jur.  (n.  s.) 
1334,  9  Week.  Rep.  67).  In  Clinch 
V.  Financial  Corp.,  L.  R.  4  Ch.  App. 
117  (1868),  it  was  held  that  an  arrange- 
ment for  amalgamation  by  which 
liabilities  were  imposed  on  the  stock- 
holders was  void  as  ultra  vires  and 
semble.  that  such  an  arrangement  would 
be  void,  even  if  only  the  shareholders 
who  assented  to  it  were  bound  by  it. 
Many  of  the  railroad  cases  cited  in 
note  to  section  18  post,  while  illustrating 
the  principle  that  franchises  may  not  be 
transferred  without  legislative  sanction 
upon  grounds  of  public  policy,  also 
support  the  principle  stated  in  the  text, 
applicable  to  all  corporations,  tliat  an 
unauthorized  consolidation  is  ultra  vires. 


CHAP.    II.]      LEGISLATIVE   AUTHORITT   FOB  CONSOLIDATION.     §  18 

to  the  creation  of  a  corporation  in  the  first  instance.  An 
attempt  at  the  organization  of  a  consolidated  corporation  in 
the  absence  of  a  statutory  provision  for  consolidation  does 
not  even  create  a  corporation  de  facto,  since  corporations 
de  facto  can  only  exist  when  there  is  a  law  under  which  they 
may  be  incorporated.^ 

§  18.  Consolidation  of  Quasi-public  Corporations  -without 
Legislative  Authority  against  Public  Policy.  —  There  is  another 
principle,  in  addition  to  that  of  ultra  vires,  why  a  railroad 
company  or  other  quasi-puhlic  corporation^  cannot  transfer 
its  franchises  to  another  corporation,  through  the  process  of 
consolidation,  without  the  sanction  of  the  legislature  which 
granted  them.  That  principle  is,  that  where  such  a  corpora- 
tion has  had  granted  to  it,  by  its  charter,  franchises  and 
privileges  to  enable  it  to  provide  facilities  for  the  benefit  of 
the  public,  it  assumes  the  due  performance  of  those  functions 
as  the  consideration  of  the  grant,  and  any  contract  or  ar- 
rangement which  disables  it  from  performing  its  public 
duties  —  which  undertakes,  without  the  consent  of  the  State, 
to  transfer  to  others  the  rights  and  powers  conferred  by  the 
charter,  and  to  relieve  the  grantee  of  the  burden  imposed  — 
is  a  violation  of  the  contract  with  the  State  and  against 
public  policy.^     An  attempted  consolidation,  therefore,  with- 

1  American  Loan,  etc.  Co.  v.  Minne-  corporation.  Being  thus  at  once  a 
sota,  etc.  R.  Co.,  157  111.  641  (1895),  (42  public  corporation  existing  for  private 
N.  E.  Rep.  153).  See  "Irregular  and  gain  and  a  private  corporation  owing 
Invalid  Consolidations,"  ch.  9,  post.  public   duties,   a    railroad   company   is 

2  It  is  generally  held  that  a  railroad  called,  with  propriety,  a  g'!<rtSi'-public 
company  is  a  ^Kasi-public  corporation,  corporation.  See  United  States  v. 
The  State  grants  it  extraordinary  Trans-Missouri  Freight  Ass'n.,  166 
powers — the  right  to  condemn  lands  U.  S.  321  (1897),  (17  Sup.  Ct.  Rep. 
and  take  tolls  for  the  public  benefit.  540)  ;  Black  v.  Delaware,  etc.  Canal 
In  accepting  its  charter  it  assumes  Co.,  24  N.  J.  Eq.  469  (1873);  Chicago, 
obligations  to  the  State  and  to  the  etc.  R.  Co.  v.  Wabash,  etc.  R.  Co.,  61 
public,  and  to  that  extent  is  a  public  Fed.  997  (1894).  In  Pierce  v.  Com- 
corporation.  (Peoria,  etc.  R.  Co.  v.  monwealth,  104  Pa.  St.  155  (1883), 
Coal  Valley  Mining  Co.,  68  111.  489  however,  it  was  denied  that  a  railroad 
(1873)).  On  the  other  hand  the  stock-  company  is  a  gwasj-public  corporation, 
holders  furnish  the  means  for  the  and  it  was  said  to  be  "  a  private  cor- 
construction  and  equipment  of  the  rail-  poration  and  nothing  more." 

road,   and   are   entitled  to   the   profits  ^  Thomas  v.  Railroad  Co.,  101  U.  S. 

derived    from   its   operation.     To   this     71  (1879). 
extent,  a  railroad  company  is  a  privato 

23 


S  19 


INTERCORPORATE   RELATIONS. 


[part  I. 


out   legislative    sanction,   is  opposed   to    i)ublic   policy    and 
void.^ 

An  unauthorized  consolidation  of  corporations  owing  public 
duties  is  also  invalid  as  involving  a  delegation  of  corporate 
powers.^ 


II.      Conferring  and  Withdrawal  of  Legislative  Authoritg. 

§  19.  Pow^er  of  Legislature  to  authorize  Consolidation,  —  So 
far  as  the  public  rights  are  concerned,  the  power  of  the  legis- 
lature to  authorize  a  consolidation  of  corporations  is,  in  the 
absence  of  special  constitutional  restrictions,  unquestioned.^ 
The  State  has  the  same  power  to  authorize  several  existing 
corporations  to  associate  together  and  organize  themselves 
into  a  new  corporation  as  it  has  to  incorporate  individuals.* 
It  has  be»en  held,  however,  that  corporations  are  not  such 
"  persons  "  as  may  themselves  form  corporations.^ 

As  a  consolidated  corporation  becomes  a  new  and  distinct 


^  United  States :  Clearwator  v. 
Meredith,  1  Wall.  39  (18G3) ;  Shields  i-. 
Ohio,  95  U.  S.  322  (1877);  Loui.sville, 
etc.  R.  Co.  V.  Kentucky,  161  U.  S.  677. 
(1896),  (16  Sup.  Ct.  Rep.  714). 

Illinois :  American  Loan,  etc.  Co.  v. 
Minnesota,  etc.  R.  Co.,  157  111.  641 
(1895),  (42  N.  E.  Rep.  1.53). 

Indiana:  State  v.  Bailey,  16  Ind.  46 
(1861);  Shelbyville,  etc.  Turnpike  Co. 
V.  Barnes,  42  Ind.  498  (1873);  State 
f.  Beck,  81  Ind.  500  (1882) ;  Crawfords- 
Tille,  etc.  Turnpike  Co.  v.  State,  102 
Ind.  435  (1885),  (I  N.  E.  Rep.  864). 

Mississippi :  Adams  f.  Yazoo,  etc. 
R.  Co.,  77  Miss.  194  (1899),  (24  So. 
Rep.  200) ;  affirmed,  180  U.  S.  1  (1901), 
(21  Sup.  Ct.  Rep.  240). 

New  Jersey :  Black  v.  Delaware,  etc. 
Canal  Co.,  24  N.  J.  Eq.  455  (1873); 
Mills  V.  Central  R.  Co.,  41  N.  J.  Eq. 
1   (1886),   (2   Atl.   Rep.   453). 

Penns i/lvania :  Laumau  v.  Lebanon 
"Valley  R.  Co.,  30  Pa.  St.  42  (1858), 
(72  Am.  Dec.  685). 

Texas :  East  Line,  etc.  R.  Co.  v. 
State,  75  Tex.  434  (1889),  (12  S.  W. 
Rep.  690) ;  Gulf,  etc.  R.  Co.  v.  Newell, 

24 


73  Tex.  334  (1889),  (11  S.  W.  Rep. 
342);  Mi.ssouri  Pac.  R.  Co.  v.  Owens, 
1    White   &   W.   Civil  Cas.   Ct.   App. 

§  385  (1883). 

England :  Charlton  v.  Newcastle,  etc. 
R.  Co.,  5.  Jur.  (n.  8.)  1096  (1859). 

The  principle  that  the  fiaiichises  of 
(7«(7S('-public  corporations  cannot  be 
transferred  by  the  process  of  consoli- 
dation applies  ecjually  to  any  form  of 
transfer  —  sale  or  lease — and  is  sup- 
ported by  cases  referring  to  any  form 
(.see  post,  ch.  12,  16).  An  attempt 
has  been  made,  however,  to  classify  the 
cases  under  their  distinctively  appro- 
priate heads. 

2  See  post,  ch.  12:  "Sales  oj 
Franchises^ 

8  Clearwater  v.  Meredith,  1  Wall. 
(U.  S.)  39  (1863)  ;  Black  v.  Delaware, 
etc.  Canal  Co.,  24  N.  J.Eq.455  (1873). 

*  State  Treasurer  v.  Auditor  Gen- 
eral, 46  Mich.  233  (1884),  (9  N.  W. 
Rep.  258). 

*  Factors,  etc.  Ins.  Co.  v.  New 
Harbor  Protection  Co.,  37  La.  Ann. 
233  (1885).     See  also;7osf,  §  266. 


CHAP.   IT.]      LEGISLATIVE   AUTHORITY    FOR   CONSOLIDATION.      §  19 

corporation,  a  special  act  authorizing  consolidation  con- 
travenes a  constitutional  provision  against  the  creation  of 
corporations  by  special  act.^  For  the  same  reason  a  consoli- 
dated corporation  may  be  organized  for  the  full  statutory 
period  irrespective  of  the  terms  of  existence  of  the  constituent 
corporations,  and  it  cannot  be  objected  that  the  consolidation 
in  effect  extends  the  existence  of  such  corporations  beyond 
the  period  fixed  by  law.^ 

Tiie  existence  of  an  outstanding  contract  between  a  con- 
stituent corporation  and  an  individual  does  not  prevent  the 
legislature  from  authorizing  a  consolidation  upon  the  ground 
that  the  obligation  of  such  contract  would  be  impaired,  where 
the  act  of  consolidation  provides  that  the  consolidated  com- 
pany shall  assume  and  discharge  the  liabilities  of  the  con- 
stituent corporations.  In  such  a  case  it  was  said  by  the 
Supreme  Court  of  the  United  States  that  "  proper  care  was 
taken  by  the  legislature  to  protect  the  rights  of  these  com- 
plainants by  incorporating  into  the  act  uniting  the  two  col- 
leges a  provision  that  the  new  corporation  should  discharge 
and  perform  those  liabilities  without  diminution  or  abate- 
ment. Such  contrasts  were  made  with  the  trustees,  and  not 
with  the  State,  and  it  is  a  mistake  to  suppose  that  the  ex- 
istence of  such  a  contract  between  the  corporation  and  an 
individual  would  inhibit  the  legislature  from  altering,  mod- 
ifying, or  amending  the  charter  of  the  corporation  by  virtue 
of  a  right  reserved  to  that  effect,  or  with  the  assent  of  the 
corporation,  if  in  view  of  all  the  circumstances  the  legislature 

1  Shields    v.    Ohio,    95    U.    S.   323  The   language  is  broad  and  clear,  and 

(1877):    "If    the     argument    of     the  forbids    a    construction    which    would 

learned    counsel    for    the    plaintiff   in  permit  such  a  result." 

error  be  correct,  the  constitntioual  re-  2  'phe  consolidated   corporation   be- 

strictious  can  be  readily  evaded.     Laws  comes  a  new  and  distinct  corporation 

may  be  passed   at  any   time,  enacting  which  may  be  organized  for  the  terra  of 

that  all  the  valuable  franchises  of  desig-  fifty  years,  irrespective  of  the  term  of 

nated  corporations  antedating  the  Con-  existence  of   the    constituent    corpora- 

stitution  shall,  upon  their  dissolution,  tions,  and  it  cannot  be  objected  to  the 

voluntary   or   otherwise,    pass    to   and  consolidation  that  it  has   the  effect  to 

vest  in   certain   newly  created  institu-  extend  the  existence  of  the  constituent 

tions  of  the  like  kind.     The  claim  of  corporations  beyond  the  period  of  fifty 

the     inviolability    of    such    franchises  years  fixed  for  each  of   them.     Market 

should  rest  on  the  same  foundation  as  St.    R.  Co.    v.   Hellman,  109   Cal.    571 

the   afHrmation    in    the    present    case.  (1895),  (42  Pac.  Rep.  225). 

25 


§10 


INTERCORPORATE   RELATIONS. 


[part  I. 


should  sec  fit  to  exercise  that  power."  ^  In  a  still  earlier 
case  it  was  intimated  by  the  same  Court  that  a  consolida- 
tion might  be  authorized  without  special  provision  being 
made  for  the  creditors  of  the  constituent  companies.^ 

State  legislation  authorizing  the  consolidation  of  railroad 
corporations  of  several  States  is  not  a  regulation  of  interstate 
commerce  in  violation  of  the  Constitution  of  the  United  States, 
in  the  absence  of  action  by  Congress.  The  fact  that  Congress 
has  the  power  to  legislate  upon  the  subject  does  not  take 
away  the  power  of  the  State.  In  Boardman  v.  Lake  Shore^ 
etc.  R.  Co.,^  the  New  York  Court  of  Aj)peals  said  :  "  It  is  not 
the  power  itself,  but  its  exercise,  that  is  inconsistent  with  the 
exercise  of  the  same  power  by  the  State  legislature.  It  is  the 
establishment  of  such  laws  by  Congress  as  are  inconsistent 


*  Pcuusylvaiiia  College  Cases,  13 
Wall.  (U.  S.)   222    (1871). 

*  Smith  V.  Chesapeake,  etc.  Canal 
Co,  14  I'et.  (U.S.)  48  (1840)  :  "There 
can  be  no  duulit  tliat  the  States  of  Vir- 
ginia and  Maryland  in  granting  the 
charter  of  the  Ciiesapeake  and  Ohio 
Canal  Company  had  the  power  to 
authorize  a  surrender  of  the  charter  of 
the  I'otomac  Company,  with  the  consent 
of  the  stockholders ;  and  to  make  the 
provision  which  they  did  make  for  the 
creditors  of  the  company.  This  assign- 
ment does  not  impair  the  obligation  of 
the  contract  of  any  creditor  of  the 
company,  nor  place  him  in  a  worse 
position  in  regard  to  his  demand.  The 
means  of  payment  possessed  by  the 
old  company  are  carefully  preserved 
and,  indeed,  guaranteed  by  the  new 
corporation.  And  if  the  fact  can  be 
established,  which  is  denied  by  the 
defendants,  that  some  bona  fide  cred- 
itors of  the  Potomac  Company  were 
unprovided  for  in  the  new  charter,  and 
consequently  have  no  redress  against 
the  defendant,  it  does  not  follow  that 
they  are  without  remedy." 

^  Boardman  v.  Lake  Shore,  etc.  R. 
Co.,  84  N.  Y.  185  (1881).  The  Court 
also  said  :  "  There  is,  we  think,  no  force 
in  the  position  that  the  acts  of  the  legis- 
latures  of  the  several  States  through 

26 


which  the  railroa<ls  run,  so  far  as  they 
relate  to  or  authorize  the  consolidatiOQ 
in  the  adjoining  States,  are  in  violatioo 
of  subdivision  3  of  section  8  of  the  first 
article  of  tlie  Constitution  of  the  United 
States,  which  confers  upon  Congress  the 
power  '  to  regulate  commerce  with  for- 
eign nations  and  among  the  several 
States.'  It  is  not  claimed  that  Con- 
gress has  legislated  in  respect  to  the 
subject,  or  assumed  to  exercise  the 
power  conferred  by  the  Constitution, 
and  it  has  not  yet  been  decided  that  the 
provision  cited  requires  that  the  power 
conferred  should  be  exercised  by  Con- 
gress alone,  and  is  taken  away  entirely 
from  the  control  of  the  State  legisla- 
tures. The  conclusion,  therefore,  is  in- 
evitable that  in  the  absence  of  such 
legislation  by  Congress,  the  power  ex- 
ists in  the  State  to  legislate  upon  the 
subject." 

The  proposition  —  not  necessary  to 
the  decision  —  that  the  State,  in  the  ab- 
sence of  Congressional  action,  may  leg- 
islate concerning  interstate  commerce  eo 
nomine,  is  not  good  law.  See  Chicago, 
etc.  R.  Co.  V.  Solan,  169  U.  S.  133 
(1898),  (18  Sup.  Ct.  Rep.  289).  Also 
Louisville,  etc.  R.  Co.  v.  Kentucky,  161 
U.  S.  701  (1896),  (16  Sup.  Ct.' Rep. 
714). 


CHAP,    II.]      LEGISLATIVE   AUTHORITY   FOR    CONSOLIDATION.     §    20 

with  the  laws  of  the  State  and  not  the  right  to  establish  a 
uniform  system." 

§  20.  Legislative  Sanction  —  How  expressed.  —  Legislative 
approval  of  consolidation  may  be  expressed  in  various  ways. 
A  grant  of  power  to  consolidate  contained  in  the  charters  of  the 
constituent  corporations  or  in  general  laws  passed  prior  to  their 
incorporation  furnishes  undoubted  authority.^  Acts  passed 
subsequent  to  the  incorporation  of  the  companies  but  prior  to 
their  consolidation,  are,  subject  to  constitutional  objections  to 
be  hereafter  noticed,^  sufficient.^ 

It  is  not  essential  that  authority  should  be  granted  before 
consolidation.  The  legislature  can  validate  after  the  fact  that 
which  it  may  authorize  in  the  first  instance,  and  a  subsequent 
act  ratifying  an  informal  consolidation  has  the  same  effect  as 
a  prior  grant  of  power.*  Express  ratification  is  not  neces- 
sary. Recognition  by  the  legislature  of  the  consolidated  cor- 
poration cures  any  defect  arising  from  the  want  of  legislative 
authority  to  consolidate.^  Legislative  recognition  amounts  to 
legislative  ratification.  General  statutes  authorizing  the  con- 
solidation of  corporations  are,  however,  not  retroactive  and  do 
not  apply  to  consolidation  agreements  made  prior  to  their 
enactment.^ 


1  Fisher    v.  Evansville,  etc.  R.  Co.,         *  The   passage  of  a  legislative  act 
7  Ind.  407  (1856).  whereby  the  existence  of  a  consolidated 

2  Post,  §  43.  corporation  is  expressly  recognized  is  a 

3  Sparrow  v.  Evansville,  etc.  R.  Co.,  ratification  of  and  legalizes  the  consoli- 
7  Ind.  369  (1856).  dation.     Louisville  Trust  Co.  v.  Louis- 

*  "The   legislature    has    the    same  ville,   etc.    R.  Co.,  75    Fed.  433  (1896). 

power  to  ratify  and  confirm  an  irregu-  See    also    United    States   v.   Southern 

larly   organized    corporate    body    that  Pac.  Co.,  45  Fed.  596   (1891);  Mead  v. 

they  have  to  create  a  new  one.     And  New   York,  etc.    R.    Co.,  45   Conn.  199 

by  the  act  confirming  the  consolidation  (1877) ;    Atlantic,    etc.    R.    Co.   v.   St. 

before  then  entered  into,  the  corporate  Louis,  66   Mo.  228  (1877);    McCauley 

body  which  was  organized  in  accord-  v.  Columbus,   etc.  R.  Co.,  83   111.  352 

ance  with    the    act   of    consolidation,  (1876). 

became  legal,  notwithstanding  such  or-  ^  Hatcher  v.  Toledo,  etc.  R.  Co.,  62 
ganization  may  have  been  irregular."  111.  480  (1872) :  "The  law  is  not  retro- 
Mitchell  V.  Deeds,  49  111.  416  (1867),  spective  in  terms  and  cannot  be  made 
(95  Am.  Dec.  621).  so  by  any  fair  construction.  ...  It  is 

See  also  Racine,  etc.  R.  Co.  v.  Farm-  manifest  that  this  act  was  intended  to 

ers  Loan,  etc.  Co.,  49  111.  331  (1868),  (95  apply  to  companies  which  might  effect 

Am.   Dec.  595).     Bishop  r.   Brainerd,  a  consolidation  after  its  passage." 
28  Conn.  289  (1859). 

27 


§  21  INTERCORPORATE   RELATIONS.  [PART    I. 

§  21.  Public  Policy  regarding  Consolidation  of  Non-compet- 
ing Railroads.  —  Although  authority  to  amalgamate  has  been 
granted,  by  special  act,  to  railroad  companies  in  England,  it 
may  be  said  that  the  public  policy  of  that  nation,  as  mani- 
fested by  acts  of  Parliament  and  by  the  appointment  of  parlia- 
mentary committees  to  investigate  the  subject,  is  opposed  to 
the  consolidation  of  such  companies.^ 

In  America,  however,  the  public  policy  of  nearly  all  the 
States,  as  indicated  by  the  enactment  of  general  consolida- 
tion acts,  is  in  favor  of  the  consolidation  of  non-competing 
railroad  corporations.  The  Court  of  Appeals  of  New  York  has 
said  that  "  whatever  may  be  the  rule  in  other  States  or  in 
England,  the  public  policy  of  this  State,  as  manifested  by 
numerous  acts  of  the  legislature,  has  always  been  not  only  to 
afford  the  fullest  scope  for  the  consolidation  and  reorganiza- 
tion of  non-competing  railroads  and  railroad  corporations,  but 
also  for  the  transfer  of  the  use  of  such  roads  and  their  fran- 
chises by  one  corporation  to  another."  2  It  has,  also,  been 
said  in  regard  to  the  Illinois  statutes  authorizing  consolidation 
and  their  construction  by  the  courts  of  that  State  that  "great 
encouragement  has  been  given  to  the  union  of  lines  of  rail- 
road for  the  purpose  of  having  them  operated  under  some 
general  management,  the  result  of  which  has  been  the  con- 
solidation of  many  lines  of  road  which  were  originally  separate 
and  distinct,  but  which  are  now  operated  under  a  uniform 
system."^ 

The  public  policy  of  Illinois  has,  however,  been  adverse  to 
the  consolidation  of  domestic  railroad  companies  with  those 
of  other  States.* 

^  One  ground  of  objection   is  indi-  tained  and  not  expressly  sanctioned  by 

cated  iu  East  Anglian  II.  Co.  v.  Eastern  the  legislature." 

Counties  R.  Co.,  11  Com.  B.  812  (1851) :  2  Woodruff  v.  Erie  R.  Co.,  93  N.  Y. 

"The  public  also  has  an  interest  iu  the  615  (1883). 

proper   administration    of    the   powers  *  Dimpfel  r.  Ohio,  etc.  R.  Co.,  9  Biss. 

conferred  by  the  act.    The  comfort  and  (U.  S.)  127  (1879),  (8  Rep.  641,  7  Fed. 

safety  of  the  line  may  be  seriously  im-  Cas.  722). 

paired   if   the  money  supposed    to    be  *  In    American   Loan,    etc.    Co.    v. 

necessary  and  destiued  by  Parliament  Minne.sota,    etc.    R.   Co.,    157    111.   641 

for  the  maintenance  of  the  railway,  be  (1895),  (42   N.  E.   Rep.    153),   the  Su- 

expended    in   other    undertakings   not  preme   Court  of   Illinois  said :     "  This 

contemplated    when    the    act  was   ob-  legislation  taken  in  connection  with  the 

28 


CHAP.    II.]      LEGISLATIVE   AUTHORITY    FOR    CONSOLIDATION. 


OO 


§  22.  "What  Railroads  may  consolidate  —  Statutory  Provi- 
sions. —  Nearly  all  the  States  have  general  railroad  consolida- 
tion statutes,  of  which  an  abstract  is  printed  in  the  subjoined 
note.^ 


specific  repeal  of  the  act  of  1854  seems 
to  indicate  a  legislative  public  policy 
adverse  to  the  consolidation  of  railroad 
companies  organized  under  the  laws 
of  this  State  with  railroad  companies 
formed  in  other  States.  And  the  same 
general  policy  seems  to  be  denoted  by 
the  proviso  to  the  act  approved  March 
30,  1875.  .  .  .  The  proviso  is,  that 
nothing  in  that  act  shall  be  so  con- 
strued as  to  authorize  any  corporation 
acting  by  or  organized  under  the  laws 
of  any  other  State  to  purchase  or  other- 
wise become  the  owner  of  any  railroad 
in  this  State." 

1  Alabama.  Civil  Code  (1896),  ch. 
28,  §  1166  (as  amended  by  acts  1900- 
01,  p.  237)  :  "  Whenever  the  lines  of 
any  two  or  more  railroads,  or  contem- 
plated railroads,  chartered  under  the 
laws  of  this  or  any  other  State  which, 
when  completed,  may  admit  passage  of 
cars  over  any  two  or  more  of  such  roads 
continuously  without  break  or  interrup- 
tion," such  companies  may  consolidate. 

Arizona.  Rev.  Stat.  1901,  par.  864  : 
Railroad  corporations  shall  have  power 
"  to  consolidate  with  one  or  more  cor- 
porations formed  under  this  title,  or 
under  the  laws  of  any  other  State  or 
Territory." 

Arlcansas.  Sand,  and  Hill's  Digest 
(1894),  §  6314:  "Any  two  or  more 
railroad  companies  in  this  State  .  .  , 
owning  railroads  .  .  .  which  .  .  .  form 
a  continuous  line  or  railroad,  continu- 
ing and  running  in  the  same  general 
direction  are  hereby  authorized  to  con- 
solidate their  stock  and  make  joint 
stock  with  any  connecting  railroad, 
whether  within  or  without  this  State, 
and  form  one  company,  owning  and  con- 
trolling such  continuous  line  of  road." 

Sections  6319  and  6320  provide  for 
the  consolidation  of  domestic  corpora- 
tions with  those  of  an  adjoining  State 
making  a  "  continuous  line."  See  also 
t6.  §  6328. 


California.  Pomeroy's  Civil  Code 
(1901),  §  473:  "Any  railroad  com- 
pany incorporated  under  the  laws  of 
this  State  may  consolidate  with  one  or 
more  railroad  companies  incorporated 
under  the  laws  of  this  State,  or  under 
the  laws  of  any  other  State  or  Territory 
of  the  United  States." 

Colorado.  Mill's  Anno.  Stat.,  §  604  : 
"  Any  railroad  company  ...  of  this 
State  whose  .  .  .  road  is  made  ...  to 
the  boundary  line  of  the  State,  or  to 
any  point  either  in  or  out  of  the  State  " 
may  merge  and  consolidate  with  "  any 
railroad  company  or  companies  ...  of 
any  adjoining  State  or  Territory  when- 
ever the  two  or  more  railroads  of  the 
companies  or  corporations  .  .  .  shall 
or  may  form  a  continuous  line  of  rail- 
road with  each  other  or  by  means  of 
an  intervening  railroad." 

For  consolidation  statute  applying 
to  any  corporation  see  26.  §  628. 

Connecticut.  Gen.  Stat.  (1888), 
§  3443  :  "  Any  railroad  corporation  in- 
corporated under  the  laws  of  this  State 
for  the  purpose  of  building  and  operat- 
ing railroads  within  this  State  extending 
to  or  beyond  the  boundary  line  of  this 
State  may  consolidate  .  .  .  with  .  .  . 
any  other  incorporated  railroad  com- 
pany whose  line  of  road  .  .  .  is  situated 
wholly  outside  this  State." 

Delaware.  Laws  1901  (Corp.  Law), 
§  91  :  "Any  railroad  of  this  State" 
may  "  consolidate  with  any  other  rail- 
road company  incorporated  under  the 
laws  of  this  State,  or  any  other  State  of 
the  United  States,  whose  railroads  with- 
in or  without  this  State  shall  connect, 
or  form  a  continuous  line,  with  the  rail- 
road of  the  company  so  consolidated." 

For  other  railroad  consolidation  stat- 
utes see  Laws  1901  (Corp.  Law),  §  123. 
Laws  1899  (Corp.  Law),  §§88,  121. 

Florida.  Rev.  Stat.  1891,  §  2248: 
"  Any  railroad  ...  in  this  State  shall 
have    power  ...  to  make    and  enter 

29 


§22 


INTERCORPORATE   RELATIONS. 


[part  I. 


These  statutes,  as  a  general  rule,  provide  only  for  the  con- 
solidation of  corporations  owning  connecting  or  continuous 


into  contracts  with  any  railroad  .  .  , 
which  has  constructed  or  shall  here- 
after construct  any  railroad  .  .  .  with- 
in this  State  or  in  another  State,  as 
will  cnahle  said  company  to  run  their 
road  in  connection  witli  each  other,  and 
to  merge  their  stock,  or  to  consolidate 
with  any  company  within  or  without 
this  State." 

Geon/ia.  Code  1895,  vol.  2,  §  2179: 
"Any  railroad  company  incorporated 
under  the  provisions  of  this  article 
shall  have  authority  .  .  .  to  consolidate 
the  same  with  those  of  any  other  rail- 
road company  incorporated  under  the 
laws  of  this  or  any  other  State  or  of 
the  United  States  whose  railroad  with- 
in or  without  this  State  shall  connect 
with  or  form  a  continuous  line  with  the 
railroad  of  the  company  incorj)orateil 
under  this  law  upon  such  terms  as  may 
be  agreed  upon." 

See  also  Code,  §2173. 

Idaho.  Laws  1899,  p.  1 13,  as  amended 
by  Laws  1901,  p.  214  :  "Any  railroad 
corporation  chartered  by  or  organized 
under  the  laws  of  this  State,  or  of  any 
State  or  Territory  or  under  the  laws  of 
the  United  States,  and  authorized  to  do 
business  in  this  State,  may  consolidate 
its  stock  .  .  .  with  any  other  railroad 
corporation  whether  within  or  without 
the  State,  when  such  other  railroad  cor- 
poration does  not  own  any  competing 
line  of  railroad." 

Illinois.  Rev.  Stat.  1901,  p.  1376, 
§  39  :  "  Whenever  any  railroad  which 
is  situated  partly  in  this  State,  and 
partly  in  one  or  more  other  States  ; 
and  heretofore  owned  by  a  corporation 
formed  by  consolidation  of  railroad  cor- 
porations of  this  or  any  other  States. 
has  been  sold  pursuant  to  the  decree  of 
any  court  .  ,  .  and  the  same  has  been 
purchased  as  an  entirety,  and  is  now, 
or  .  .  .  may  be  held  in  the  name  or  as 
the  property  of  two  or  more  corpora- 
tions, incorporated  respectively  under 
the  laws  of  two  or  more  of  the  States  in 
which  said  railroad  is  situated,  it  shall 

30 


be  lawful  for  the  corporation  so  created 
in  this  State  to  consolidate  .  .  .  with 
the  .  .  .  corporation  or  corporations  of 
such  other  State  or  States.  .  .  .  Pro- 
vided, that  no  consolidation  shall  take 
place  with  any  railroad  owning  a  par- 
allel or  competing  line." 

Indiana.  IJurns'  Anno.  Stat.  Rev. 
1901,  §  .')215:  "Any  railroad  company 
incorporated  under  the  provisions  of 
this  act  shall  also  have  power  to  con- 
solidate with  other  railroa<l  corpora- 
tions in  a  continuous  line  cither  within 
or  without  this  State  upon  such  terms 
as  may  be  agreed  upon  by  the  corpo- 
rations owning  the  same."  This  act 
does  not  permit  consolidation  with  other 
Indiana  railroa<ls  equipped  and  in 
operation. 

For  statutes  permitting  consolidation 
generally  of  steam  or  electric  railroads 
see  ill.  §§  5257,  5258.  5262. 

Iowa.  Code  1897,  §  2036:  "Any 
corporation  organized  under  the  laws 
of  this  State  for  the  purpose  of  con- 
structing and  operating  a  railway  may 
join,  intersect,  and  unite  its  railway  with 
that  of  any  other  corporation  at  such 
point  upon  the  boundary  line  of  this 
State  as  may  be  agreed  upon,  and  .  .  . 
may  merge  and  consolidate  the  stock, 
property,  franchi.ses,  and  liabilities  of 
such  corporations,  making  the  same  one 
corporation  upon  such  terms  as  may  be 
agreed  upon  not  in  conflict  with  the 
law." 

Kansn.t.  Gen.  Stat.  ch.  70,  §  92  : 
"  Any  two  or  more  railroad  companies 
in  this  State,  existing  under  general  or 
special  laws,  and  owning  connecting 
lines  of  railroad  in  this  State  .  .  .  and 
any  railroad  organized  as  aforesaid  and 
any  railroad  company  duly  organized 
and  existing  under  the  laws  of  any 
other  State  or  Territory,  whose  lines  of 
railroad  shall  connect  at  the  State  line  " 
may  consolidate. 

Kentucky.  Stat.  1899,  ch.  32,  §  770 : 
"  Any  two  or  more  companies  may, 
unless  otherwise  provided  by  law,  con- 


CHAP.    II.]      LEGISLATIVE   AUTHORITY   FOR   CONSOLIDATION.      §  22 


lines  of  railroad,  although  a  varying  phraseology  is  employed 
in  expressing  the  legislative  intention.     The  reason  for  pro- 


solidate  into  a  single  company  in  the 
manner  provided  in  Article  I  of  this 
chapter." 

Louisiana,  Eev.  Laws  1897  (Act 
38,  1882,  p.  50),  page  758:  "  Any  rail- 
ro<ad  company  or  companies  organized 
under  the  laws  of  this  State,  general  or 
special,  shall  have  the  right  and  power 
to  consolidate  with  any  railroad  com- 
pany or  companies  organized  under  the 
laws,  general  or  special,  of  any  other 
State  and  form  thereby  a  new  corpora- 
tion. .  .  ." 

Rev.  Laws  1897  (Act  39, 1877,  p.  50), 
page  757  :  "  Every  railroad  corporation 
in  this  State  whether  created  under  a 
general  or  special  law,  or  existing  by 
virtue  of  a  charter  or  law  of  this  or 
any  other  State,"  can  consolidate  with 
"  any  other  railroad  corporation  of  this 
or  any  other  State  whose  road  shall 
connect  with  or  intersect  the  road  of 
such  railroad  corporation  or  any  branch 
thereof." 

Maryland.  Laws  1890,  ch.  553  : 
"  Any  railroad  company  ...  of  this 
State  "  may  "  consolidate  with  any  other 
railroad  company  incorporated  under 
the  laws  of  this  or  any  other  State,  or 
of  the  United  States,  whose  railroad 
wathin  or  without  this  State  shall  con- 
nect with  or  form  a  continuous  Hue 
with  the  railroad  of  the  company  so 
consolidating." 

Michigan.  Pub.  Acts  1899,  p.  459, 
§  29 :  "  Any  railroad  company  in  this 
State  forming  a  continuous  or  con- 
necting line  with  any  other  railroad 
company,  may  consolidate  with  such 
other  company,  either  in  or  out  of  this 
State,  or  partly  within  or  partly  without 
this  State." 

Minnesota.  Gen.  Stat.  1894,  §  2715  : 
"  Any  railroad  corporations  ...  of  the 
State  or  Territory  of  Minnesota,  or  .  . 
.  .  of  any  other  State  or  States  or  Ter- 
ritory, whose  lines  of  railroad  now  or 
hereafter  constructed  within  or  with- 
out this  State,  can  be  lawfull}-  connected 
and  operated  together  to  constitute  one 


continuous  main  line,  with  or  without 
branches,  so  as  to  admit  of  the  passage 
of  trains  over  them  without  break  or 
interruption,  may  consolidate." 

lb.  §  2718:  "  Whenever  the  lines  of 
railroad  of  any  railroad  corporation 
whetlier  organized  under  this  title  by 
virtue  of  a  special  charter,  or  any  por- 
tion of  such  lines,  have  been  or  may  be 
constructed  so  as  to  admit  the  passage 
of  freight  or  passenger  cars  over  any  two 
or  more  of  such  roads  continuously, 
without  break  or  interruption,  such  cor- 
porations may  consolidate  themselves 
into  a  single  corporation." 

Mississippi.  Anno.  Code  1892, 
§  3577  :  "  Every  railroad  corporation 
organized  under  the  provisions  of  this 
chapter  shall  have  and  exercise  the  fol- 
lowing powers  :  (§  3587)  "  To  consoli- 
date with  any  other  railroad  company 
in  or  out  of  this  State,  with  the  consent 
of  the  railroad  commission,  upon  such 
terms  as  the  consolidating  companies 
may  agree  upon  ;  but  a  consolidation 
shall  not  be  made  with  a  parallel  or 
competing  road." 

Missouri.  Rev.  Stat.  1899,  §  1059: 
"  Any  two  or  more  railroad  companies 
in  this  State,  existing  under  either  gen- 
eral or  special  laws,  and  owning  rail- 
roads wholly  or  in  part  which,  when 
completed  and  connected,  will  form  in 
whole  or  in  the  main,  one  continuous 
line  of  railroad,"  are  authorized  to  con- 
solidate. 

//).  §  1060  provides  for  furnishing  aid 
to  and  consolidating  with  connecting 
railroads. 

Montana.  Civil  Code  1895,  vol.  2, 
§911:  "Any  two  or  more  railroad 
corporations  whose  respective  lines,  not 
being  parallel  or  competing  lines,  are 
wholly  or  partly  within  this  State, 
whether  chartered  by  or  organized  un- 
der the  laws  of  the  State  or  Territory  of 
Montana  or  of  the  United  States,  or  of 
any  other  State  or  Territory,  when  their 
respective  lines  of  road,  or  any  branch 
thereof,  so  connect  within  this  State  that 

31 


§22 


INTERCORPORATE   RELATIONS. 


[part  I. 


visions  of  this  character  is  that  the  creation  of  the  through 
line  conduces  to  the  public  convenience  and  welfare  by  in- 


they  may  operate  together  as  one  prop- 
erty, may  consolidate." 

lb.  §  890 :  "  Any  railroad  corpora- 
tion .  .  .  may  consolidate  with  any 
road  not  a  parallel  or  competing  line." 

Ih.  §  923  proviiles  for  consolidation 
of  domestic  with  domestic  or  foreign 
railroads. 

Nebraska.  Comp.  Stat.  1901,  §  1764  : 
"  Whenever  the  lines  of  railroad  of  any 
railroad  companies  in  this  State,  or 
any  portion  of  such  lines,  have  been 
or  may  lie  constructed,  so  as  to  admit 
passage  of  liurden  or  passenger  cars 
over  any  two  or  more  of  such  roads 
continuou.sly,  without  break  of  gauge 
or  interrujition,"  such  companies  may 
consolidate. 

Nevada.  Gen.  Stat.  (1885),  §  874: 
"  Two  or  more  railroads  "  may  "  amal- 
gamate and  consolidate  their  capital 
stock,  debts,  property,  assets,  and  fran- 
chises." 

Neio  Hampshire.  Laws  1901,  ch.  156, 
§  22  (p.  503)  :  "  If  two  or  more  rail- 
road corporations  at  meetings  of  their 
respective  stockholders  .  .  .  have  agreed 
by  a  two-thirds  vote  of  the  stock  repre- 
sented and  voting  at  such  meetings,  to 
unite  and  form  a  single  corporation," 
petition  is  made  to  the  Supreme  Court 
to  see  that  the  public  good  will  be  pro- 
moted by  such  a  union,  and  if  the  court 
determines  that  the  public  good  re- 
quires it,  the  other  conditions  being 
complied  with,  they  shall  authorize  the 
union  to  be  made. 

New  Jersey.  Gen.  Stat.  (1895),  R.R. 
Law,  par.  55,  p.  2651  :  "  Any  corpora- 
tion incorporated  under  this  act  or  any 
of  the  laws  of  this  State "  may  "  con- 
solidate .  .  .  with  .  .  .  any  other  com- 
pany or  companies  of  this  or  any  other 
State." 

lb.  par.  82,  p.  2659  :  "  All  railroad 
corporations,  now  or  hereafter  organized 
under  the  act  to  which  this  is  a  supple- 
ment, whose  railroads  form  connecting 
lines  by  means  of  the  intervening  line 
or  lines  of  railroad  of  any  other  railroad 

32 


corporation  or  corporations,  also  or- 
ganized or  to  be  organized  under  said 
act,  and  which,  if  having  continuous 
lines,  would  have  the  right  under  the 
laws  of  this  State  to  merge  and  consoli- 
date. .  .  .  may  so  .  .  .  consolidate, 
notwithstanding  that  their  lines  are  not 
continuous  but  are  connected  by  such 
intervening  line  or  lines." 

lb.  par.  249,  p.  2696  :  "  Railroad  cor- 
porations chartered  by  .  .  .  the  laws  of 
this  State,  and  whose  railroads  ...  lie 
wholly  witliin  this  State,  and  which 
have  been  authorized  to  hold  other  rail- 
roads under  lease  or  to  lease  their  prop- 
erties, and  which  said  corporations  are 
now  bound  by  contracts  of  lease,  and 
also  such  corporations  whoso  railroads 
are  now  constructed  and  lying  within 
the  State  as  are  now  authorized  to  con- 
solidate .  .  .  [are  authorized]  to  absolu- 
tely consolidate." 

lb.  par.  280,  p.  27a3,  as  amended  by 
par.  289,  p.  2705  :  "  Any  railroad  con»- 
pany  or  corporation  organized  under  the 
laws  of  this  State "  may  "  merge  and 
consolidate  .  .  .  with  .  .  .  any  railroad 
company  or  companies  of  this  State 
whenever  the  said  railroads  .  .  .  shall 
or  may  form  connecting  or  continuous 
line  or  lines  of  railroads." 

lb.  par.  312,  p.  2709  :  "  No  corpora- 
tion incorporated  under  the  act  entitled 
'an  act  to  authorize  the  formation  of 
railroad  corporations  and  to  regulate  the 
same  '  .  .  .or  under  any  other  law  or 
charter  enacted  or  granted  by  the  legis- 
lature of  this  State,  shall  have  power 
...  to  unite,  consolidate,  or  merge  .  .  . 
with  any  foreign  corporation  until  the 
consent  of  the  legislature  of  this  State 
shall  have  been  first  obtained." 

New  Mexico.  Comp.  Laws  1897, 
§  3892  :  "  Any  railroad  company  ...  or- 
ganized under  the  law  of  this  Territory 
or  of  this  Territory  and  any  other  Terri- 
tory or  State  .  .  .  operating  .  .  .  either 
wholly  within  or  partly  within  and  partly 
without  this  Territory,"  may  consolidate 
with  "any  other  railroad  company  or 


CHAP.    II.]       LEGISLATIVE   AUTHORITY    FOR    CONSOLIDATION.     §  22 


creasing  facilities  for  travel  and  permitting  lower  rates,  while 
the  combination  of  separate  and  disconnected   roads  would 


companies  organized  under  the  laws  of 
this  Territory,  or  under  the  laws  of  this 
Territory  and  any  other  Territory  or 
State  whenever  the  two  or  more  rail- 
roads .  .  .  shall  or  may  form  a  contin- 
uous line  of  railroad  with  each  other, 
or  by  means  of  an  intervening  railroad, 
bridge,  or  ferry." 

Neiv  York.  Birdseye's  Rev.  Stat. 
1896  (R.  R.  Law,  §  70),  p.  2552:  "Any 
railroad  or  other  corporation,  organized 
under  the  laws  of  this  State,  or  of  this 
State  and  any  other  State,  and  owning 
or  operating  a  railroad  .  .  .  either  wholly 
within  or  partly  within  and  partly  with- 
out the  State,  or  whose  lines  or  routes 
of  road  have  been  located  but  not  con- 
structed, may  merge  and  consolidate 
its  capital  stock,  franchises,  and  prop- 
erty with  the  capital  stock,  franchises, 
and  property  of  any  other  railroad  .  .  . 
corporation  or  corporations  organized 
under  the  laws  of  this  State,  or  of  this 
and  any  other  State,  or  under  the  laws 
of  any  other  State  or  States,  whenever 
the  two  or  more  railroads  of  the  com- 
panies or  corporations,  so  to  be  consoli- 
dated, ...  or  branches  of  any  part 
thereof,  or  the  line  or  routes  of  their 
roads  if  not  constructed,  shall  or  may 
form  a  continuous  or  connected  line  of 
railroad  with  each  other  or  by  means  of 
an  intervening  railroad  bridge,  tunnel, 
or  ferry." 

lb.  (R.  R.  Law,  §  80)  p.  2557  :  "No 
railroad  corporation  or  corporations 
owning  or  operating  railroads  whose 
roads  run  on  parallel  or  competing 
lines,  except  street  surface  railway  cor- 
porations, shall  merge  or  consolidate  or 
enter  into  any  contract  for  the  use  of 
their  respective  roads  or  lease  the  same, 
the  one  to  the  other,  unless  the  board 
of  railroad  commissioners  of  the  State 
or  a  majority  of  such  board  shall  con- 
Bent  thereto." 

North  Dakota.  Rev.  Codes  1899, 
§  2954  :  "  Any  railroad  corporation,  or- 
ganized and  existing  under  the  laws  of 
the  Territory  of  Dakota  or  State  of 
3 


North  Dakota  or  existing  by  consolida- 
tion of  different  railway  companies 
under  the  laws  of  such  Territory  or 
State,  and  of  any  other  Territory  or 
State,  may  consolidate  .  .  .  with  any 
other  railroad  corporation,  whether 
within  or  without  the  State,  when  their 
respective  railroads  can  be  lawfully  con- 
nected and  operated  together  to  consti- 
tute one  continuous  main  line." 

Ohio.  Bates  Anno.  Stat.  (1787- 
1902),  §  3379:  "When  the  lines  of 
road  of  any  railroad  companies  in  this 
State,  or  any  portion  of  such  lines,  have 
been  or  are  being  so  constructed  as  to 
admit  the  passage  of  burthen  or  passen- 
ger cars  over  any  two  or  more  of  such 
roads  continuously,  without  break  or 
interruption,  such  companies  may 
consolidate." 

lb.  §  3380 :  "  A  company  organized  in 
this  State  .  .  .  whose  line  of  road  is 
made  or  is  in  process  of  construction  to 
the  boundary  line  of  this  State,  or  to 
any  point  either  in  or  out  of  this  State, 
may  consolidate  .  .  .  with  .  .  .  any 
company  in  an  adjoining  State  .  .  . 
whose  line  of  road  has  been  projected 
.  .  .  or  is  in  process  of  construction, 
to  the  same  points  when  the  several 
roads  so  united  or  constructed  will  form 
a  continuous  line  for  the  passage  of 
cars." 

Oklahoma.  Stat.  1893,  ch.  17  §  15, 
par.  1016:  "Any  railroad  corporation 
may  consolidate  its  stock,  franchises, 
and  property  with  any  other  railroad 
corporation,  whether  within  or  without 
the  Territory,  when  their  respective 
railroads  can  be  lawfully  connected 
and  operated  together  to  constitute  one 
continuous  main  line  with  or  without 
branches." 

Pennsylvania.  Bright.  Pnrd.  Dig. 
(1894),  §  107,  p.  1801:  "It  shall  be 
lawful  for  any  railroad  company  char- 
tered by  this  commonwealth  to  merge 
its  corporate  rights  .  .  .  into  any  other 
railroad  company  so  chartered,  connect- 
ing therewith." 

33 


5  22 


INTERCORPORATE    RELATIONS. 


[part  I. 


not  only  serve  no  public  purpose  but  might  tend  to  prevent 
competition. 


lb.  §  114,  p.  1803:  "Any  railroad 
company  or  corporation,  organized 
under  the  laws  of  tliis  commonwealth, 
and  operating  a  railroad,  either  in  whole 
within,  or  partly  within  and  partly 
witliout  this  State,"  may  "  merge  and 
consolidate  .  .  .  with  any  other  railroad 
company  or  com])anies  or  corporations 
organized  and  operated  under  the  laws 
of  this  or  any  other  State,  whenever  the 
two  or  more  railroads  .  .  .  shall  or  may 
form  a  continuous  line  of  railroad  with 
eacli  other,  or  by  means  of  an  interven- 
ing railroad." 

//).  §  126,  p.  180.5:  "Any  railroad 
compnny  or  corporation  duly  organized 
under  tlie  laws  of  this  State  .  .  .  operat- 
ing a  railroad  eitlier  wholly  or  partly 
Within  and  partly  without  this  State," 
may  "  consolidate  .  .  .  with  any  other 
railroad  companies  or  corporations  or- 
ganized under  the  laws  of  this  or  any 
other  State,  whenever  the  two  or  more 
railroads  of  the  companies  or  corpora- 
tions .  .  .  shall  or  may  form  ...  a 
continuous  line  of  railroad  with  each 
other,  or  by  means  of  any  intervening 
railroad  ;  and  such  consolidation  may 
be  effected  in  accordance  with  the  laws 
of  this  commonwealth,  and  either  under 
special  or  general  statutes  of  other 
States." 

76.  §  182,  p.   1814,   authorizes   con- 
solidation of  particular  railroads. 

South  Carolina.  Rev.  Stat.  1893 
(as  amended  by  laws  1901,  No.  406), 
§1615:  "Any  railroad  company  ...  of 
this  State,  operating  a  railroad  whether 
wholly  within,  or  partly  within  and 
partly  without,  this  State,"  may  "  merge 
and  consolidate  .  .  .  with  .  .  .  any  other 
railroad  company  or  companies  organ- 
ized and  operated  under  the  laws  of  this 
or  any  other  State,  wlienever  two  or 
more  railroads  of  the  companies  .  .  . 
are  continuous  or  are  connected  with 
each  other  or  by  means  of  an  interven- 
ing railroad." 

lb.  §  1546:  "Such  companies  [rail- 
road] shall  have  the  power  and  authority 

3i 


.  .  .  to  purchase,  lease,  or  consolidate 
with  any  other  railroad  or  railroa<ls  in  or 
out  of  this  State  in  such  manner  and 
upon  such  terms  a.s  may  be  agreed  be- 
tween such  railroad  companies." 

South  Dakota.  Anno.  Stat.  1901, 
§  3906  :  "  Any  company  owning  or  oper- 
ating a  railroad  within  this  State  may 
extend  its  road  into  any  other  State  or 
Territory,  and  may  build,  buy,  lease, 
or  be  consolidateil  with  any  railroad  or 
railroads  in  such  otiier  State  or  Terri- 
tory." 

Tennessee.  Code  1896,  §  1522: 
"Every  railroad  corporation  existing 
in  this  State  ...  or  ...  of  any  other 
State  .  .  .  and  having  authority  to  op- 
erate anil  maintain  a  railroad  in  this 
State,  shall  Iia\e  power  to  consolidate 
itself  with  any  other  railroad  corpora- 
tion, whose  road  siiall  connect  with  or 
intersect  the  roail  of  such  existing  rail- 
road corporation  or  branch  thereof." 

lb.  §  1532  also  authorizes  consoli- 
dation. 

Texas.  Sayles'  Texas  Civil  Stat. 
1897  (Supp.  to  1900),  art.  4531  :  "No 
railroad  company  organized  under  the 
laws  of  this  State  shall  consoliiiate  .  .  . 
with  any  railroad  company  organized 
under  the  laws  of  any  other  State  or  of 
the  United  States." 

Ulnh.  Laws  1901 ,  ch.  26,  §  6  :  "  Any 
railroad  company  organized  or  existing 
under  the  laws  of  this  State "  may 
"  merge  or . . .  consolidate  with  any  other 
railroad  company  or  companies  organ- 
ized or  existing  under  the  laws  of  this 
or  any  other  State  or  Territory  or  of  the 
United  States ;  provided  that  the  lines 
of  such  companies  shall  not  be  com- 
peting, but  shall  be  substantially  con- 
tinuous or  connective,  either  by  means 
of  actual  union  of  track  or  through  the 
medium  of  any  bridge,  ferry,  or  line  of 
railroad,  leased." 

Vermont.  Stat.  1 894,  §  3975  :  "  When 
a  railroad  in  this  State"  is  ordered  sold 
by  decree  or  judgment  of  a  court,  "  any 
railroad  company  in  this  State,  whose 


CHAP.    II.]      LEGISLATIVE   AUTHORITY    FOR   CONSOLIDATION.      §  22 

With  ievr  exceptions  these  statutes  permit  corporations  of 
the  State  to  consolidate  with  corporations  of  other  States  own- 
ing connecting  roads  as  well  as  with  other  domestic  corpora- 
tions. 

The  statutes,  generally,  contain  provisions  against  the  con- 
solidation of  competing  or  parallel  railroads. 


railroad  connects  with  that  ordered  to 
be  sold,  may  purchase  the  same,  and 
upon  acquiring  title  to  said  railroad, 
consolidate  it  with  its  own  railroad  and 
make  it  a  part  thereof." 

Washington.  Ballinf^er's  Anno. 
Code  1897,  §§  4303,  4304:  "  Any 
railroad  corporation  chartered  by  or 
organized  under  the  laws  of  the  State, 
or  of  any  State  or  Territory,  or  under 
tlie  laws  of  the  United  States  .  .  . 
may  consolidate  .  .  .  with  any  other 
railroad  corporation,  whether  within  or 
without  the  State,  when  such  otiier  rail- 
road does  not  own  any  competing 
line." 

West  Vircjinia.  Code  1899,  ch.  .54, 
§  53  (as  amended  by  acts  1901,  ch. 
108)  : 

1.  "  No  railroad  corporation,  owning 
or  operating  a  railroad  wholly  or  in 
part  within  this  State,  shall  consolidate 
its  capital  stock  with  any  other  railroad 
corporation  owning  a  parallel  .  .  .  line, 

.  .  .  but  any  such  railroad  corporation 
whose  line  of  railroad  is  made,  or  is  in 
process  of  construction,"  may  consoli- 
date with  "  any  other  corporation  of  this 
or  of  an  adjoining  State,  owning  or  oper- 
ating a  line  of  railroad  .  .  .  wholly  or 
partly  within  this  or  an  adjoining  State, 
and  connected  directly,  or  by  means  of 
an  intervening  railroad  or  railroads,  in 
order  to  make  a  continuous  line  of  rail- 
road to  be  run  and  operated  without 
change  of  cars,  break  of  bulk  or  ex- 
change of  passengers  or  freight." 

2.  "  It  shall  be  lawful  for  any  rail- 
road company  created  under  the  laws 
of  this  State,  or  of  this  and  any  other 
State  or  States,  to  consolidate  with  any 
railroad  or  railroads  in  this  State  or 
other  States." 


3.  "  Where  two  or  more  railroad 
companies  have  been  heretofore  incor- 
porated uuder,  and  by  virtue  of  the 
laws  of  this  State,  for  the  construction 
of  two  or  more  lines  of  railroad,  which 
have  been  located  or  surveyed  along 
the  same  line  between  any  points  and 
places,  .  .  .  the  Boards  of  Directors  of 
said  corporations "  may  "  consolidate 
the  capital  stock  of  their  respective 
companies,  or  .  .  .  consolidate  different 
interests  in  the  same  road." 

Wisconsin.  Stat.  1898,  §  1833  (as 
amended  by  Laws  1899,  ch.  191)  :  "Any 
railroad  corporation  oi-ganized  and  ex- 
isting under  the  laws  of  the  Territory 
or  State  of  Wisconsin,  or  existing  by 
consolidation  of  different  railway  com- 
panies under  said  laws  and  the  laws  of 
any  other  Territory  or  Territories, 
State  or  States,  may  consolidate  .  .  . 
with  any  other  railroad  corporation 
whether  within  or  without  the  State, 
when  their  respective  railroads  can 
be  lawfully  connected  and  operated 
together  to  constitute  one  continuous 
main  line,  with  or  without  brandies." 

Wijoming.  Rev.  Stat  1899,  §3202: 
"  Whenever  a  line  of  railroad  of  any 
railroad  company  in  this  State,  or  any 
portion  of  said  line,  has  been  con- 
structed so  as  to  connect  with  any  two 
or  more  of  such  roads,"  said  companies 
may  consolidate. 

Ih.  §  3206  :  "Any  company  owning 
or  operating  a  railroad  within  this  State 
may  extend  the  same  into  any  other 
State  or  Territory,  and  may  .  .  .  con- 
solidate with  any  other  railroad  or  rail- 
roads in  such  other  State  or  Territorj', 
or  with  any  other  railroad  in  this  State, 
and  may  operate  the  same." 

35 


§23 


INTERCORPORATE   RELATIONS. 


[part  I. 


§  23.  What  Business  Corporations  may  consolidate  —  Statu- 
tory Provisions. —  Wliile  nearly  all  the  States  have  general 
consolidation  statutes  applicable  to  railroad  corporations,  less 
than  one-half  have  enacted  laws  authorizing  the  consolida- 
tion of  other  corporations.  The  statutes  which  have  been 
enacted  generally  limit  the  right  of  consolidation  to  corpo- 
rations of  a  particular  kind  e.  g.  mining  or  manufacturing 
companies,  or  to  corporations  organized  for  the  purpose  of 
carrying  on  business  of  the  same  or  similar  nature,  and  a 
few  of  the  statutes  require  that  such  business  shall  be  car- 
ried on  in  the  same  locality.^ 


*  In  Alabama  "any  two  or  more 
mining,  (juarrying,  or  manufacturing 
corporations  may  unite  anil  consoli- 
date."    (Ala.  Civil  Code,  §  1  U7.) 

In  California  corporations  organized 
for  "  mining  purposes "  may  consoli- 
date.    (Cal.  Civil  Code  188C,  §  361). 

In  Colorado  "  any  corporati<jns  exist- 
ing for  any  of  the  purposes  enumerated 
in  this  [general]  act "  raay  consolidate. 
(Colo.  Gen'l.  Stat.  1891.  §628). 

In  Connecticut  corporations  "  carry- 
ing on  business  of  the  same  or  a  similar 
nature  may  merge  or  consolidate." 
(Conn.  Public  Acts   1901,  ch.   157). 

In  Delaware  "  any  two  or  more  cor- 
porations organized  .  .  .  for  the  pur- 
pose of  carrying  on  any  business  of 
the  same  or  similar  nature "  may  con- 
solidate. (Del.  Gen'l.  Corp.  Law  1899, 
§54.) 

In  Illinois  the  consolidation  act  pro- 
Tides  tliat  it  shall  apply  only  "  to  cor- 
porations of  the  same  kind  and  engaged 
in  the  same  general  business  and  carry- 
ing on  their  business  in  the  same 
vicinity  and  that  no  more  than  two 
corporations  now  existing  shall  be  con- 
solidated into  one,  under  its  provi- 
sions." (111.  Rev.  Stat.  1895,  ch.  31, 
§§  SO,  52.) 

In  Kentucky  "  any  two  or  more  cor- 
porations organized  under  the  provi- 
sions of  this  chapter  [general]  or  the 
laws  of  this  State  may  consolidate  into 
a  single  corporation."  (Ky.  Gen'l.  Stat. 
1894,  §  555). 

36 


In  Louisiana  "any  two  business  and 
mannfacturing  companies  now  existing 
under  general  or  special  law,  whose 
objects  and  business  are,  in  general,  of 
tlic  same  nature,"  may  amalgamate. 
(La.  Act  of  Dec.  12,  1874.) 

In  Mari/Uuul  consolidation  may  be 
effected  when  the  "  corporations  have 
been  origin;illy  incorporated  in  whole 
or  in  part  fur  the  same  purpose."  (Md. 
Gen'l.  Laws  188.^,  ch.  23,  §  39). 

In  Michiijan  a  statute  has  been 
enacted  authorizing  the  consolidation 
of  street  railway,  electric,  and  gas  light 
companies  or  any  two  thereof.  (Mieh. 
Laws  of  1899,  Act  No.  128.) 

In  Missouri  "  any  two  corporations 
now  existing  .  .  .  whose  objects  and 
business  are  in  general  of  the  same 
nature  may  amalgamate,"  but  the  stat- 
ute applies  "only  to  corporations 
organized  or  created  solely  for  manu- 
facturing purposes."  (Mo.  Rev.  Stat. 
1889,  §  2786.) 

In  Montan<i  "  it  is  lawful  for  two  or 
more  companies  formed  ...  for  min- 
ing purposes,  which  own  or  possess, 
mining  claims  or  lands  adjoining  each 
other,  or  lying  in  the  same  vicinity,  to 
consolidate."     (Mon.  Civil  Code  §  527.) 

In  Nevada  "  all  and  any  corpora- 
tions heretofore  or  hereafter  formed  in 
the  State  of  Nevada  or  under  its  laws 
.  .  .  shall  have  the  power  and  right  to 
consolidate  .  .  .  with  any  other  then 
existent  corporation  or  corporations  in 
the  State  of  Nevada  or  of  any  State  or 


CHAP.    II.]       LEGISLATIVE   AUTHORITY   FOR   CONSOLIDATION.      §  24 

§  2-4.  Power  of  Legislature  to  withdraw  or  limit  Right  to  con- 
solidate —  (a)  In  Absence  of  Reserved  Power.  —  It  has  been 
held  that  a  grant  of  power  to  consolidate,  in  the  charter  of  a 
corporation,  constitutes  a  contract  between  the  corporation 
and  the  State  and  tliat,  in  the  absence  of  a  reserved  right  to 
amend  or  repeal  the  charter,  such  power  cannot  be  withdrawn 
or  limited  by  subsequent  legislation.^  On  the  other  hand 
such  provisions  in  charters  have  been  held  to  fall  within  the 
class  of  grants  which,  as  observed  by  Mr.  Justice  Peckham 
in  Bank  of  Commerce  v.  Tennessee^  "  do  not  partake  of  the 
nature  of  a  contract,  which  cannot  for  that  reason  be  in  any 
respect  altered  or  the  power  recalled  by  subsequent  legisla- 
tion. When  no  act  is  done  under  the  provision  and  no  vested 
right  is  acquired  prior  to  the  time  when  it  was  repealed,  the 
provision  may  be  validly  recalled,  without  thereby  impairing 
the  obligation."  ^ 

It  seems,  therefore,  according  to  the  weight  of  authority, 
that  the  power  granted  to  a  corporation  to  consolidate  is  a 


Territory  of  the  United  States  of 
America."     (Nev.  Gen'I.  Stat.  §  1075.) 

lu  New  Jersey  "  auv  two  or  more 
corporations  organized  or  to  be  organ- 
ized under  any  law  or  laws  of  this 
State  for  the  purpose  of  carrying  on 
any  kind  of  business  of  the  same  or  a 
similar  nature  may  merge  or  consoli- 
date," but  the  provisions  of  the  act  do 
not  apply  to  railroad,  insurance  (except 
title  insurance),  banking,  turnpike,  or 
canal  companies  nor  to  savings  banks 
or  other  corporations  intended  to  derive 
profits  from  the  loan  or  use  of  money. 
(N.  J.  Corporation  Act  of  1S9G,  §§  104- 
109.) 

In  New  York  "any  two  or  more 
corporations  organized  under  the  laws 
of  this  State  for  the  purpose  of  carrying 
on  any  kind  of  business  of  the  same  or 
similar  nature,  which  a  corporation 
organized  under  this  Chapter  might 
carry  on,  may  consolidate."  N.  Y. 
Business  Corporation  Law  (as  amended 
to  1899)  §§  8-12. 

In  Texas  corporations  created  for 
benevolent,  charitable,  educational,  and 


other  similar  purposes  may  consolidate 
by  filing  new  charter.  (Texas  Rev. 
Stat.  189.5,  Art.  651,  subdiv.  9). 

In  Utah  "  corporations  of  the  same 
kind  engaged  in  the  same  general  busi- 
ness in  the  same  vicinity  "  may  consoli- 
date.    (Utah  Rev.  Stat.'l898,  §  340). 

1  Zimmer  v.  State,  30  Ark.  680 
(1875):  "The  power  here  given  the 
company  to  form  a  union  or  consolida- 
tion with  any  other  company  was  a 
right  secured  by  the  inviolability  of 
a  contract  between  the  State  and  com- 
pany, which  could  not  be  withdrawn  or 
to  any  extent  impaired  by  the  State." 

2  Bank  of  Commerce  v.  Tennessee, 
163  U.  S.  425  (1896),  (16  Sup.  Ct.  Rep. 
1113). 

3  Galveston,  etc.  R.  Co.  v.  Texas,  170 
U.  S.  226  (1898),  (18  Sup.  Ct.  Rep.  603) ; 
Adams  v.  Yazoo,  etc.  II.  Co.,  77  Miss. 
194  (1899),  (24  So.  Rep.  200),  affirmed 
sub  nom.  Yazoo,  etc.  R.  Co.,  v.  Adams, 
180  U.  S.  1  (1901),  (21  Sup.  Ct.  Rep. 
240).  See  alsoPearsall  v.  Great  North- 
ern R.  Co.,  161  U.  S.  646  (1896),  (16 
Sup.  Ct.  Rep.  705). 

37 


§24 


INTERCORPORATE    RELATIONS. 


[part  I. 


mere  license,  not  resting  in  contract,  which  may  be  rendered 
inoperative  by  legislation  enacted  at  any  time  before  the  cor- 
poration avails  itself  of  the  privilege  granted;  and  that  such 
power  exists  in  the  legislature  independent  of  any  right  re- 
served to  amend  or  repeal  the  charter  or  of  its  police  power. 

If  power  to  consolidate,  while  unexecuted,  is  not  a  contract 
within  the  protection  of  the  decision  in  the  Dartmouth  Col- 
lege case,  a  fortiori  it  is  not,  in  itself,  a  vested  right  which  the 
legislature  may  not  take  away  or  impair.  Arrangements  for 
consolidation  made  and  carried  into  effect  create  vested  rights, 
but  the  bare  power  to  consolidate  is  not  of  that  nature.^ 


1  In  Pearsall  v.  Great  Northern  R. 
Co.,  161  U.  S.  672  (18%),  (16  Sup.  Ct. 
Kep.  705),  Mr.  Justice  Brown  discusses 
the  (juestious  sui^gested  in  the  text, 
although  iu  tliat  case  the  statutes  for- 
bidding consoliilation  ex]tressly  pro- 
tected "  vested  rights  "  :  "  It  is  possible 
that,  if  this  arrangement  had  been 
actually  made  and  carried  into  effect, 
before  the  acts  forbidding  the  consoli- 
dation of  parallel  or  competing  lines 
had  been  passed,  the  rights  of  the 
parties  thereto  would  have  become 
vested,  and  could  not  be  impaired  by 
any  subsequent  act  of  the  legislature. 
But  the  real  question  before  us  is 
whether  a  bare  unexecuted  power  to 
consolidate  with  other  corporations,  a 
power  which,  if  it  exists  as  claimed  by 
the  defendant,  would  authorize  it  to 
absorb  by  successive  and  gradual  accre- 
tions the  entire  railway  system  of  the 
country,  is  not,  so  long  as  it  remains 
unexecuted,  within  the  control  of  and 
subject  to  revocation  by  the  legislature, 
at  least,  so  far  as  it  applies  to  parallel 
or  competing  lines.  A  vested  right 
is  defined  by  Fearue  in  his  work  upon 
Contingent  Remainders,  as  '  an  imme- 
diate fixed  right  of  present  or  future 
enjoyment ' ;  and  by  Chancellor  Kent 
as, '  an  immediate  right  of  present  enjoy- 
ment, or  a  present  fixed  right  of  future 
enjoyment.'  4  Kent.  Com.  202.  It  is 
said  by  Mr.  Justice  Cooley  that  '  rights 
are  vested,  in  contradistinction  to  being 
expectant    or    contingent.      They   are 

38 


vested  when  the  right  to  enjoy,  present 
or   pros{)ectivc,  has    become   the  prop- 
erty of  some  particular  j)crson  or  per- 
son.**  as  a  j)resent  interest.     They  are 
expectant  wiien  they  depend  upon  the 
continued  existence  of  the  jirescnt  con- 
dition of  tilings  until  tiie  hafipening  of 
some  future  event.      They  are  contin- 
gent, when   they  are  only  to  come  into 
existence  on  an  event  or  condition  wiiich 
may  not  hapjien  or  be  performed  until 
some    other   event  may   j)revent   their 
vesting.'    Principles  of  Const.  Law,  332. 
As  applied  to  railroad  corporations,  it 
may  reasonably  be  contended  that  the 
term  extends  to  all  rights  of  property 
acquired  by  executed  contracts,  as  well 
as  to  all  such  rights  as  are  necessary  to 
the  full  and  complete  enjoyment  of  the 
original  grant,  or  of   property  legally 
acquired  subsequent  to  such  grant.     If, 
for    examjde,   the    legislature    should 
authorize  the  construction  of  a  certain 
railroad,  and  by  a  subsequent  act  should 
take  away  the  power  to  raise  funds  for 
the    construction   of    the   road   in   the 
usual   manner  by  a  mortgage,  or  the 
power    to    purchase    rolling   stock    or 
equipment,    such    acts    might   perhaps 
be  treated  as  so  far  destructive  of  the 
original  grant  as  to  render  it  valueless, 
although  there  might  in  neither  case  be 
an  express  repeal  of  any  of  its  provi- 
sions.  Sala  t'.  New  Orleans,  2  Woods  188 
(1875).     But  where  the  charter  author- 
izes the  company  iu  sweeping  terms  to 
do  certain  things  which  are  unnecessary 


CHAP.    II.]       LEGISLATIVE   AUTHORITY   FOR   CONSOLIDATION.      §  26 

General  power  to  consolidate  authorizes  the  consolidation 
of  competing  lines  of  railroad  and  constitutional  and  statutory 
provisions  against  consolidation  in  that  form  furnish  the  most 
common  illustration  of  limitations  imposed  upon  existing 
rights  of  consolidation.^ 

§  25.  Power  of  Legislature  to  withdraw  or  limit  Right  to  con- 
solidate—  (b)  In  Exercise  of  Reserved  Power.  —  Whatever 
doubt  may  exist  as  to  the  constitutional  authority  of  the  legis- 
lature to  withdraw  an  existing  unexecuted  right  to  consolidate 
in  the  absence  of  a  power  reserved  to  amend  or  repeal  the 
law  granting  the  right,  when  such  reservation  has  been  made, 
legislative  authority  to  limit  or  take  away  the  right  is 
unquestionable.^ 

The  reservation  of  power  to  alter  or  amend  a  charter,  how- 
ever, gives  the  legislature  no  power  to  impair  vested  rights  of 
property  — except,  of  course,  for  a  public  use  upon  just  com- 
pensation —  and  a  provision  in  an  act  forbidding  the  consoli- 
dation of  competing  railroads  that  it  shall  not  affect  vested 
rights  is  merely  declaratory .^  A  stipulation  in  an  act  repeal- 
ing the  power  to  consolidate  theretofore  granted  to  certain 
corporations,  that  such  repeal  shall  not  "  affect  or  impair 
any  act  done  or  right  accruing,  accrued,  or  acquired  "  before  a 
certain  date  does  not  affect  consolidation  proceedings  com- 
menced, but  not  concluded,  before  such  time,  and  they  may 
be  completed  entirely  unaffected  by  the  repealing  act.* 

§  26.  Power  of  Legislature  to  withdraw  or  limit  Right  to  Con- 
solidate —  (C)  In  Exercise  of  Police  Power.  —  There  is  another 

to  tlie  main  object  of  the  grant,  and  ^  Pearsall  v.  Great  Northern  R.  Co., 
not  directly  or  immediately  within  the  161  U.  S.  672  (1896),  (16  Sup.  Ct.  Rep. 
contemplation  of  the  parties  thereto,  the  705)  ;  Louisville,  etc.  R.  Co.  v.  Ken- 
power  so  conferred,  so  long  as  it  is  uu-  tucky,  161  U.  S.  695  (1896),  (16  Sup. 
executed,  is  within  the  control  of  the  Ct.  Rep.  714). 

legislature   and   may  be   treated   as   a  ^  Pearsall  v.  Great  Northern  R.  Co., 

license,  and  may  be  revoked,  if  a  possible  161    U.    S.    672    (1896),    (16   Sup.    Ct. 

exercise  of  such  power  is  found  to  con-  Rep.  705).     See  a7ite,  §  24,  "Power  of 

fiict  with  the  interests  of  the  public."  Legislature   to   withdraw  or  limit  Bight 

See   also   Louisville,  etc.    R.  Co.   v.  to  consolidate  —  In  Absence  oj"  Reserved 

Kentucky,   161    U.  S.  677    (1896),   (16  Power." 
Sup.  Ct.  Rep.  714).  *  Cameron  v.  New  York,  etc.  Water 

1  See;ws(,  §  32,"  Constitutional  and  Co.,   133  N.  Y.  336  (1892),  (31   N.  E. 

Statutory/  Provisions  against    Consolida-  Rep.  104). 
tion  of  Competing  Railroads." 

39 


§  26  INTERCORPORATE   RELATIONS.  [PART    I, 

principle  applicable  to  j-ailroad  companies  and  other  corpora- 
tions assuming  the  performance  of  public  duties  uj)on  which 
the  legislature  may  withdraw  the  power  of  consolidating,  if 
the  exercise  of  such  power  may  conflict  with  the  public  in- 
terests, and  that  is  the  principle  that  the  State  has  the 
right  to  guard  the  welfare  of  its  citizens  — the  police  power. 
In  the  exercise  of  its  police  power  the  State  may  prohibit  the 
consolidation  of  competing  railroads,  although  their  charters 
authorize  consolidation,  provided  the  authority  has  not  been 
exercised  and  vested  rights  acquired.  It  is  also  immaterial 
whether  a  grant  of  power  to  consolidate  is  a  contract  or  a 
license  or  whether  a  right  to  amend  or  repeal  is  reserved,  for 
the  constitutional  prohibition  of  legislation  impairing  the 
obligation  of  contracts  does  not  exempt  a  corporation  from 
the  exercise  of  the  police  power  of  the  State. 

In  Louisville^  etc.  R.  Co.  v.  Kentucky  ^  Mr.  Justice  Brown 
said  :  "•  Under  the  police  power  the  people,  in  their  sovereign 
capacity,  or  the  legislature,  as  their  representative,  may  deal 
with  the  charter  of  a  railway  corj)oration,  so  far  as  is  neces- 
sary for  the  protection  of  the  lives,  health,  and  safety  of  its 
passengers  or  the  public,  or  for  the  security  of  property  or  the 
conservation  of  the  puljlic  interests,  provided,  of  course,  that 
no  vested  rights  are  thereby  impaired.  In  other  words,  the 
legislature  may  not  destroy  vested  rights,  whether  they  are 
expressly  prohibited  from  doing  so  or  not,  but  otherwise  may- 
legislate  with  respect  to  corporations,  whether  expressly  per- 
mitted to  do  so  or  not.  While  the  police  power  has  been 
most  frequently  exercised  with  respect  to  matters  which  con- 
cern the  public  health,  safety,  or  morals,  we  have  frequently 
held  that  corporations  engaged  in  public  services  are  subject 
to  legislative  control,  so  far  as  it  becomes  necessary  for  the 
protection  of  the  public  interests." 

1  Louisville,  etc.  R.  Co.  v.  Kentucky,  Sup.  Ct.  Rep.  705) ;  Gibbs  r.  Consoli- 

161  U.  S.  69.5  (1896),  (16  Sup.  Ct.  Rep.  dated  Gas  Co.,  130  U.  S.  407  (1889), 

714).    See  also  Pearsall  v.  Great  North-  (9  Sup.  Ct.  Rep.  553). 
em  R.  Co.,  161  U.  S.  672   (1896),  (16 


40 


CHAP.   II.]      LEGISLATIVE   AUTHORITY   FOB   CONSOLIDATION.      §  27 

III.    Construction  of  Statutes  authorizing  Consolidation. 

§  27.  General  Rules  of  Construction.  —  The  Chancellor  of 
New  Jersey  once  intimated  ^  that  acts  authorizing  the  consoli- 
dation of  corporations  relate  rather  to  the  transfer  of  existing 
rights  than  to  the  creation  of  new  ones  and  are  not  subject  to 
the  strict  rules  of  construction  applicable  to  original  grants 
of  corporate  powers.  But  the  Supreme  Court  in  reversing  the 
decree  of  the  Chancellor  2  laid  down  the  rule  that  a  grant 
from  the  State  "  will  not  be  deduced  from  the  words  of  a 
statute,  except  when  it  contains  language  not  susceptible  of 
any  other  rational  construction."  The  correct  rule,  in  deter- 
mining the  existence  of  authority  to  consolidate,  is  that  a 
statute  must  receive  a  strict,  but  not  unreasonable,  con- 
struction. 

The  question  whether  authority  to  consolidate  must  be 
expressly  conferred  upon  each  consolidating  corporation  has 
occasioned  a  division  of  judicial  authority.  On  the  one  hand, 
it  has  been  held  that  where  power  is  given  by  statute  to  one 
corporati9n  to  unite  with  any  other,  whatever  other  corpora- 
tion it  selects  and  agrees  with  for  the  union  has,  by  implica- 
tion, power  to  unite  with  it,  although  such  other  corporation 
is  not  named  in  the  act  and  has  not,  otherwise,  power  to 
consolidate.^     The  reason  given  for  this  conclusion  is  that 

1  Black  !'.  Delaware,  etc.  Canal  Co.,  porations,  which  now  togetlier  form 
22  N.  J.  Eq.  402  (1871) :  "  This  act  can  the  corporation  which  is  the  petitioner 
hardly  be  considered  a  grant  from  tlie  in  this  case,  to  consolidate  witli  any 
State,  or  to  fall  within  the  rule  requir-  other  like  corporation.  The  point  of 
ing  strict  construction  in  all  such  grants,  the  appellants,  that  no  power  to  con- 
The  State  here  parts  with  no  property  solidate  is  given  to  the  other  of  those 
and  creates  no  new  privilege  or  fran-  corporations,  is  without  effect.  Power 
chise  that  can  affect  the  public.  It  is  given  by  statute  to  one  corporation  to 
simply  permits  a  new  arrangement  or  form  a  consolidation  with  any  othei:  It 
contract  as  to  privileges  and  franchises  cannot  form  a  consolidation  unless  it 
already  granfed.      It  enlarges  none."  finds  another  with  which  to  unite  and 

The  contract  under  consideration  in  which  is  capable  of  union  with  it ;  hence 

this  case   was  a  lease,  but  the  statute  wh.atever  other  company  it  selects  for  a 

also  authorized  consolidation.  union,  and  finds  willing  to  join  it,  that 

2  Black  V.  Delaware,  etc.  Canal  Co.,  other  company,  though  not  named  in 
24  N.  J.  Eq.  45.5  (1873).  the  statute,  gets  power  from  the  statute 

^  Matter  of   Prospect  Park,  etc.  R.     to  unite  with  that  company  which  the 
Co.,    67     N.    Y.    377     (1876):    "The    statute  names." 
act  .  .  .  gave  power  to  one  of  the  cor- 

41 


§27 


INTERCORPORATE   RELATIONS. 


[part  I. 


the  power  granted  to  one  corporation  to  consolidate  neccs- 
sarilv  involves  the  same  power  in  the  other  company  and  so 
operates  impliedly  as  an  enlargement  of  its  charter.^  On  the 
other  hand,  it  has  heen  held  that  all  the  constitutent  corpora- 
tions must  have  the  power  to  consolidate  in  order  to  effect  a 
valid  consolidation  —  that  power  to  consolidate  with  any  other 
corporation  means,  reasonably,  any  other  corporation  having 
power  to  consolidate.^  The  latter  conclusion  is  more  in  ac- 
cordance with  the  rule  of  strict,  yet  reasonable,  construction. 
It  has  also  been  held,  upon  a  principle  which  seems  at 
least  doubtful,  that  the  fact  that  the  right  of  one  company 
to  consolidate  is  limited  under  its  charter  does  not  deprive 
it  of  the  right  to  consolidate  under  the  general  laws  of  the 
State.^ 


1  New  York,  etc.  R.  Co.  v.  New  York, 
etc.  R.  Co.,  52  Conn.  274  (1884).  See 
also  Knoxville  v.  Knoxville,  etc.  R.  Co., 
22  Fed.  7(5.3  (1884). 

2  In  Louisville,  etc.  R.  Co.  v.  Ken- 
tucky, 161  U.  S.  691  (1896),  (16  Sup. 
Ct.  Rep.  714),  Mr.  Justice  Brown  said  : 
''  Besides  tliis,  however,  in  order  to 
support  the  proposed  consolidation  of 
these  two  systems,  the  parties  are 
bound  to  show,  not  only  that  the  L.  & 
N.  Co.  was  competent  to  buy,  but  that 
the  Chesapeake  Co.  was  also  vested 
with  jiower  to  sell.  To  make  a  valid 
contract  it  is  necessary  to  show  that 
both  parties  are  competent  to  enter  into 
the  proposed  stipulations.  It  is  a  fun- 
damental principle  in  the  law  of  con- 
tracts that,  to  make  a  valid  agreement, 
there  must  he  a  meeting  of  minds,  and, 
obviously,  if  there  be  a  disability  on 
the  part  of  either  party  to  enter  into 
the  proposed  contract  there  can  be  no 
valid  agreement." 

See  also  St.  Louis,  etc.  R.  Co.  v. 
Terre  Haute  R.  Co.,  145  U.  S.  393 
(1892),  (12  Sup.  Ct.  Rep.  953). 

In  Morrell  v.  Smith  County,  89  Tex. 
529  (1896),  (36  S.  W.  Rep.  56),  it  was 
held  that  authority  given  a  railroad 
company  by  its  charter,  to  consolidate 
with  any  other  company,  does  not  con- 
fer authority  upon  another  company  to 

42 


consolidate  with  it :  and  the  power  is, 
in  effect,  limited  to  a  union  with  another 
company  having  like  power.  In  this 
case  the  Court  declined  to  follow  the 
rule  laid  down  in  Matter  of  Prospect 
Park,  etc.  R.  Co.,  67  N.  Y.  377  (1876). 
See  also  East  Line,  etc.  R.  Co.  r.  Rush- 
iug,  69  Tex.  306  (1887),  (6  S.  W.  Rep. 
8.34);  Kast  Line,  etc.  R.  Co.  v.  State, 
75  Tex.  434  (1889),  (12  S.  W.  Rep.  690), 
and  dissenting  opinion  in  Boston,  etc. 
R.  Co.  V.  New  York,  etc.  R.  Co.,  13 
R.  I.  275  (1881).  That  the  same  prin- 
ciple is  applicable  in  the  case  of  inter- 
state consolidations  see  American  Loan, 
etc.  Co  V.  Minnesota,  etc.  R.  Co.,  157 
111.  641  (1895),  (42  N.  E.  Rep.  153); 
Continental  Trust  Co.  v.  Toledo,  etc. 
R.  Co.,  82  Fed.  642  (1897). 

In  England  it  has  been  said  that  an 
agreement  cannot  be  made  by  which 
one  railroad  company  shall  turn  over 
its  railway  to  be  worked  by  another  com- 
pany unless  the  latter  possesses,  under 
its  charter,  power  to  receive  and  work 
it.  Winch  i'.  Birkenhead,  etc.  R.  Co., 
16  Jur.  1035  (1835). 

3  Warrener  v.  Kankakee  County, 
1  Monthly  West.  Jur.  556  (1875),  (Fed. 
Cas.  No.  1720.^))  (per  Blodgett,  J.): 
"  The  right  of  the  company  to  consoli- 
date, under  its  charter,  seemed  limited, 
but  that  did  not  take  awav  the  right 


CHAP.    II.]       LEGISLATIVE   AUTHORITY   FOR   CONSOLIDATION.      §  28 

§  28.  Construction  of  Particular  Statutory  Provisions.  —  An 
act  authorizing  the  consolidation  of  two  corporations  author- 
izes, by  reasonable  intendment,  the  consolidation  of  more  than 
two  ;  ^  and  it  has  been  held  that  a  statute  providing  for  the 
consolidation  of  corporations,  but  upon  the  condition  "  that 
no  more  than  two  corporations  now  existing  shall  be  consoli- 
dated into  one  under  the  provisions  hereof,"  authorized  the 
consolidation  of  more  than  two  corporations  if  only  two  of 
them  were  in  existence  at  the  time  of  the  passage  of  the  act.^ 

A  consolidation  act  authorizing  the  consolidation  of  "  rail- 
road companies "  has  been  held  to  include  street  railroad 
companies.^  When  the  words  "  any  other  railroad  "  or  similar 
words  are  used  in  a  charter  or  statute  authorizing  consolida- 
tion, without  restricting  them  to  domestic  corporations,  they 
include  foreign  railroad  companies  as  well.* 

A  statute  providing  that,  in  case  of  consolidation,  the 
consolidated  corporation  shall  be  liable  for  the  debts  of  the 
constitutent  companies  does  not,  in  itself,  authorize  con- 
solidation.^ 

A  grant  of  power  to  connect  or  unite  with  another  road 
refers  merely  to  a  physical  connection  of  the  tracks  and  does 
not  authorize  any  union  of  the  franchises  of  the  two  corpora- 
tions or  their  consolidation.  Power  to  consolidate  cannot  be 
inferred  from  any  such  indefinite  language  as  "  to  unite 
and  connect  with  such  road."  ^ 


from  the  company  to  consolidate  under  (9  Sup.  Ct.  Rep.  770) ;  St.  Louis,  etc.  R. 

the  general  law  of  the  State  by  comply-  Co.  v.  Terre  Haute  R.  Co.,  145  U.  S. 

ing  with  all  the  provisions  of  the  law."  403    (1892),   (12    Sup.  Ct.   Rep.    953); 

1  People   I'.   Rice,   G6  Hun  (N.   Y.)  Boston,  etc.  R.  Co.  i-.  Boston,  etc.  R.  Co., 

130  (1892),  (21  N.Y.  Supp.  48),  aj^rmec/  65    N.    H.    393     (1888),    (23   Atl.  Rep. 

138  N.  Y.  614   (1893),   (33  N.   E.  Rep.  529). 

1083).  Contra,  Black  v.  Delaware,  etc.  R. 

-  Barrows  v.  People's  Gas  Light,  etc.  Co.,  24  N.  J.  Eq.  455  (1873). 

Co.,  75  Fed.  794  (1895).  ^  Kavanaugh  v.  Omaha  Life  Ass'n., 

3  Matter  of  Washington  St.,  etc.  R.  84  Fed.  295  (1897). 

Co.,  115  N.  Y.  442  (1889),   (22   N.    E.  6  Louisville,  etc.  R.  Co.  ?•.  Kentucky, 

Rep.  356),  affirming  52  Hun  311  (1889),  161  U.  S.  684  (1896),  (16  Sup.  Ct.  Rejp. 

(5  N.    Y.    Supp.  355).     See,  however,  714)  :  "By  the  act  .  .  .  the  company 

Philadelphia  v.  Thirteenth  St.,  etc.  Co.  was  given  power  to  unite  their  road  with 

(Pa.),  1  Leg.  Gaz.  Rep.  165  (1871).  any   other   road   connecting   therewith 

*  Pittsburg,  etc.  R.  Co.  i'.  Keokuk,  upon  such  conditions  as  the  two  com- 

etc.  Bridge  Co.,  131  U.  S.  371  (1891),  panies  might  agree  upon.     As  we  have 

43 


§28 


INTERCORPORATE   RELATIONS. 


[part  I. 


While  the  authorities  are  not  uniform  upon  the  question 
whether  a  grant  of  power  to  consolidate  with  a  railroad  com- 
pany gives  power  to  sell  to  that  company  ^  the  converse  of 


frequently  held  that  a  power  to  connect 
or  unite  with  another  road  refers  merely 
to  a  jjhysical  connection  of  the  tracks 
and  does  not  authorize  the  purchase  or 
even  the  lease  of  such  road,  or  any 
union  of  their  franchises,  it  is  evident 
that  this  act  is  no  authority  for  the 
proposed  consolidation.  .  .  .  The  im- 
portant power  to  purcliase  or  consolidate 
with  another  line  cannot  be  inferred 
from  any  such  indefinite  language  as 
"  to  unite  or  connect  with  such  road." 

See  also  Atchison,  etc.  II.  Co.  i*. 
Deuver,  etc.  R.  Co.,  110  U.  S.  6C7 
(1884),  (4  Sup.  Ct.  Kep.  185) ;  Pennsyl- 
vania Co.  c.  St.  Louis,  etc.  II.  Co.,  118 
U.  S.  290  (1886),  (6  Sup.  Gt.  Hep.  1094) ; 
Oregon,  H.  etc.  Co.  v.  Oregon ian  R.  Co  , 
130  U.  S.  1  (1889),  (9  Sup.  Ct.  Rep. 
409) ;  St.  Louis,  etc.  R.  Co.  v.  Terre 
Haute  R.  Co.,  145  U.  S.  39.3  (1892),  (12 
Sup.  Ct.  Rep.  9.')3);  Morrell  v.  Smith 
County,  89  Tex.  529  (1896),  (36  S.  W. 
Rep.  56). 

1  In  Branch  v.  Jesup,  106  U.  S. 
478  (1882),  (1  Sup.  Ct.  Rep.  495),  the 
Supreme  Court  of  the  United  States 
said  :  "As  a  general  rule,  it  is  true,  a 
railroad  company,  with  only  the  ordi- 
nary powers  to  construct  and  operate  its 
road,  cannot  dispose  of  it  to  another 
company.  Legislative  aid  is  neces.sary 
to  that  end.  But  this  company  had, 
by  its  charter,  express  power  to  incor- 
porate its  stock  with  the  stock  of  any 
other  company.  This  power  has  an  en- 
larging effect  upon  the  ordinary  power 
to  sell  and  dispose  of  property  belong- 
ing to  the  company.  Generally  the 
power  to  sell  and  dispose  has  reference 
only  to  transactions  in  the  ordinary 
course  of  business  incident  to  a  rail- 
road company,  and  does  not  extend  to 
the  sale  of  the  railroad  itself,  or  of  the 
franchise  connected  therewith.  Outly- 
ing lauds,  not  needed  for  railroad  uses, 
may  be  sold.  Machinery  and  other 
personal  property  may  be   sold.    But 

44 


the  road  and  franchises  are  generally 
inalienable  ;  and  tliey  are  so  not  only 
because  they  are  acquired  by  legislative 
grant,  or  in  the  exercise  of  special  au- 
thority given,  for  the  specific  purposes 
of  the  incorporating  act,  but  because 
they  are  essential  to  the  fulfilment  of 
those  purposes;  and  it  would  i)e  a  dere- 
liction of  the  duty  owed  by  the  cor- 
poration to  the  State  and  to  the  i)ublic 
to  part  with  them.  But  where,  as  in 
this  case,  j)Ower  is  given  to  incorporate 
the  capital  stock  with  the  stock  of  any 
other  com|)any,  a  very  large  addition  is 
made  to  the  ordinary  powers  granted 
to  a  company.  In  this  country  tiie  cre- 
ation and  exercise  of  such  a  power  is 
well  understood.  It  contemplates  not 
only  the  possible  transfer  of  the  rail- 
road and  its  franchises  to  another  com- 
pany, but  even  the  extinguishment  of 
the  corporation  itself,  and  its  absorp- 
tion into  a  different  organization.  The 
greater  power  of  alienating  or  extinguish- 
ing all  its  franchises,  including  its  own 
being  and  existence,  contains  the  lesser 
power  of  alienating  its  road  and  the  fran- 
chises incident  thereto  and  necessary  to  its 
operation." 

On  the  other  hand,  in  the  case  of 
Tippecanoe  County  v.  Lafayette,  etc.  R. 
Co.,  .50  Ind.  110  (1875),  the  Supreme 
Court  of  Indiana  said  :  "  That  act  is 
'  to  authorize  railroad  companies  to  con- 
solidate their  stock  with  the  stock  of 
other  railroad  companies  in  this  or  in 
an  adjoining  State,  and  to  connect  their 
roads  with  the  roads  of  said  companies.' 
The  title  nowhere  mentions  a  lease  or 
a  sale.  Indeed,  the  words  to  connect 
their  roads  with  the  roads  of  other  com- 
panies, would  seem  to  exclude  such  a 
conclusion.  To  connect  one  road  with 
another  does  not  fairly  mean  to  lease  or 
sell  it  to  another."  See  also  East  Line, 
etc.  R.  Co.  V.  State  75  Tex.  434  (1889), 
(12  S.  W.  Rep.  690). 


CHAP.    II.]      LEGISLATIVE   AUTHORITY   FOR   CONSOLIDATION.      §  29 

the  proposition  was  adopted  in  reference  to  an  Illinois  statute, 
that  power  to  purchase,  in  the  form  there  granted,  gave  power 
to  consolidate.  "  While  the  statute  denominates  the  trans- 
action a  purchase,  the  thing  authoriged  to  be  done,  and  what 
was  done  in  the  case,  was  in  fact  a  consolidation."  ^ 

§  29.  Construction  of  Statutes  authorizing  Consolidation  of 
Railroads  — ■  Connecting  or  Continuous  Lines.  —  As  already 
shown  2  the  consolidation  statutes  of  a  majority  of  the  States 
provide  that  railroad  companies  may  consolidate  with  other 
corporations  owning  railroads  which  form  a  continuous  or 
connecting  line  with  their  own,  and  the  effect  of  such  pro- 
visions is,  manifestly,  to  limit  the  right  of  consolidation  to 
that  class  of  railroads.  Accordingly,  to  bring  railroad  cor- 
porations within  the  provisions  of  such  statutes  it  must  be 
shown  that  there  is  such  a  physical  connection  between  their 
roads  as  to  permit  the  cars  of  one  road  to  pass  to  the  other, 
uninterruptedly,  without  the  transshipment  of  passengers  or 
freight.^ 

It  is  sufficient,  however,  that  the  connected  roads  form  a 
continuous  line,  and  it  is  not  necessary  that  the  road  of  one 
corporation  should  be  an  extension  from  either  terminus  of 
the  other.* 

Whether  the  required  physical  connection  may  be  formed 
by  means  of  leased  lines  has  been  the  subject  of  extensive 
judicial  consideration.  The  weight  of  authority  supports  the 
view  that  consolidation,  under  the  statutes  referred  to,  can 
take  place  only  when  the  railroads  oivned  by  the  corporations 
proposing  to  consolidate  form  continuous  lines.^     In  constru- 

^  Chicago,  etc.   R.  Co.   v.   Ashling,  held    that    two    non-parallel  railroads 

56   111.  App.  327   (1894);    Continental  may  be  deemed  to  "forma  continuous 

Trust  Co.  V.  Toledo,  etc.  R.  Co.,  82  Fed.  line  "  when  their  tracks  are  connected, 

642  (1897).  not  directly  but  by  those  of  a  "  union  " 

2  Ante,  §  22  :  "  What  Railroads  may  terminal  company.  Burke  v.  Cleve- 
consoUdale  —  Statutory  Provisions."  land,  etc.  R.  Co.,  22  Weekly  Law  Bull. 

3  Central  R.  Co.  v.  Macon,  43  Ga.  (Ohio)  II  (1889). 

646    (1871);     State   v.   Vanderbilt,   37  *  Hancock  v.  Louisville,  etc.  R.  Co., 

Ohio  St.  590  (1889) ;  State  v.  Atchison,  145  U.  S.  409  (1892),  (12  Sup.  Ct.  Rep. 

etc.  R.   Co.,  24   Neb.    143   (1888),   (38  969).     See  also  Wallace  v.  Long  Island 

N.  W.  Rep,  43,  8  Am.  St.  Rep.  164)  R.  Co.,  12  Hun  (N.  Y.)  460  (1877). 
(lease).  5  gtate  v.  Vanderbilt,  37   Ohio   St, 

Under  the  Ohio  statute  it  bas  been  590   (1882).     See  also  East  Line,  etc, 

45 


§29 


INTERCORPORATE    RELATIONS. 


[rART    I, 


ing  a  statute  authorizing  consolidation  "  when  the  lines  of 
road  of  any  railroad  companies  .  .  .  admit  the  passage  of 
burden  or  passenger  cars  over  any  two  or  more  of  such  roads 
continuously,  without  break  or  interruption,"  the  Supreme 
Court  of  Ohio  in  State  v.  Vanderhilt  ^  said :  "  It  is  plain  that 
the  connection  is  formed  and  only  exists  by  the  lines  of  the 
lessors,  and  that  as  to  the  lessee  companies  there  is  no  con- 
nection. .  .  .  Plainly,  as  it  seems  to  us,  there  is  no  consolida- 
tion of  the  lessor  companies ;  and  it  is  equally  clear  tliat  the 
right  to  consolidate,  based  on  the  consolidating  comj)any's 
ownership  of  the  leased  roads,  is  wholly  untenable." 

Statutes  authorizing  the  consolidation  of  connectinnr  lines 


R.  Co.  V.  State,  75  Tex.  434  (1889), 
(12  S.  W.  Rep.  690)  ;  State  v.  Atchi- 
son, etc.  R.  Co.,  24  Neb.  143  (1888), 
(38  N.  W.  Rep.  43,  8  Am.  St.  Rep. 
1G4)  (lease)  ;  Smith  v.  Reading  City 
Pas.s.  R.  Co.,  13  Pa.  Co.  Ct.  Rep.  49 
(1893) ;  Ilampe  v.  Mt.  Oliver  I.  R.  Co., 
24  Pitts.  Leg.  J.  (n.  s.)  330  (1894) 
(lea.se). 

Contra,  Black  v.  Delaware,  etc.  R. 
Co.,  22  N.  J.  Eq.  130  (1871 ),  where  the 
Chancellor  held  that  wliere  an  act  au- 
thorized a  railroad  company  to  lease  to  or 
consolidate  with  any  otlier  corporation 
whose  works  should  form  continuous  or 
connecting  lines  with  its  own,  a  lease  was 
autliorized  to  a  railroaii  company  whose 
lines  were  connected  by  an  intervening 
road.  In  so  holding,  the  Chancellor 
said  that  the  works  of  the  United  Com- 
panies formed  both  connected  and  con- 
tinuous lines  witli  tlie  works  of  the 
Pennsylvania  Kailroad  Company;  that 
two  railroads  form  a  continuous  line 
when  their  tracks  and  rails  join,  so  that 
a  train  may  pass  from  the  rails  and 
tracks  of  one  directl}-  upon  those  of 
the  other  —  they  form  a  connected  line 
when  this  is  done  by  means  of  an  inter- 
vening or  connecting  road.  This  doc- 
trine was,  however,  doubted  by  the 
Supreme  Court  of  New  Jersey  when 
the  case  came  to  the  court  (24  N.  J. 
Eq.  4.55  (1873)  ):  "If  it  is  held  that 
the  lease  may  be  made  with  any  road 
in  or  out  of  the  State,  with  which  the 

46 


united  companies  are  connected  by 
means  of  an  intervening  road  or  canal, 
tiiey  may  unite  with  almost  any  road 
in  the  wliole  country,  and  it  may  be 
with  roads  at)road  if  they  were  con- 
nected by  means  of  steamship.s.  There 
should  be  a  very  clear  expression  of 
power  so  extensive  and  extraordinary 
as  this." 

See  also  Ilervey  v.  Illinois  Midland 
Co.,  28  Fed.  172  (1884)  (case  of  sale), 
where  the  Court  said :  "  It  is  quite 
true  that  the  Peoria,  Atlanta  &  Deca- 
tur Railroad  Company  was  not  author- 
ized to  purchase  aiiij  railroad  in  the 
State ;  but  I  incline  to  think  that  its 
charter  authorized  the  purchase  of  any 
road  which,  from  its  location,  would  be 
fairly  deemed  a  continuation  of  the 
main  line  of  the  purchasing  company. 
The  effect  of  the  agreement  between 
the  three  companies  was  to  establish  a 
continuous  line  from  Peoria,  via  Deca- 
tur to  Terre  Haute.  That  small  parts 
of  that  line  were  and  are  owned  by 
other  companies,  does  not  affect  the 
substance  of  the  transaction  whereby, 
with  the  knowledge  and  approval  of 
the  great  body  of  the  bondholders  and 
stockholders  of  the  three  roads,  they 
were  operated  as  one  line,  under  a  com- 
mon management.  Also  Cleveland,  etc. 
R.  Co.  V.  Erie,  27  Pa.  St.  380  (1856). 

1  State  V.  Vanderbilt,  37  Ohio  St. 
590  (1882). 


CHAP.    II.]      LEGISLATIVE   AUTHORITY    FOR    CONSOLIDATION.      §  29 

do  not  establish  exceptions  to  statutory  provisions  against  the 
consolidation  of  parallel  and  competing  railroads.  The  lines 
of  two  railroad  companies  which  are,  in  their  general  features, 
parallel  and  competing  cannot  be  connected  for  the  carriage 
of  freight  and  passengers  over  both  "  continuously  "  ;  and 
hence  such  companies  cannot  become  consolidated  into  one 
corporation  under  the  Ohio  statute  above  referred  to.^ 

Under  another  Ohio  statute  authorizing  the  consolidation  of 
domestic  railroad  corporations  owning  roads  running  to  the 
boundary  line  of  the  State,  with  similar  corporations  of  an 
adjoining  State,  owning  roads  forming  a  continuous  line 
therewith,  it  was  held  that  an  Ohio,  an  Indiana,  and  an  Illi- 
nois  corporation  might  consolidate  so  as  to  form  a  de  facto 
consolidated  corporation  upon  the  principle  that  the  last  two 
companies  might  have  been  consolidated  and  have  become 
an  Indiana  corporation  —  a  corporation  of  an  adjoining  State 
to  that  of  the  Ohio  company  —  with  which  it  might  have  con- 
solidated.2 


J  State  V.  Vanderbilt,37  Ohio  St.  590 
(1882):  "The  Cleveland,  Cincinnati 
and  Indianapolis  Ry.  and  the  Cincin- 
nati, Hamilton  and  Dayton  R.  R.,  with 
their  leased  lines,  constitute  two  great 
arteries  of  trade,  both  commencing  on 
the  Ohio  River  at  Cincinnati,  meeting  at 
Dayton,  and  extending  thence  to  Lake 
Erie,  one  terminating  at  Cleveland  and 
the  other  at  Toledo.  The  Attorney- 
General  says,  and  the  record  supports 
the  statement,  that  these  roads  are  "  for 
sixty  miles  lying  parallel  and  near  to 
each  other."  That  they  are,  indeed,  in 
the  largest  sense,  parallel  and  compet- 
ing roads,  seems  to  be  beyond  dispute, 
and  it  may  be  fairly  inferred  from  the 
record  that  a  leading  object  in  making 
the  consolidation  was  to  destroy  that 
competition.  That  being  true,  the  lines 
of  these  roads  are  not,  in  my  judg- 
ment, '  so  constructed  as  to  admit  the 
passage  of  burden  or  passenger  cars 
over  two  or  more  of  such  roads  con- 
tinuously,' within  the  proper  meaning 
of  section  3379.  That  the  mere  physi- 
cal ability  to  pass  cars  from  one  road  to 


the  other  satisfies  the  statute,  is  a  con- 
struction which  is  wholly  inadmissible, 
for  the  provision  requiring  such  con- 
nection would  be  without  meaning.  In 
imposing  that  restriction  upon  consoli- 
dation, the  legislature  intended,  not 
merely  that  the  physical  fact  should 
exist,  but  that  such  consolidation  should 
only  be  made  for  the  very  passing  of 
freight  and  passengers  over  both  lines, 
or  some  material  parts  thereof,  not 
necessarily  in  a  direct  or  straight  line, 
but  continuously." 

See  also  Hafer  v.  Cincinnati,  etc.  R. 
Co.,  29  Weekly  Law  Bull.  (Ohio)  68 
(1896),  4  S.  C.  &  P.  (Ohio)  487. 

2  Continental  Trust  Co.  v.  Toledo, 
etc.  R.  Co.,  82  Fed.  653  (1897).  The 
Court  said  :  "  It  cannot  be  denied,  how- 
ever, that  under  the  Illinois  statute,  the 
Illinois  and  Indiana  corporations  might 
have  united,  and  that  then  the  consoli- 
dated corporation,  being  a  corporation 
of  Indiana,  could  be  consolidated  with 
the  Ohio  corporation  ;  and  we  should 
have  had  just  what  the  corporation  un- 
der consideration  nurporta  to   be,    to 

47 


§  30  INTERCORPORATE   RELATIONS.  [PART    I. 

It  is  not  necessary  in  order  to  bring  railroad  companies 
within  the  provisions  of  statutes  authorizing  the  consolidation 
of  continuous  or  connecting  lines  that  their  lines  should  be 
entirely  constructed  if,  when  constructed,  they  will  form  con- 
tinuous or  connecting  lines.^ 

The  legal  principles  governing,  and  cases  illustrating,  the 
consolidation  of  connecting  lines  are  equally  applicable  to  the 
purchase  or  lease  of  such  lines. 

§  30.  Construction  of  Statutes  authorizing  Consolidation  of 
Business  Corporations.  —  Statutes  authorizing  the  consolidation 
of  mining,  manufacturing,  and  business  corporations,  gener- 
ally, have  already  been  briefly  reviewed.^  These  statutes,  as 
a  rule,  are  limited  in  their  application  to  corporations  engaged 
in  business  of  a  similar  nature  and,  sometimes,  to  those  carry- 
ing on  business  in  the  same  locality.  Under  such  a  statute 
authorizing  the  consolidation  of  corporations  of  the  same 
nature  covering  the  same  territory  it  was  held  that  two 
water  companies  organized  for  the  purpose  of  supplying 
water  to  the  same  village  might  lawfully  consolidate.^ 

It  has  been  said,  however,  that  a  consolidation  act  permit- 
ting the  amalgamation  of  "  two  business  or  manufacturing 
companies  "  whose  "  objects  and  business  are  of  the  same 
nature  "  does  not  apply  to  or  include  corporations  endowed 
with  peculiar  and  exclusive  franchises  and  privileges.*  It 
was  also  held  that  the  same  statute  did  not  permit  the  con- 
wit:  a  legally  consolidated  corpora-  459  (1876),  where  a  general  corpora- 
tion of  Ohio,  Indiana,  and  Illinois.  It  tion  law  of  Nebraska  which  gave  no 
is  obvious  that,  if  snch  a  corporation  power  to  consolidate  "  until  the  roads 
could  have  been  legally  formed,  the  shall  have  been  constructed  "  was  under 
mere  mistake  in  the  mode  by  which  consideration.  See  also  Venner  v. 
the  union  was  brought  about  (if  it  was  Atchison,  etc.  R.  Co.,  28  Fed.  585 
a  mistake,  which  I  do  not  decide)  does     (1886). 

not  prevent  the  corporation  from  being  2  j^rite,  §  23  :  "  W^hat  Business  Cor- 

a  de  facto  corporation,  under  the  prin-    porations    may     consolidate  —  Statutory 
ciples  stated  at  length  above."  Provisions." 

1  Livingston  County  v.  Portsmouth  ^  Cameron  v.  New  York,  etc.  Water 
First  Nat.  Bank,  128  U.S.  102  (1888),  Co.,  62  Hun  (N.  Y.)  269  (1891),  af- 
(9  Sup.  Ct.  Kep.  18)  :  "  The  statute  ap-  firmed  in  133  N.  Y.  336  (1892),  (31 
plied  to  the  consolidation,  although  no    N.  E.  Rep.  104). 

road  had  yet  been  constructed."     See         *  New  Orleans  Gas    Light    Co.    v. 
also  Washburn  v.  Cass  County,  3  Dill.    Louisiana  Light,  etc.  Co.,  11  Fed.  277 
(U.S.)  251  (187.5).     Compare,  however,     (1882). 
Clarke  v.  Omaha,  etc.  R.  Co.,  4  Neb. 

48 


CHAP.   III.]  RESTRAINTS   UPON   CONSOLIDATION.  §  31 

solidation  of  two  companies  the  life  of  one  of  which  was  to 
terminate  at  the  commencement  of  the  life  of  the  other.^  The 
business  of  a  gas  company  and  that  of  an  electric  light  com- 
pany are  of  the  same  general  character  within  the  meaning  of 
a  statute  authorizing  the  consolidation  of  corporations  of  the 
same  or  a  similar  nature.^  An  electric  light  company  is  a 
"  manufacturing  corporation  "  within  the  meaning  of  an  act 
providing  that  "  two  or  more  mining,  quarrying  or  manufac- 
turing corporations  may  unite  and  amalgamate."  ^ 


CHAPTER  III. 

CONSTITUTIONAL   AND   STATUTORY   RESTRAINTS   UPON 
•      CONSOLIDATION". 

§  31.    Public  Policy  regarding  Consolidation  of  Competing  Railroads. 

§  32.  Constitutional  and  Statutory  Provisions  against  Consolidation  of  Compet- 
ing Railroads. 

§  33.     Construction  of  Prohibitions —  (A)  Meaning  of  Term  "  Consolidation." 

§  34.  Construction  of  Prohibitions  — (B)  Whether  a  Lease  amounts  to  Consoli- 
dation. 

§  35.  Construction  of  Prohibitions  —  (C)  Arrangements  amounting  to  Consoli- 
dation. 

§  36.  Construction  of  Prohibitions  —  (D)  Control  of  Competing  Railroads  by 
Holding  Corporation. 

§  37.  Construction  of  Prohibitions —  (E)  What  are  Competing  or  Parallel  Rail- 
roads. 

§  38.  Prohibition  of  Consolidation  of  Competing  Railroads  not  a  Regulation 
of  Interstate  Commerce. 

§  39.  Constitutional  Prohibitions  against  Consolidation  of  Competing  Carrier 
Corporations  other  than  Railroads. 

§  40.    Enforcement  of  Provisions  against  Consolidation  of  Competing  Lines. 

§  31.  Public  Policy  regarding  Consolidation  of  Competing 
Railroads.  —  It  may  be  a  serious  economic  question   whether 

1  New  Orleans  Gas  Light  Co.  v.  "  manufacturing "  corporation  within 
Louisiana  Light,  etc.  Co.,  11  Fed.  277  the  meaning  of  a  taxation  statute. 
(1882).  People  v.  Wemple,  129  N.  Y.  543  (1892), 

2  People  V.  Rice,  138  N.  Y.  151  (29  N.  E.  Rep.  808).  Preci.sely  theoppo- 
(1893),  (33  N.  E.  Rep.  846).  site   was,   however,  held   in    Common- 

8  Beggs  V.  Ed.  El.  Light,  etc.  Co.,  wealth  v.  Northern  EI.  Light,  etc.  Co., 

96  Ala.  295  (1891),  (11  So.  Rep.  381,  38  145  Pa.  St.   105  (1891),   (22  Atl.  Rep. 

Am.   St.    Rep.   94).     An  electric  light  839). 
company  has  also  been   held  to  be  a 

^  .  49 


§31 


INTERCORPORATE   RELATIONS. 


[part  I. 


the  consolidation  of  competing  railroad  companies  works,  in 
the  end,  injury  to  the  public.  The  increased  capital  may 
result  in  bringing  the  roads  to  a  higher  standing  of  efficacy  ; 
the  resulting  economies  in  operation  mny  permit  the  lowering 
of  rates  ;  tlie  possibility  of  disastrous  rate  wars  is  eliminated. 
On  the  other  hand  consolidation  may  produce  an  increase  in 
rates,  public  facilities  are  placed  in  the  hands  of  a  single 
corporation,  relieved  from  the  obligations  imposed  by  compe- 
tition and  rate  wars  do  not  always  result  disastrously  to  the 
piihlic. 

Whatever  may  be  the  merits  of  the  question,  however,  it  is 
not  an  open  one  from  the  popular  point  of  view.^  Public 
policy,  as  has  been  shown,  favors  the  consolidation  of  con- 
necting railroads  for  the  ])urpose  of  establishing  the  through 
line,  but  is,  uniformly,  oi)})Osed  to  the  consolidation  of  rail- 
roads which  are,  naturally,  competitors  for  the  business  of  the 
same  territorv.^ 


^  Pearsall  r.  Great  Northern  R.  Co., 
161  U.  S.  676  (1896),  (16  Sup.  Ct.  Kep. 
705)  :  "  Whether  the  consolidatiou  of 
competing  lines  will  neces.sarily  result 
in  an  increase  of  rates,  or  whetlier  such 
consolidation  has  generally  resulted  in 
a  detriment  to  tlie  public,  is  beside  the 
question.  Whether  it  ha.s  that  effect  or 
not,  it  certainly  puts  it  in  tlie  power  of 
the  consolidated  corporation  to  give  it 
that  effect ;  in  short,  puts  the  public  at 
the  mercy  of  the  corporation.  There 
is  and  has  been,  for  the  past  three  Imn- 
dred  years,  both  in  England  and  in  this 
country,  a  popular  prejudice  against 
monopolies  in  general,  which  has  found 
expression  in  innumerable  acts  of  legis- 
lation. We  cannot  say  that  such  pre- 
judice is  not  well  founded.  It  is  a 
matter  upon  which  the  legislature  is 
entitled  to  pass  judgment.  At  least 
there  is  sufficient  doubt  of  the  propriety 
of  such  monopolies  to  authorize  the 
legislature,  which  may  be  presumed  to 
represent  the  views  of  the  public,  to 
say  that  it  will  not  tolerate  them  unless 
the  power  to  establish  them  be  con- 
ferred by  clear  and  explicit  language. 
While,   in  particular  cases,   two  raQ- 

60 


ways,  by  consolidating  their  interests 
under  a  single  management,  may  have 
been  able  to  so  far  reduce  the  expenses 
of  administration  as  to  give  their  cus- 
tomers the  benefit  of  a  lower  tariff,  the 
logical  effect  of  all  monojjolies  is  an 
increase  of  price  of  the  thing  produced, 
whether  it  be  merchandise  or  transpor- 
tation. Owing  to  the  greater  speed  and 
cheapness  of  the  service  performed  by 
them,  railways  become  nece.ssarily 
monopolists  of  all  traffic  along  their 
lines,  but  the  general  sentiment  of  the 
pul)lic  declares  that  such  monojjolies 
must  be  limited  to  the  necessities  of  the 
case,  and  rebels  against  an  attempt  of 
one  road  to  control  all  traffic  between 
terminal  points,  also  connected  by  a 
competing  line.  There  are,  moreover, 
thought  to  be  other  dangers  to  the 
moral  sense  of  the  community,  incident 
to  such  great  aggregation  of  wealth 
which,  though  indirect,  are  even  more 
insidious  in  their  influence,  and  such  as 
have  awakened  feelings  of  hostility 
which  have  not  failed  to  find  expression 
in  legislative  acts." 

2  State   V.    Vanderbilt,  37  Ohio  St. 
590  (1882)  :  "The  policy  of  the  country 


CHAP.    III.]  RESTRAINTS   UPON    CONSOLIDATION.  §  31 

In  many  States  statutes  have  been  enacted  proliibiting  the 
consolidation  of  competing  or  parallel  lines  and,  in  others, 
the  people  have  inserted  such  provisions  in  their  funda- 
mental laws.  Other  States  indicate  the  same  policy  by  fail- 
ing to  authorize  consolidation  at  all. 

Public  sentiment,  as  so  crystallized  in  statutes  and  consti- 
tutional provisions,  is  not  of  recent  inception.  As  said  by 
Mr.  Justice  Brown  in  Louisville^  etc.  R.  Co.  v.  Kentucky  :  ^ 
"  This  restriction  upon  the  unlimited  power  to  consolidate 
with  other  roads  is  not,  as  the  plaintiff  in  error  suggests, 
called  for  by  any  new  view  of  commercial  policy,  but  by  virtue 
of  a  settled  policy  which  has  obtained  in  Kentucky  since 
1858,  in  Minnesota  since  1874,  in  Ohio  since  1851,  in  New 
Hampshire  since  1867,  and  by  more  recent  enactments  in 
some  dozen  other  States  —  a  policy  which  has  not  only  found 
place  in  the  statute  law  of  such  States  as  apprehended  evil 
effects  from  such  consolidations,  but  has  been  declared  by  the 
courts  to  be  necessary  to  protect  the  public  from  the  estab- 
lishment of  monopolies.  Indeed  the  unanimity  wnth  which  the 
States  have  legislated  against  the  consolidation  of  competing 


in  general,  indicated  in   constitntional  creation  of  a  monopoly  so  detrimental 

and  statutory  provisions,  has  long  been  to    the    public    interests."       See    also 

opposed  to  the  consolidation  of  roads  Woodruff  v.  Erie  R.  Co.,  93  N.  Y.  615 

bearing   such   relation    to    each   other  (1883) ;  State  v.  Atchison,  etc.  R.  Co., 

[competing    and      parallel],    and   this  24  Neb.   143  (1888),  (38  N.  W.  Rep.  43, 

strengthens  the  belief  that  these  com-  8   Am.  St.  Rep.  164)  ;  Central  R.,  etc. 

panics   are   not  within  the  section   in  Co.  v.  Collins,  40  Ga.  582  (1869). 
question.     Consolidation  for  the  trans-  Another  view  as  to  the  propriety  of 

portation   of    freiglit    and    passengers  such  legislation  was,  however,  expressed 

continuously  is  a  thing  which  the  legis-  by  Lord    Hatherley,  then   Vice   Chan- 

latiire  might  well  desire  to  encourage,  cellor  Wood,  in   Hare  v.  Railway  Co., 

as  it  may  be  advantageous  alike  to  the  2  Johns.  &  H.  80  (1861)  :  "  I  see  nothing 

public   and    the   companies ;    but    cor-  in  the  alleged  injury  to  the  public  aris- 

porations  have  power  only  as  granted  ing   from  the   prevention    of   competi- 

by   the   general   assembly,   and  where  tion.  ...  It  is  a  mistaken  notion  that 

comi)anies  situated  as  these  are,  being  the  public  is  benefited  by  putting  two 

parallel    and    competing,    claim     that  railway  companies  against   each  other 

authority     to     consolidate     has     been  till  one  is  ruined,  the  result  being  at 

granted  to  them,  they  must  be  able  to  last   to  raise  the   fares  to  the  highest 

point  to  words  in  the  statute  which  ad-  possible  standard." 
mit  of  no  other   reasonable   construe-  ^  Louisville,  etc.  R.  Co.  y.  Kentucky, 

tion,  for  it  will  not  be  assumed  that  the  161  U.  S.  698  (1896),  (16  Sup.  Ct.  Rep. 

lawmaking  power  has  authorized   the  714). 

51 


§32 


INTEUCORPORATE    RELATIONS. 


[part  I. 


lines  shows  that  it  is  not  tlic  result  of  local  prejudice,  hut  of 

a  general  Bentiment,  that  sucli  n)ono|)olieH  arc  re|irt'hcn8il)k'." 
§    32.    Constitutional   and    Statutory  Provisious   agciinst    Con- 
solidation of  Competing  Railroads. —  Puhlic  policy  as   directed 
against   the   consolidation   oi  competing   railroad    companies 

has  manifested    itself   in    the  constitutional    provisions    ami 

statutes  printed  or  referred  to  in  the  footnote.*     These  con- 

1  Arkansas.    Coiistt.  Art.  XVII.  §  4  :  other    rnilruaJ    corjM)r:iti<)n    uwuiiiK  a 

"No  railrc>:iil,  lanal,  or  other  coriKjni-  jiaruUol  or  comjuitiiii;   lino;  and   in   no 

tion.or  the  IctsecM,  purchascrH,  or  inaua-  ca»o  ttliall  any  ron»oli(liition  take  ]>liu-e, 

cpn  of   any  niilroad,   cauul,  or  othur  vxrept  u|k>ii   puMic  notice  (;i\en  of  at 

corporation,  »li:ill  consolidate  the  •to^^'k,  leant  «ixly  diun,  to  all  mocklioldom,  in 

pro|)i'rt_v,  <<r  frauihises  of  such  coriM)ra-  «mh    niauntT  lu*    may    be  jirovidcd  by 

tion  with,  or  Icodo  or  purcha«)  the  works  law.     A  majority   of  the    director*    of 

or  fraiichi.sei*  of,  or  in  any  way  control,  any  railniiid   corporation,  now  incor|K>- 

ajiv  other  railroad  or  canal  corporation  rated  or  hereafter  to  be  incorporated  by 

owning  or  having  nndor  it«  control  a  the  law*  of  thin  State,  hhall  Ihj  citixeus 

parulli'l  or  conjpotiug  lino,   nor    .shall  and  reaidcMt<«  of  thnt  State." 

any    orticer  of   »uch  railroad  or  canal  A'm/urXy.     CouHt.  §  201  :  "  No  rail- 

cor|><>ration   act  m^   an    otHcer   of    any  road,  telegraph,  telephone,  l>ridgo,    or 

other    railroad    or    caual    corjwration  common  carrier  company  ithall  conBoli- 

owning  or  iiavinij  control  of  a  parallel  date  it*  capital  ^t«M•k,  franchiscH,  or  prop- 

or    competing  line;    ami  the  (jue.ntion  crty.  or  po<d  it.s  earnings,  in  whole  or  in 

whetlier  railro.-uLi  orcanal.s  arc  jjarallel  part,  with  aiiy  other  railro.nl,  lelegrajth, 

or    competing    linos    shall,     when    de-  telephone,  Itridge,    or   common  carrier 

mandcd  i)y  the  party  complainant,  be  company  owning  a  parallel  or  competing 

decided  by  a  jury    an    in    other    civil  line  or  jttrucluro,  or  ac<|uire  by  purchase, 

issues."  Ica.'^e,    or    othorwi.ne,    any    parallel     or 

Colorado.  Const.  XV.  §  5  :  "  No  rail-  competing  line  or  structure,  or  o|)erate 

road  corporation,  or  the  le.H-sees  or  man-  the  same." 

ager;<  thereof,  shall  consolidate  its  stock,  Mirhiijim.  Const.  Art.  XIX.  A,  §  2  : 
property,  or  franchises  with  any  other  "  No  railroad  corporation  shall  consoli- 
ruilroad  corporation  owniug  or  havitig  date  its  stock,  property,  or  franchises 
under  its  coutrul  a  parallel  or  competing  with  any  other  railroad  corporation 
line."  owning  a  parallel  or  competing  line  ; 
Georgia.  Const.  Art  IV.  §  2,  par.  4  :  and  in  no  c:use  shall  any  consolidation 
"  The  General  Assembly  of  thi.s  State  take  place  except  upon  public  notice 
shall  have  no  power  to  authorize  any  of  at  le.x-tt  sixty  days  given  to  all  stock- 
corporation  to  buy  shares  or  stock  in  holders,  in  such  manner  as  shall  be  pro- 
auy  other  corporation  in  this   State  or  vided  by  law." 

elsewhere,  or  to  make  any  contract  or  Ml.i.touri.  Const.  Art.  XII.  §  17  :"  No 

agreement  whatever  with  any  such  cor-  railroail    or    other    corporation,  or  the 

poration  which  may  have  the  effect  to  leasees,  purcha.<ers,  or  managers  of  any 

defeat  or  lessen  competition  in  their  re-  railroad  corporation,  shall    cons<jlidate 

apective    busines.ses,    or    to    encourage  the  stock,  property,  or  franchises  of  such 

monopoly  ;  and  nil  such  contracts  and  corporation  with,  or  lease  or  purchase 

agreements  shall  be  illegal  and  void."  the  works  or  franchi.-<es  of,  or  in  any 

Illinois.  Const.   Art.    XI.  §  11:  "No  way  control,  any  railroad    corporation 

railroad  corporation  shall  con.solidate  its  owning  or  having  under  its  contnd  a 

stock,  property,  or  franchises  with  aiiv  parallel  or  competing  line ;    nor  shall 

52 


CHAP.   III.]  RESTRAINTS   UPON   CONSOLIDATION, 


§32 


stitutional  provisions,  as  will  be  observed,  generally  embrace 
other  carrier  corporations  as  well  as  railroad  companies. 


any  officer  of  such  railroad  corporation 
act  as  an  officer  of  any  other  railroad 
corporation  owning  or  having  the  con- 
trol of  a  parallel  or  competing  line. 
The  question  whether  railroads  are 
parallel  or  competing  lines  shall,  when 
demanded,  be  decided  by  a  jury,  as  in 
other  civil  issues." 

Montana.  Const.  Art.  XV.  §  6  :  " No 
railroad  corporation,  express  or  other 
transportation  company,  or  the  lessees 
or  managers  thereof,  shall  consolidate  its 
stock,  property,  or  franchises  with  any 
other  railroad  corporation,  express  or 
other  transportation  con)pany,  owning 
or  having  under  its  control  a  parallel 
or  competing  line  ;  neither  shall  it  in 
any  manner  unite  its  business  or  earn- 
ings with  the  business  or  earnings  of 
any  other  railroad  corporation ;  nor 
shall  any  officer  of  sucJi  railroad,  ex- 
press or  other  transportation  company, 
act  as  an  officer  of  any  other  railroad, 
express  or  other  transportation  com- 
pany, owning  or  having  control  of  a 
parallel  or  competing  line." 

Nebraska.  Const.  Art.  XI.  §  3  :  "  No 
railroad  corporation  or  telegraph  com- 
pany shall  consolidate  its  stock,  prop- 
erty, franchises,  or  earnings,  in  whole 
or  in  part,  with  any  other  railroad  cor- 
poration or  telegraph  company  owning 
a  parallel  or  competing  line  ;  and  in 
no  case  shall  any  consolidation  take 
place,  except  upon  public  notice  of  at 
least  sixty  days  to  all  stockholders,  in 
such  manner  as  may  be  provided  by 
law." 

North  Dakota.  Const.  Art.  VII. 
§  141  :  "No  railroad  corporation  shall 
consolidate  its  stock,  property,  or  fran- 
chises with  any  other  railroad  corpora- 
tion owning  a  parallel  or  competing 
line ;  and  in  no  case  shall  any  consolida- 
tion take  place  except  upon  public  notice 
given  at  least  sixty  days  to  all  stock- 
holders, in  such  manner  as  may  be 
provided  by  law.  Any  attempt  to 
evade  the  provisions  of  this  section  by 
any  railroad   corporation,  by  lease   or 


otherwise,  shall  work  a  forfeiture  of  its 
charter." 

Pennsylvania.  Const.  Art.  XVII. 
§  4  :  "  No  railroad,  canal,  or  other  cor- 
poration, or  the  lessees,  purchasers,  or 
managers  of  any  railroad  or  canal  cor- 
poration, shall  consolidate  the  stock, 
property,  or  franchises  of  such  corpora- 
tion with,  or  lease  or  purchase  the  works 
or  franchises  of,  or  in  any  way  control 
any  other  railroad  or  canal  corporation 
owning  or  having  under  its  control  a 
parallel  or  competing  line ;  nor  shall 
any  officer  of  such  railroad  or  canal  cor- 
poration act  as  an  officer  of  any  other 
railroad  or  canal  corporation  owning  or 
having  the  control  of  a  parallel  or 
competing  line ;  and  the  question 
whether  railroads  or  canals  are  parallel 
or  competing  lines  shall,  when  de- 
manded by  the  party  complainant,  be 
decided  by  a  jury  as  in  other  civil 
issues." 

South  Carolina.  Const.  Art.  IX.  §  7  : 
"  No  railroad  or  other  transportation 
company,  and  no  telegraph  or  other 
transmitting  company,  or  the  lessees, 
purchasers,  or  managers  of  such  cor- 
poration, shall  consolidate  the  stock, 
])roperty,  or  francliises  of  such  corpora- 
tion with,  or  lease  or  purchase  the 
works  or  franchises  of,  or  in  any  way 
control  any  other  railroad  or  other 
transportation  company  owning  or  hav- 
ing under  its  control  a  parallel  or  com- 
peting line ;  and  the  question  whether 
railroads  or  other  transportation,  tele- 
graph, or  other  transmitting  companies 
are  parallel  or  competing  lines  shall, 
when  demanded  by  the  party  complain- 
ant, be  decided  by  a  jury  as  in  other 
civil  causes." 

South  Dakota.  Const.  Art.  XVII. 
§14:"  No  railroad  corporation  shall  con- 
solidate its  stock,  property,  or  franchises 
with  any  other  railroad  corporation 
owning  a  parallel  or  competing  line; 
and  in  no  case  shall  any  consolidation 
take  place  except  upon  public  notice 
given  out,  at  least    sixty  days,  to  all 

53 


INTERCORPORATR   RELATIONS. 


[part  I. 


Ju  CoIdhuIo,  Illinois,  Kentucky,  Michigan,  Missouri,  Mon- 
tana, Nebraska,  North  Dakota,  IVnnsylvauia,  South  Carolina, 
South  Dakota,  Texas,  and  West  Virj^inia,  the  constitutional 
inhibition  is  against  the  consolidation  of  "  competing  or 
parallel  lines."  In  I'tah  and  Washington  "competing"  Hues 
only  are  referred  to. 

Consolidation  with  a  corp<ji-:iti<)n  ••owning"  a  CMinp.  tinp 
line  is  prohibited  in  Illinois,  Kentucky,  Miehigan,  Nebraska, 
North  Dakota,  South  Dakota,  Utah,  Washington,  and  West 
Virginia,  while    in   the   constitutions   of    Missouri,  Montana, 

BtfK-khoMcrs  ill  nuch  mnntKT  im  mav  l)«  with    any    other    railruail    oirniiif;     a 

pruvi'lrd     by    law.       Auy    utti-m)it    to  |>arall<l    or  c«>nipctiiiir   lino,  or   ul.tain 

evailc  thi»  provi«ii»nii  of  this  ntftiou  hy  tin*  iMKiMMioii  or   rontrol   of  iiuch   par- 

aiiv  railruail    cor|>oration,  by   loaae  or  allel    or  itim|>ctinK    line,  by  Icaw*    or 

othcrwiiM).  »hall  work  a  forfcituns  of  it*  othi-r  contr^it.  without  the  pcrini««ioa 

rhart«T."  "^  thu  li-Kislalun'." 

'/Vj-.m.  CojiKt.  Art.  X.  5  5  "  No  rail-  H'v-jwin'/.  C'ou»t.  Art.  X.  J  8  : 
roail  or  othrr  cor|H)ration,  or  thr  Ipmuh'ii,  "Thir<<  Nhall  l>c  no  consolidation  or  com- 
iiiirrhnA'T!*,  or  itiana^rnt  of  auy  milroatl  bination  of  rorporationit  of  any  kind 
cor|M»ratioii,  nhiill  «i>ni»oliiliit«  the  Htixk,  whatever  to  jirevont  (-oni|>rtilion,  to  con- 
proiKTty.  or  franchises  of  smh  corpo-  Irol  or  inHuenco  priHiuitionn  or  pricoa 
ration  with,  or  Ioomi  or  purchavj  the  thcre<»f,  or  in  any  manner  to  interfere' 
works  or  franehiM'Ji  (>f.  «)r  in  any  way  with  the  iiulilifjjiMxi  or  (cenoral  welfare." 
control  any  milroail  corporation  owning  In  roiitrndistinction  to  the  phraM 
or  having;  umbr  it*  control  a  parallel  "continuous  or  couucctiiif(  lines"'  Con- 
or competing  line  ;  nor  shall  any  otTuer  »«)liilation  statutes.  j;«*ncrally.  employ 
of  such  railroad  cor|)oration  act  as  an  the  phrase  "  parallel  or  comiietinx 
officer  of  any  other  railroad  cor-  lines"  —  authorixinf;  the  consolidatiuo 
poration  owninR  or  having  the  control  of  the  one  and  prohibiting  the  consoli- 
of  a  parallel  or  comi>itinK  lino."  dalion  of  the  other.  l'n>visions  pro- 
Art  X.  §  6  .  "  No  railroail  company  hibiting  the  cori.s.didalion  of  |>arallel  or 
organize<l  under  the  laws  of  this  State  competing  railroads  appear  in  the 
shall   consolidate  by  private  or  jutlici.il  sUtutes  of  the  Tdlowing  State*,  some 


of  which  also,  as  will  be  observed,  have 
similar  con.«titutional  provisions :  Ar- 
kansas, Arizona,  Connecticut,  Floritla, 
Idaho,  .Maryland,  .Minnesota,  Mi.*sis- 
sippi,  Montana,  New  York,  Teniicwce, 
I'tah.  \Va.«hington,  \Ve.st  Virginia,  Wis- 
consin. For  references  to  constdidation 
statutes  sec  note,  ante,  §  22  :  "  What  Hail- 


sale  or  otherwi.ne  with  any  railroad  cora- 
p.iny  orijanized  umler  the  laws  of  any 
other  St.-ite  or  of  the  I'niteil  States." 

Itah.  Const.  Art  XII.  §13:  "No 
railroad  corponition  shall  con.solidate 
its  stock,  ]>roperty,  or  franchises  with 
any  other  railroad  corjMiration  owning 
a  competing  line." 

M'ttshiwjUm.  Const  Art.  XII.  §  K. :  rrxul.t  may  conaolniate  —  Statutory  Pro- 
"  No  railroad  corjM^ration  shall  consnli-     visions." 

date  its  stock,  pro]>erty,  or  franchi.^es  In  Florida  (Acta  1887.  p.  117),  and 

with  any    otlier    railroad    corporation     New  York  (R.  K.  Laws.  §  80,  see  «n/*, 
owning  a  competing  line."  §  22,  note),  the  railroad  commi.Hsioners 

Wtst  Viiyinia.  Const.  Art.  XI.  §  1 1  :  m.iy  authorize  the  consolidation  of  com- 
"No  railroad  corporation  shall  consoli-  peting  Hues.  For  MinnesoU  statute* 
date  ita  stock,  proporlv,  or  frauchises     see  pott,  §  35,  note. 

54  ' 


CHAP,    in.]  EESTEAINTS    UPON   CONSOLIDATION.  §  83 

Pennsylvania,  South  Carolina,  and  Texas  the  similar  provision 

^ads-"  owning  or  having  under  its  control"  such  line. 
In  Georgia  and  Wyoming  all  contracts  to  prevent  competi- 

tion  are  prohibited  and  Texas  does  not  permit  consolidation 

with  toreio-n  railroad  corporations  at  all. 

lie    co^nstitntions   oJ   Arkansas.   Missouri,   Montana    and 

Pennsylvania  prohibit  the  officers  of  railroad  oo-P""'.^  «'-» 
becomin-  officers  in  competing  corporations.  In  Aikansas, 
M  ss^r,  and  Pennsylvania  the  question  whether  railroads 
are  parallel  or  competing  lines,  is  to  be  determined  by  the 
iiirv  IS  in  other  civil  issues. 

'The  constitutions  o£  North  Dakota  and  South  Dakota  pro- 
vide  that  any  attempt  by  any  railroad  corporation  to  erade 
Iheir  provisions  against  consolidation  shall  work  a  forfeiture 

°'ThVwtt' Virginia  constitution  prohibits  the  consolidation 
of  competing  or  parallel  lines  "  m«/.o«t  the  p,rmus,onofthe 
zlrL"  As  no  consolidation  is  possible  without  legisla- 
tiC  ^anaion  this  provision  is,  and  was  doubtless  intended 
to  be    wholly  ineffective. 

Statulory  provisions  against  the  consolidation  of  competing 
railroads  have  no  ex  post  facto  application. 

S  33  Construotton  of  Prohibitions  -  (A)  Meaning  of  Term 
«  consolidation."  -  Constitutional  and  statutory  provisions 
against  the  consolidation  of  competing  lines  o  railroad  are 
fo  penal  in  their  nature,  but  are  declaratory  of  the  policy  of 
th  S  ate  in  favor  of  the  preservation  of  competition  and  are 
entitled  to  a  liberal  construction.  The  purpose  c^  c— - 
tional  conventions  in  adopting  such  provisions  and  of  legis- 
Itures  in  enacting  such  laws  was  to  place  an  effective  bar 
agist  any  union  of  railroad  companies  whereby  competition 
might  be  removed.^ 

,  .,      ^     .      .,.  -R  Co  V  Concord    au  effective  instrumentality  against  the 
iManchestexsetc^RCo^..Conc^^     consolidation  of  competingroadsthrough 

R.  Co.,  66  N.  H.  131  (1889),  (20  Ati      ^^^^^^^^  ^^  ^^^^j^ge^ents  between  them 

Rep.  383)                ,     f.  cnv  Concord  by  means  of  which  competition  is  re- 

2  Manchester,  etc.  R.  Co.  v.  ooncora  uy                                               Atchison, 

R.  Co.,  66  N.H.  131  (1889),  (20  Atl.  moved.    ^^%f^^^'%    (,883),    (38 

Rep.  383) :  "  The  purpose  of  the  leg.s-  etc.   R.  Co.,    4  ^eb            ,         , 

lature  was  to  make  the  act  in  question  N.  W.  Rep.  43,  »  a 


§  33  INTERCORPORATE    RELATIONS.  [pART    I. 

While,  therefore,  tho  terra  "consolidation"  is  generally 
used  to  deHcribe  a  union  of  corporate  proporties  and  stock- 
holders by  the  process  of  absorption  or  fusion,  it  has  a  broader 
nn'aninjij  as  used  in  constitutional  and  statutory  provisions 
aj^ainst  the  consolidation  of  com|)eting  railroads,  and  is  hero 
used  in  the  sense  of  "  join  *'  or  "  unite."  * 

In  the  recent  case  of  EiiBt  St.  Louia,  etc.  li,  Co.  v.  Jarvi$^ 
Judj?e  Jenkins  said  :  *'  It  is  contended  that  the  terra  '  consoli- 
dation '  means  a  permanent  union  of  the  interests,  manage- 
ment, and  control  of  two  roads,  either  in  the  formation  of  a 
new  company  out  of  the  consolidated  one,  or  else  by  consoli- 
dated management  of  the  old  onus  unitedly  while  their  distinct 
corporate  entities  still  remained.  This  distinction  is  true  in 
the  general  sense  in  which  one  spi-aks  of  the  'consolidation* 
of  railroads.  The  term  may  also  mean  the  act  of  forming 
into  a  more  firm  or  compact  raass,  body,  or  system.  The  con- 
stitutional convention,  representing  the  people  of  the  State, 
sought  to  provide  against  monopolies,  and  to  preserve  to  the 
public  the  benefit  that  would  accrue  from  comjHJtition  lictween 
parallel  or  competing  lines  of  railway.  It  sought  for  practical 
results.  It  intended  to  proviile  that  parallel  or  competing 
lines  should  continue  to  be  competing,  and  this  it  aimed  to 
accomplish  by  prohibiting  the  consolidation  of  the  stock  or 
tlie  franchises  or  the  property  of  any  such  competing  lines 
of  railway.  The  union  of  such  lines  was  prohibited,  in  view 
of  the  objects  sought  to  bo  accomjdished.  The  terra  *  con- 
solidate '  we  think  must  1x5  construed  to  have  been  used  in 
the  sense  of  '  join  *  or  '  unite.*  To  |)ermit  two  such  com- 
peting lines  of    railway   under  a  single   management  and  a 

East  St.  Lonis.  etc.  R.  Co.  v.  Janrin,  92  chiMs,  or  earnings,  in  whole  or  in  p*rt, 

Fed.    743    (1899);  Morrill   v.    K.-iilrond  with    anj   other  corporation  owning  • 

Co.,  55   N.  II.  531   (1875)  ;  Gulf,  etc.  R.  parallel  or  comj)Oling  line.     The  word 

Co.  V.  State,  72  Tex.  404  (1888),  (10  '  consolidate  '  is  here  nseil  in  the  »cn»« 

S.  W.  Rep.  81).  of   join    or   unite.      The   constitutional 

>  In  State  r.  Atchison,  etc.  R.  Co.,  convention  aimed  at  practical  results." 
24  Neb.  1&4  (18SS),  (38  N.  W.  Rep.  43,         Tower  to  jt)in  or  unite,  however,  does 

8  Am.  St.  Kep.  164),  tlie  Supreme  Court  not  authorize  con.s<ilidation.     Louisville, 

of    Nebraska  said:  "This   [the  consti-  etc.  R.  Co.  v.  Kentucky,  161  U.  S.  684 

tutional   provision]  is  an  absolute  pro-  (1896),  (16  Sup.  Ct.  Rep.  714). 
hibition  against  a  railroail  corporation  '  East  St.  I»ui8,  etc.  R.  Co.  c.  Jarris, 

consolidating  its  stock,  property,  fran-  92  Fed.  743(1899). 

56 


CHAP.    III.]  RESTRAINTS   UPON    CONSOLIDATION.  §  34 

single  control  would  accomplish  the  very  purpose  which  the 
constitution  sought  to  prevent.  We  must  have  regard  to  the 
spirit  and  the  object  of  that  constitutional  provision,  and  not 
juggle  with  the  technical  meaning  of  the  word.  The  prohibi- 
tion goes  to  the  consolidation  or  uniting  of  the  stock  of  two 
competing  .roads,  or  of  the  franchises  of  two  competing  roads, 
or  of  the  property  of  two  competing  roads.  The  doing  of 
either  would  create  the  prohibited  monopoly,  and  either  is 
within  the  intendment  and  meaning  of  the  constitutional 
provision." 

§  34.  Construction  of  Prohibitions  —  (b)  Whether  a  Lease 
amounts  to  Consolidation.  —  It  has  been  held  that  a  lease  of 
a  competing  railroad  falls  within  a  constitutional  provision 
against  the  consolidation  of  competing  lines.^  The  courts  in 
so  holding  have  based  their  conclusion  upon  ^the  premise  — 
indicated  in  the  last  section  —  that  the  term  "  consolidate  " 
is  broadly  used  in  such  inhibitions  in  the  sense  of  "  join " 
or  "  unite." 

It  may  be  doubted,  however,  whether  the  conclusion 
follows  from  the  premise.  In  order  to  make  the  constitu- 
tional  provisions  effective   instruments  for  the  accomplish- 

1  State  V.  Atchison,  etc.  R.  Co.,   24  of  competing  lines  of  railway,  we  per- 

Neb.  164  (1888),  (8  Am.  St.  Rep.  164  ceive  no  reason  why  a  lease  for  ninety- 

38  N.   W.  Rep.  43) :    "  The  constitu-  nine  years  would  not  he  equally   valid, 

tional  convention    aimed   at   practical  We  cannot  draw  the  line  in  that  respect 

results.     The  character  of  the  title  of  between  what  is  permanent  and  what  is 

the  parties  operating  a  railway   is   of  temporary.      AVhatever    produces    the 

but  little  moment  to  the  general  public,  prohibited  result  is   obnoxious   to   the 

while   the   requirement    that   different  spirit  and  the  letter  of  the  constitutional 

roads  shall  continue  to  be   competing  provision,   and   is   illegal.      We   must 

lines,  as  when  they  were  constructed,  is  deal  with  the  result  accomplished,  with- 

of  the  utmost  importance  to  all.     The  out  regard  to  the  means  employed.     It 

law   cannot   be  evaded,    therefore,   by  cannot  be  permitted  tliat  one  may  effect 

substituting    a    lease    for    a  deed   of  a  prohibited  result  by  indirection  which 

conveyance."  he  may  not  lawfully  accomplish  by  di- 

East  St.  Louis,  etc.  R.  Co.  v.  Jarvis,  rect  means.     We  must  therefore  hold 

92  Fed.  743  (1899):  "  Nor  do  we  think  that  the  leases  in  question  practically 

that  there  is   force  in  the  contention  effected  a  consolidation  of  the  properties 

that  this  union  or  consolidation  was  by  of  two  competing  lines,  and  are  within 

means  of  a  temporary  arrangement,  if  the  inhibition  of  the  constitution." 

thereby  that  is   accomplished  which  is  Compare    Missouri    Pacific    R.    Co. 

prohibited  by  the  constitution.     If  it  be  v.  Owens,  1  Tex.  App.  Civ.  Cas.  §  384 

lawful,  by  means  of  a  lease  for  ten  years,  (18S3). 
to  consolidate  and  unite  the  properties 

57 


I  35  INTERCORPORATE  RELATIONS.         [PART  I. 

ment  of  the  purposes  for  which  they  were  designed,  a  liberal 
construction  is  necessary  and  proper  and  the  word  "  consoli- 
date "  may  well  be  described  as  an  equivalent  for  "  join  "  or 
"  unite."  But  these  terms  w^hen  applied  to  corporations 
would  seem  to  imply  some  legal  union  or  joinder  —  something 
more  than  the  mere  physical  conjunction  of  corporate  prop- 
erties effected  under  a  lease. 

Constitutional  provisions  often  expressly  prohibit  the  leas- 
ing of  competing  roads,  but,  in  the  absence  of  such  a  pro- 
hibition, a  construction  which  reads  it  into  a  constitutional 
provision  by  virtue  of  the  use  of  the  word  "  consolidate  "  is 
strained.^ 

S  35.  Construction  of  Prohibitions  —  (C)  Arrangements 
amounting  to  Consolidation.  —  An  arrangement  whereby  one 
railroad  company,  in  return  for  a  guaranty  of  its  bonds  by  a 
company  owning  a  parallel  and  competing  road,  was  to  turn 
over  one-half  of  its  stock  to  the  stockholders  of  the  latter  com- 
pany, or  to  a  trustee  for  their  benefit,  was  held  by  the 
Supreme  Court  of  the  United  States  in  Pearsall  v.  Great 
Northern  R.  Co.^  to  constitute  a  clear  violation  of  statutes 
prohibiting  railroad  companies  from  consolidating  with  or 
in  any  way  owning  or  controlling  other  corporations  hav- 
ing parallel  or  competing    lines.^     Mr.  Justice  Brown  said  : 

1  In  Gere  v.  New  York  Central  R.  Co.,  the   Montana   constitutional   provision. 

19  Abb.  N.  C.  210  (1885),  the  New  York  State  v.  Montana  R.  Co.,  21  Mont.  221 

Supreme  Court,  in  considering  whether  (1898),  (53  Pac.  Rep.  623).     See  also 

a  lease   came   within    the   New    York  ante,  §  14  :  "  Distinction  between  Consoli- 

statute   against    the    consolidation    of  dation  and  Lease.'" 

competing  lines,    said:    "The  leasing  ^  Pearsall  v.  Great  Northern  R.  Co., 

of  one  railroad  by  another,  whether  for  161  U.  S.  671  (189G),  (16  Sup.  Ct.  Rep. 

a  longer  or  shorter  period,  is  not  a  mer-  705). 

ger  or  consolidation.  The  term  '  lease '  ^Minnesota.  Laws  1874,  ch.  29  (Act 
implies  the  continued  existence  of  the  of  March  9, 1874) :  "  No  railroad  corpo- 
corporation,  the  lessor,  with  all  its  ration,  or  the  lessees,  purchasers,  or  man- 
powers and  functions,  and  all  the  rights  agers  of  any  railroad  corporation,  shall 
incident  to  its  creation,  and  it  would  be  consolidate  the  stock,  property,  or 
a  gross  misapplication  of  terms  to  hold  frauchises  of  such  corporation  with,  or 
that  a  leasing  or  contract  for  use  by  lease  or  purchase  the  works  or  fran- 
one  railroad  to  another  is  a  merger  or  chises  of,  or  in  any  way  control  any 
consolidation  of  the  two  roads."  Also  other  railroad  corporation  owning  or 
Wallace  v.  Long  Island  R.  Co.,  12  Hun  having  under  his  control  a  parallel  or 
(N.  Y.),  460  (1877).  A  lease  is  not  a  competing  line;  nor  shall  any  officer 
consolidation   within   the  meaning    of  of  such  railroad  corporation  act  as  the 

58 


lAP.    III.]  RESTRAINTS    UPON    CONSOLIDATION.  §  35 

The  fact  that  one-half  of  the  capital  stock  of  the  re- 
ganized  company  is  to  be  turned  over  to  the  shareholders 
the  Great  Northern,  which  is,  in  turn,  to  guarantee 
e  payment  of  the  reorganized  bonds,  is  evidence  of  the 
ost  cogent  character  to  show  that  nothing  less  than  a  pur- 
ase  of  a  controlling  interest,  and  practically  the  absolute 
ntrol,  of  the  Northern  Pacific  is  contemplated  by  the 
rangement.  With  half  of  its  capital  stock  already  in  its 
tnds,  the  purchase  of  enough  to  make  a  majority  would 
How  almost  as  a  matter  of  course  and  the  mastership  of 
e  Northern  Pacific  would  be  assured.  That  the  trans- 
r  of  the  stock  is  to  be  made,  not  directly  to  the  company, 
it  to  the  shareholders,  is  immaterial,  since  it  may  be  as- 
imed  that  they  would  cast  their  votes  in  the  interests  of 
e  company.  .  .  .  There  is,  however,  in  addition  to  that, 
I  alternative  provision  that  the  transfer  may  be  made  to  a 
ustee  for  the  use  of  the  stockholders,  who  would,  of  course, 
t  as  their  agent  and  represent  them  as  a  body,  and,  in  fact, 
and  as  the  company  under  another  name.  Doubtless 
ese  stockholders  could  lawfully  acquire  by  individual  pur- 
lases  a  majority,  or  even  the  whole  of  the  stock  of  the  re- 
■ganized  company,  and  thus  possibly  obtain  its  ultimate 
mtrol ;  but  the  companies  would  still  remain  separate 
trporations  with  no  interests,  as  such,  in  common.  This, 
lOugh  possible,  would  not  be  altogether  feasible  and  would 
quire  considerable  time  for  its  accomplishment.  In  a  few 
jars  the  two  companies  might,  by  sales  of  the  stock  so  ac- 
lired,  become  completely  dissevered,  and  the  interests  of 
le  stockholders  of  each  company  thus  become  antagonistic, 
nder  the  proposed  arrangement,  however,  the  Northern 
acific  as  a  company,  in  return  for  a  guaranty,  which  the 

icer  of  any  other  railroad  corporation  1 881):  "No  railroad  corporation  shall 

'ning   or    having   the   control    of    a  consolidate  with,  lease  or  purchase,  or  in 

rallel   or  competing    line  ;   and   the  any  way  become  the  owner  of  or  con- 

estion  whether  railroads  are  parallel  trol  any  other  railroad  corporation,  or 

competing  lines  shall,  when  demanded  any  stock,  franchise,  orrights  of  property 

the  party  complainant,  be  decided  by  thereof  which  owns  or  controls  a  paral- 

jary  as  in  other  civil  issues."  lei  or  competing  line." 
Laws  of  1881,  ch.  94  (Act  of  March  3, 

69 


§  35  INTKRCORPORATE    RELATIONS.  [I'AUT    I. 

iniiividiiul  HtockholJera  could  not  give,  turns  over  to  a  truHteo 
for  tlu-  entiro  body  of  8tockliolder8  of  tho  (ireat  Northern 
onc-hnlf  of  its  sttKlc,  with  tho  almost  certainty  of  the  latter 
securing  tho  co(n{)lctc  control,  and  probably  Uic  ultiniato 
amalgamation,  of  the  two  companiea."  * 

Where  perBons  iu  charge  of  an  in.mjlvent  construction  com- 
pany which  had  contracted  to  build  a  railroad  for  a  cor|)o- 
ratioii,  and  had  received  all  its  stock  and  other  assets  as 
security,  without  Ix-ginning  the  work,  transferred  the  stock 
of  the  construction  company  to  tho  managers  of  another 
railroad  in  operation  which  would  compete  with  tho  projected 
road  if  com[)leted,  the  funds  of  such  railroad  company  being 
usetl  for  the  purchase,  by  which  process  the  stocks  and  assets 
of  tho  several  companies  were  controlled  by  tlic  same  man- 
agement, it  was  hold  that  the  evident  purfwiso  of  the  trans- 
action was  to  violate  by  indirection  the  provisions  of  the 
constitution  of  Georgia  declaring  tho  purchase  of  the  stock 
of  one  corjM)ration  by  another,  and  any  contract  between  them 
tending  to  lessen  competition  or  to  encourage  monopoly, 
illegal  and  vpid.' 

A  prohibition  against  the  consolidation  of  parallel  or  com- 


>  In    IViinsvlTania   R.    Co.    v.   Com-  etc   R.  Co.  r  State,  72  Tex.  4W  (I "S'^), 

monwralth    (I'a.     IH86).   7     Atl.    Hep.  (10  S.  W.  Rep.  M).     Comparr,  homer tt, 

368,  it   wa*   hcM  that  the  pnrrha«o  bjr  iVopIe  r.  Ollrirn.  Ill  N.  Y.  M  (IHM), 

one  corporation  of  a  Mufncicnt  ninoant  (IH  N.  K.  Rep.  692). 

of   tho   uttH-k    of    another    r<>rp<>raiion,  '  [.JUipinn    v.    Itranrh,  37    Fe<l.  449 

owuinf;  «  parallel  and  com(>otini;  road,  (tH8A).     S««  al*)    Hamilton    v.   Sarao- 

to  pire  contMl   of    the    latter,  wa*    in  Dah,  etc.  R.  Co.,  49  F«"<1.  415  (1892). 

contravention     of     the     Pennsylvania  In    Dady    v.    Georgia,    etc.     R.    Co., 

constitntional     proTiaion     again.<it     the  113    Fe<i.    S.19    (1900),   it    wa<    held   in 

consolidation    of   corporatiouji    owning  con.iitminR   the    Georgia   coniititaiiuDal 

parallel  or  competing  line*.     S«c  alao  provi.<iion,  that  where  ncparntc  lines  of 

Pennsylv.ania  R.  Co.  c.  Commonwealth  railwar    tran."«port   freight   and  p:i.«.<teD- 

(Pa.    1BS6),  7  Atl.  Rep.  374.  geni  for  widely  .loparated  sections  of  two 

Pooling  r<^nlrart«  are  inraliil  under  a  State*,  and  no  point  on  either  road  can 

statute  prohibiting  consolidation.     Cur-  be  reached  in  any  reasonable  time  by  a 

rier  v.  Concord   R.  Co.,  48  N.  H.  321  pxssenger   starting   oat   on   the  other, 

(1869)  ;    Morrcll    v.    Railroad  Co.,  55  con.solidation   does   not   tend  to  defeat 

N.    11.    537    (1875);    Manchester,    etc.  competition    and    created    a   monopoly 

R.  Co.  V.  Concord  R.  Co.,  66  N.  II.  100  merely  because  two  shallow  rirers,  on 

(1889),  (20  Atl.  Rep.  383.)  which  steambo.-xts  carrying  freight  and 

A  tratTic  arrangement  between  paral-  pas-sengers  occasionally  ply,  are  croe««d 

lei  lines  was  held  to  be  illegal  in  Golf,  by  both  line*. 

60 


CHAP.   III.]  RESTRAINTS   UPON   CONSOLIDATION.  §  36 

peting  railroads  cannot  be  evaded  by  a  judicial  sale.  "If, 
from  reasons  of  public  policy,  tbe  legislature  declares  that 
a  railway  shall  not  become  the  purchaser  of  a  parallel  or 
competing  line,  the  purchase  is  not  the  less  unlawful  be- 
cause the  parties  choose  to  let  it  take  the  form  of  a  judicial 
sale."  1 

§  36.  Construction  of  Prohibitions  —  (D)  Control  of  Compet- 
ing Railroads  by  Holding  Corporation.  —  The  question  whether 
the  acquisition  of  control  of  competing  railroad  companies  by 
a  holding  corporation,  formed  for  the  purpose,  is  in  contra- 
vention of  constitutional  or  statutory  provisions  against  the 
consolidation  of  competing  lines,  has  recently  occasioned 
much  discussion,  but  has  not,  as  yet,  received  judicial  de- 
termination.2 

The  following  principles  and  propositions  are,  however, 
established,  and  a  decision  of  the  question  would  seem  nec- 
essarily to  involve  their  application  :  — 

(1)  Prohibitions  against  the  consolidation  of  competing 
railroads  are  declaratory  of  public  policy.^ 

(2)  Practical  as  well  as  technical  consolidation  contra- 
venes such  provisions.^ 

(3)  Between  the  State  and  the  corporation,  acts  of  the 
stockholders  may  be  regarded  as  acts  of  the  corporation.^ 

^  Louisville,  etc.  R.  Co.  v.  Kentucky,  which  could  not  be  brought  in  without 
161  ,U.  S.  693  (1896),  (16  Sup.  Ct.  Rep.  defeating  the  constitutional  jurisdiction 
714).  In  this  case  it  was  held  also  that  of  the  court.  Minnesota  ;;.  Northern 
acquiescence  by  the  State  in  several  Securities  Co.,  184  U.  S.  199  (1902), 
purchases  by  a  railroad  of  local  lines  (22  Sup.  Ct.  Rep.  308). 
which  ran  parallel  to  some  of  its  own  Subsequently  the  State  of  Washing- 
branches  could  not  be  treated  as  a  con-  ton  filed  a  similar  application  making 
temporaneous  construction  of  its  char-  the  railroad  corporations  and  the  hold- 
ter  authoriziug,  generally,  consolidation  iug  corporation  defendants,  and,  after 
with  parallel  and  competing  roads.  a  hearing,  the  Supreme  Court  granted 

2  The   application   of  the   State  of  leave  to  file  the  bill.     Washington  v. 

Minnesota   to   the    Supreme   Court   of  Great   Northern    R.    Co.  et   al.,  U.    S. 

the   United    States    for    leave    to    file  Supreme  Ct.  Oct.  Term,  1901   (decided 

an   original   bill  for   an   injunction   to  April  21,  1902). 

restrain   the   alleged    consolidation    of  ^  ^nte,  §§  33,  34,  35. 

two  competing  railroad  companies  by  *  Ante,  §§  33,  34,  35. 

means  of  a   holding  corporation   was  ^  In  People   v.  North  River  Sugar 

denied   because   of  the  want  of  indis-  Ref'g  Co.,   121  N.   Y.  582   (1890),  (24 

pensable  parties  —  only  the  holding  cor-  N.  E.  Rep.  834),  the  Court  of  Appeals 

poration  being  named  as  defendant —  of  New  York  said :  "  The  abstract  idea 

61 


§37 


INTERCORPORATE   RELATIONS. 


[part  I. 


(4)  Unity  of  ovrncrsliip  is  distinguishable  from  community 
of  interest.* 

(5)  Assuminj^  that  an  imlividual  stocklioldor  has  tlio 
right  to  sell  hia  stock,  it  does  not  necessarily  follow  that  a 
majority  of  stockholders  may  combine  to  sell  their  stock.* 

§  37.  Construction  of  Prohibitions  —  (B)  WTiat  are  Com- 
peting or  Parallel  Railroads.  —  To  render  railroads  compft- 
ing  lines  thoy  must  be  substantial  competitors  for  business. 
"  The  competition  must  be  of  some  practical  importance,  such 
as  is  liable  to  have  an  appreciable  effect  on  rates."'     Thus 


of  a  corporation,  the  lej^al  entity,  the 
impalp.iMe  ami  iiitanyil>l«  rroation  of 
hnman  thought,  i«  itself  a  fiction,  ami 
has  hoen  appropriately  <lei»crif)©<l  a«  a 
figure  of  speech.  It  serven  very  well  to 
designate  in  onr  mimis  the  collective 
action  and  agfiicy  of  many  imiiviiJaaU 
a.1  iK;rinittcil  l>y  the  law ;  and  the  sab- 
•tantial  in<|uiry  alwayii  is  wh.at,  in  a 
given  ca-so,  ha«  l)«»cn  that  collective 
action  and  agency.  As  l>etwecn  the 
corporation  and  those  with  whom  it 
de.al.s,  the  manner  of  its  exercise 
is  usually  material ;  but  as  between  it 
and  tlio  State,  the  substanti.il  inquiry 
is  only  what  that  collective  action  aixl 
agency  has  done,  what  it  has  in  fact 
accomplished,  what  is  seen  to  Iks  its 
effective  work,  what  has  been  its  con- 
duct." See  al.'»o  St.itc  i:  Standanl  dil 
Co.,  49  Ohio  St.  137  (1892),  (30  N.  E. 
Rep.  279). 

'  Tlic  distinction  between  the  owner- 
ship of  controlling  interests  in  compet- 
ing railroail  companies  by  individuals 
acting  together  in  temporary  h.armony 
and  the  ownership  of  such  interests  by 
a  single  corporation  is  apparent,  and  is 
illustrated  by  the  following  language  of 
Mr.  .Justice  Brown  in  Pearsall  r.  Great 
Northern  R.  Co.,  161  U.  S.  671  (1896), 
(16  Sup.  Ct.  Rep.  705):  "Doubtless 
these  stockholders  could  lawfully  ac- 
qnire  by  individual  purchases  a  major- 
ity, or  even  the  whole,  of  the  stock  of 
the  reorganized  comp.any,  and  thus  pos- 
sibly obtain  its  ultimate  control ;  but 
the  companies  would  still  remain  sepa- 
rate corporations  with  no  interests,  as 

62 


such,  in  common.  This,  though  po.«8i- 
blo,  would  uot  l>c  altogether  fe.isible, 
and  would  require  consiilerablo  time  for 
its  accomplishment.  In  a  few  years 
the  two  com|>anies  might,  by  s.oles  o! 
the  «t<H'k,  so  ac(|uired,  l>ecome  com- 
pletely di.>«sovercd  ami  the  inlerest.t  of 
the  sto4kholden»  of  each  company  thus 
l>ecome  antag<mistic." 

'  Pennsylvania  It.  Co.  r.  Common- 
we.nlth  (Pa.  1SS6),  7  Atl.  Rep.  .173,  29 
Am.  &  Kng.  R.  Cas.  M.S  :  "  During  the 
argument  coun.sel  invoked  the  aid  of  the 
undoulited  general  principle  that  the 
ownership  of  shares  of  stock  carries 
with  it  the  legal  right  to  sell,  and  con- 
tended that  the  owners  of  the  shares 
of  the  South  Penn.>«ylvania  Railroad 
Comp.any  could  not  leg.ally  bo  re- 
strained from  BO  doing  an<l  that  .in 
injunction  against  the  purcha.se  would 
have  this  effect.  We  do  not  think  the 
principle  applies  to  this  case.  We  are 
not  called  upon  to  express  any  opinion 
a.s  to  the  right  of  individual  .share- 
holders to  sell  their  several  shares  h''na 
Jide  in  the  open  market.  This,  so  far 
as  they  are  concerned,  is  an  intended 
sale  in  combination,  for  the  express 
purpose  of  enabling  them  to  abamlon 
the  rights  and  duties  conferred  and 
imposed  np<^>n  them  by  the  act  incor- 
porating the  company  and  of  putting 
the  control  of  their  company  in  the 
hamls  of  its  rival.  This  is  an  act  con- 
trary to  the  public  policy  of  the  State, 
which  they  have  no  ritrht  to  do." 

•  Kimball  r.  Atchison,  etc.  R.  Co., 
46  Fed.  888  (1891). 


CHAP.   III.]  RESTRAINTS   UPON   CONSOLIDATION. 


§37 


two  railroads  which  did  not  touch  at  any  two  common  points, 
and  between  which,  for  a  distance  of  forty  miles,  another  rail- 
road ran,  and  the  traffic  of  one  of  which,  except  an  unim- 
portant amount,  would  in  no  event  pass  over  the  other,  were 
held  not  to  be  competing  lines.^ 

"  Parallel  lines  are  not  necessarily  competing  lines,  as  they 
not  infrequently  connect  entirely  different  termini  and  com- 
mand the  traffic  of  distinct  territories."  ^  Passenger  travel 
over  parallel  streets  of  cities  is  not  necessarily  competing 
travel.^ 

Conversely,  "  competition  between  railroads  may  exist  and 
yet  their  lines  not  run  parallel,  but  cross  each  other  at  some 
point  in  their  route."*  Railroads  having  the  same  termini 
are  competing  lines  although  their  roads  are  far  apart  and 


1  Kimball  v.  Atchisou,  etc.  R.  Co., 
46  Fed.  888  (1891). 

2  Louisville,  etc.  R.  Co.  v.  Kentucky, 
161  U.  S.  698  (1896),  (16  Sup.  Ct.  Rep. 
714),  where  the  Supreme  Court  of  the 
Uuited  States  said :  "  For  instauce,  a 
line  from  Toledo  to  Cincinnati  is  sub- 
stantially parallel  with  another  from 
Chicago  to  Cairo ;  but  they  could 
scarcely  be  called  competing,  since 
one  is  dependent  upon  the  traffic  of 
the  Northwest,  while  Cincinnati  is  a 
southern  outlet  of  the  traffic  of  the 
Northeastern  States  and  the  lower 
lakes.  Another  familiar  instance  is 
that  of  the  three  north  and  south  rail- 
ways through  the  State  of  Connecti- 
cut, one  from  Bridgeport  to  Pittsfield, 
in  Massachusetts,  another  from  New 
Haven  to  Springfield,  and  another  from 
Norwich  to  Worcester.  These  are 
strictly  parallel  lines,  but  in  only  a 
limited  sense  competing,  since  they  are 
between  different  termini  and  each  is 
required  for  the  trade  of  its  own  section 
of  the  State." 

3  In  Gyger  v.  Philadelphia,  etc.  R. 
Co.,  136  Pa.  St.  96  (1890),  (20  Atl.  Rep. 
399),  the  Supreme  Court  of  Pennsyl- 
vania said :  "  We  think,  also,  that  it  is 
quite  clear  that  the  sense  of '  competing,' 
which  is  the  essential  sense  of  the  pro- 
hibition, is  not  applicable  to  the  travel 


upon  the  streets  of  cities  and  towns 
over  passenger  railways.  The  competi- 
tion of  traffic  between  distant  points,  by 
rival  roads  and  canals,  tends  to  promote 
cheap  transportation  and  thereby  tends 
to  the  public  good.  But  if  tliis  is  pre- 
vented by  the  absorption  of  one  of  the 
competing  lines  by  the  other,  the 
wholesome  competition  ceases  and 
higher  rates  soon  result.  This  is  the 
evil  which  was  sought  to  be  prevented 
by  the  fourth  section  of  the  seventeenth 
article.  It  will  be  seen  at  once  that  it 
is  inapplicable  to  the  travel  upon  the 
streets  of  cities  and  towns  on  passenger 
railways.  The  travel  over  parallel 
streets  is  not  necessarily  a  competing 
travel.  Each  State  has  a  travel  of  its 
own  which  is  conducted  upon  its  own 
railway.  That  travel  may  be  almost 
entirely  conducted  without  competition 
with  tlie  travel  upon  another,  though 
parallel,  street,  nor  do  railways  upon 
parallel  streets  have  the  same  termini." 
*  P^ast  Line,  etc.  R.  Co.  v.  Rushing, 
69  Tex.  306  (1887),  (6  S.  W.  Rep.  834) ; 
East  Line,  etc.  R.  Co.  v.  State,  75  Tex. 
434  (1889),  (12  S.  W.  Rep.  690),- 
Texas,  etc.  R.  Co.  v.  Southern  Pacific 
Co.,  41  La.  Ann.  970  (1889),  (6  So.  Rep. 
888,  17  Am.  St.  Rep.  445);  East  St. 
Louis,  etc.  R.  Co.  v.  Jarvis,  92  Fed. 
743  (1899). 

63 


§87 


INTERCORPOKATE   IIELATIONS, 


[part  I. 


there  is  no  pretension  tliat  they  arc  parallel.'  Two  linea  hav- 
ing hut  one  coniiuon  terminus  may  also  ho  com|>eting  when 
ono  company  has  a  tratlic  contract  giving  it  tho  right  to  use 
a  road  running  to  tho  other  terminus  of  tho  other  road.' 
Compotition  in  fact  is  what  the  constitutional  and  statutory 
provisions  are  designed  to  encourage,  and  for  tiiis  reason  it 
has  heon  held  that  a  railroad  l>y  its  relations  to  otht-r  roads 
may  he  a  competing  line  with  a  road  with  which  it  is  not 
parallel  and  docs  not  connect.' 

Tin-  phrase  "a  parallel  or  competing  lino  "  includes  a  pro- 
jected hut  not  wholly  constructod  road  if  such  road  when 
completed  and  in  operation  would  actually  com|>eto  with  tho 
road  seeking  control.  *'  Before  completion  it  is  '  parallel,' 
when  completed  it  Ix'comes  »  com|>eting.'  "  * 

The  court  may  take  judicial  notice  of  tho  geography  of  tho 
State,  and  the  general  direction  of  two  railroads  as  fixed  by 
their  charters  and  can  then  determine  whether  they  are  par- 
allel, hut  the  existence  of  com{>etition  must  l>c  established  by 
evidence  as  any  other  fact.' 

I  'IVxM,  etc.   R.   Co.    V.    Soathern  8tat«.  roieht  Uke  notice  from  the  gen- 

Ptkcifir   (^>..   41    Ijl.  Ann.    970    (IHM9),  era!    dirocliou   of   thoM    twu    roods   m 

(6  So.  Hep.  8S8,  17  Am.  St.  Hep.  445).  fixed  hj  the  nutate*  un<lrr  ruiutidenk- 

'  I'cniiitvlvaiiiA  U.  Co.   r.  Cummott.  tion,  that  thrir  line*  iiiiuit  neccMaril/ 

wraith  (I'a.  I.S.st'i),  7  Atl.  Hep    .')G.'<,  39  cnwe  each  other,  and  couM  therefore 

Am.  &  Kiif:^.   U.    Ca^.   143.      See   al«o  treat    them    a*  coiinoctiti){   liue*.   and 

State   ('.  Voxiilorhilt,  37   Uhio  St.  590  not  parallel  to  each  other.     But  aa  to 

(18H3).  whether  thoj  werr  coiiiiietiof;  line*  we 

'  Knnt  Line,  etc.  R.  Co.  r.  State,  75  could  have  no  juilicial  notice  whatever. 

Tex.  44fi  (1"*89).(I2  S.  W.  Kep  690) :  Competition    l>etwcen    railroad*     may 

"We    further  concur   with   the   codrt  exi»t    and    jret    their    linea     not    ran 

below  ill  holding;  that  railwava  hr  re»-  parallel,  hat  croae  each  other  at  tome 

iioiis  of  their  relation*  with,  control,  or  point   in    their  route.     Hence    when    a 


mnna^etnent  of  oth>'r  linea  than  their 
own,  may  l>econi<>,  within  the  meaninf; 
of  the  law,  comjx'tinjj  linen,  though  the 
Riilro.-tilii  ownctl  by  them  may  not  in 
fact  connect." 

*  rcunsvlv-nnia  R.  Co.  r.  CoromoD- 


(jueiition  a*  to  anch  com|>etition  i* 
raised,  the  coart  or  jury  mu,«t  hare 
proof  upon  tho  aubjvct,  a*  in  the  ca** 
of  any  other  fact  aubmittcd  for  it« 
couaideration." 

('DitifHire,  however.  Golf,  etc.  R.  Co. 


wealth  (I'n.  IfSf.),  7  Atl.  Rep.  368,  29     r.  State.  72  Tex.  410  (1888),  (10  S.  W. 


Am   &  Knp.  U.  Cos.  145. 

'  In   Knst  Line.  etc.  R.  Co.  r.  Rush- 
insj,  69  Tex.  313  (1887),  (6  S.  W.  Kep. 


Rep.  81 ),  where  the  name  Court  aaid  : 
"  Whether  two  road*  which  intersect 
each  other  at  a  certain  point  are  com- 


834),  the    Supremo    Court    of    Texas  petitom  for  freight  or  not,  must  depend 

said :  "  It  may  be  that  this  court,  judi-  upon  a   rariety   of   circumstances    not 

cially   knowiug   the  geography  of  the  known  to  the  court.     But  the  authori- 

64 


CHAP.    III.]  RESTRAINTS    UPON    CONSOLIDATION.  §  39 

§  38.  Prohibition  of  Consolidation  of  Competing  Railroads  not 
a  Regulation  of  Interstate  Commerce.  —  Corporations  created  by 
the  State  derive  the  power  to  consolidate  from  the  State 
alone.  The  State  may  withhold  such  power  entirely,  may  ac- 
company a  grant  of  it  with  such  limitations  as  it  may  choose 
to  impose,  or,  in  the  exercise  of  its  police  power,  may  take 
away  the  right  when  previously  granted,  if  its  operation  may 
be  prejudicial  to  the  public  welfare.  The  exercise  of  the 
authority  of  the  State,  in  any  of  these  forms,  involves  no 
interference  with  interstate  commerce,  for  it  relates  entirely 
to  a  matter  of  State  grant  to  a  State  corporation.^ 

The  corporation  is  merely  the  instrument  of  commerce, 
and  the  State  may  legislate  concerning  the  instrument  with- 
out regulating  commerce.  This  distinction  is  pointed  out  by 
the  Supreme  Court  of  the  United  States  in  Louisville,  etc.  R. 
Co.  V.  Kentucky :  ^  "  In  the  division  of  authority  with  respect 
to  interstate  railways  Congress  reserves  to  itself  the  superior 
right  to  control  their  commerce  and  forbid  interference  there- 
with ;  while  to  the  States  remain  the  power  to  create  and 
regulate  the  instruments  of  such  commerce  so  far  as  neces- 
sary to  the  conservation  of  the  public  interests." 

§  39.  Constitutional  Prohibitions  against  Consolidation  of 
Competing    Carrier    Corporations   other   than    Railroads.  —  Con- 

ties  cited  show  that  we  must  take  jndi-  pntable '  facts  that  these  parts  of  the 
cial  notice  of  the  geography  of  the  respective  lines  touch  at  tlie  same 
State  and  at  least  of  its  navigable  points  and  that  they  are  natural  corn- 
streams.  It  is  a  matter  of  history  petitors  for  the  traflBc  of  a  large  scope 
that  important  lines  of  railroad  once  of  country." 

established    have    remained    as    fixed  See   also   Georgia   Pac.   K.    Co.   v. 

and  permanent  in  their  course  as  the  Gaines,  88  Ala.  381   (1889),  (7  So.  Rep. 

rivers  themselves.    They  supersede  in  382). 

the   main   all    other   modes  of    travel  i  Loaisville,  etc.  R.  Co.  i;.  Kentucky, 

between   the  points  which  they  tonch  161    U.   S.  701    (1896),    (16   Sup.    Ct. 

and    become    as    well,   if    not    better,  Rep.   714). 

known   than    any   other    geographical  In   Ashley  v.  Ryan,  153  U.  S.  436 

feature  of  the  country.     Their  locality  (1894),  (i4  Sup.  Ct.  Rep.  865),  it  was 

becomes  '  notorious  and   fndisptrtable.'  held  that  a  State  in  permitting  railroad 

.  .  .  We  think  we  must  take  judicial  companies  to  consolidate  might  impose 

notice   that    these   roads    are    parallel  such  conditions  as  it  deemed  proper, 
and  competing  lines,  and  this  is  sitffi-  ^  Louisville,  etc.  R.  Co.  v.  Kentucky, 

cient  so  far  as  the  disposition  of  this  161    U.  S.  702  (1896),  (16  Sup.  Ct.  Reo. 

case  is  concerned.  .  .  .   We  cannot  shut  714),  (per  Brown,  J.), 
our  eyes  to  the   '  notorious  and  indis- 

5  "65 


§  40  INTERCORPOKATE   RELATIONS.  [PART   I. 

stitutional  provisions  apainst  the  consolidation  of  coinpotinj? 
corporations  do  not  apply  to  railroad  coinpanifs  alone.  In 
proportion  to  their  use  by  the  public  it  is  as  essential  that 
competition  should  be  preserved  in  the  case  of  other  corpora- 
tions of  a  '/ur^n-puljlic  nature  as  in  tlie  case  of  railrijad 
corporations. 

Accordin^rly,  constitutional  provisions  against  the  consoli- 
dation of  competing?  lines,  while  nearly  always  applying;  to 
railroad  companies,  apply  also  —  as  the  case  may  be  —  to  tele- 
graph,' telephone,' and  "  other  transmitting^  componies,"'  and 
to  canal,*  brid;,'c,*  express,'  other  "common  carrier,'*'  and 
"  other  transportation  companies,"  "^  ownini^  com|M'ting  lines  or 
structures.  Other  constitutional  provisions  prohibit  the  con- 
solidation of  '•  cor()orations  of  any  kind  whatever"  for  the 
purpcjse  of  preventing  com()ctition." 

The  States  generally  have  olso  enacted  so-called  "  anti- 
trust," statutes  directed  against  combinations  tending  to 
create  monopolies  which  are  fully  considered  in  a  subseipient 
part  of  this  treatise.'" 

§  40.  Euforcement  of  ProvlBions  against  Consolidation  of 
Competing  Lines.  — -  The  consolidation  of  competing  or  parallel 
railroiid  compaiiie.s  in  the  face  of  a  constitutional  or  statutory 
prohibition  is  unlawful,  and,  therefore,  ultra  riresy  and  may 
bo  rcstraincil  at  the  suit  of  anv  stockholder.** 


»  Alahama,  Const.  Art.  XIV.  {   11  ;  ««  See  »abdiT.    II    Art   III    T.irt  V  , 

Col(rrailo,  Cnnst.    Art.    XV.  §13;    Km-  "  Slat*  Anitlrutt  Slaiuits." 

turtci/,  Cotmt.   §  201  ;  \ffrratLa,  Const.  "  rearsall  r.  Great  Northern  R.  Co., 

Art    XI.  §  3  ;  /Vfifuy/mnici,  Con.-tt.  Art.  161  U.  S.  647  (1896).  (16  Sup.  Ct.  Rep. 

XVI.    §     12;     Simth    Curnlina,    Const.  705);   Ilafer  r.  Cinrinnati,  etc.   R.  Co., 

Art     IX.    §    7;    South    D^ikotn.    Con«t.  29    Week.   Law.    Hul.  68    (Cin.   1R9.1). 

Art  XVII.  §  11.  See  aUo  Clark  v.  Central  It.  Co.,  50  Fed. 

»  Ktnlnck-y,  Const.  §  201.  338  (1892);   Hamilton  v.  Sar.onnah.  etc. 

»  5oiiM  Ctiri)/»na,Con»t.  Art.  IX.  §  7.  R.  Co.,  49    Fed.   412  (1892);    Kimb.ill 

•  Pennsylvania,    Const.   Art.    XVII.  r.   Atchison,  etc.   R.   Co.,   46   Fed.   888 
§4.  (18'Jl).     Conpnrf.  Langdon  v.  Branch, 

'  Ktnturky,  Conitt.  §  201.  37  Fed    449  (1888). 

«  Mont^mn,  Const.  Art.  XV.  §  6.  In  Currier  v.  Concord  R.  Corp.,  48 

^  Kentucky,  Const.  §  201.  N.  H.  321  (1^60),  it  was  held  under  the 

•  ^fontnna,  Const.    Art.   XV.    §    6  ;  peculiar   provisions  of   the  New  Hamp- 
SoHth  Carolina,  Const.  Art.  IX.  §  7.  shire  act  of   1867  (since  repealed)  that 

•  irj/o?mn7.  Const.  Art.  X.  §  8.     See  any  citizen  might  sue  to  restrain  the  con- 
also  Georgia,  Ccnst.  Art.  IV.  §  2.  solidation  of  conapeting  railroads. 

66 


CHAP.  IV.]        ASSENT  OF  STOCKHOLDERS.  §  41 

Such  a  consolidation  is  also  a  cause  of  forfeiture  of  the 
charters  of  the  consolidating  companies  which  may  be  en- 
forced by  the  State  in  quo  warranto  proceedings.^  The  State 
may  also  enjoin  such  a  consolidation  and  have  the  proceed- 
ings declared  void,  upon  the  ground  that  they  are  unlawful 
and  contrary  to  the  declared  policy  of  the  State.^ 


CHAPTER   IV. 

ASSENT   OF   STOCKHOLDERS. 


§  41 .  Requisite  Nnmber  of  Stockholders  —  (A)  Under  Laws  in  Force  at  Organi- 
zation of  Consolidating  Corporations. 

§42.  Requisite  Number  of  Stockholders  —  (B)  When  Unanimous  Consent  is 
necessary. 

§  43.  Requisite  Number  of  Stockholders  —  (C)  Under  Enactments  in  Exercise 
of  Reserved  Power. 

§  44.     Power  of  Legislature  to  compel  Consolidation  under  its  Reserved  Power. 

§  4.").     Assent  of  Stockholders  —  How  manifested.     Acquiescence.     Estoppel. 

§  46.     Rights  and  Remedies  of  Dissenting  Stockholders. 

§  47.     Rights  and  Remedies  of  Dissenting  Subscribers. 

§  48.     Procedure  in  Stockholders'  Actions. 

§  49.     Laches  of  Stockholders. 

§  50.  Can  a  Majority  effect  Consolidation  upon  giving  Security  to  Dissenting 
Stockholders  ? 

§  51.     The  Right  to  condemn  Stock. 

§  41.  Requisite  Number  of  Stockholders  —  (a)  Under  Laws 
in  Force  at  Organization  of   Consolidating  Corporations.  —  Con- 

1  State  V.  Vanderbilt,  37  Ohio  St.  12  Abb.  N.  C.  230,  it  was  held  that  a 
590  (1882);  East  Line,  etc.  R.  Co.  v.  proposed  consolidation  of  four  New 
State,  75  Tex.  434  (1889),  (12  S.  W.  York  railroad  companies  was  invalid 
Rep.  690);  State  v.  Atchison,  etc.  R.  because  they  were  parallel  within  the 
Co.,  24  Neb.  143  (1888),  (38  N.  W.  Rep.  meaning  of  the  statute  and  because 
43).  In  the  last  case,  however,  the  they  did  not  form  a  continuous  line; 
court  did  not  adjudge  a  forfeiture  but  that  an  action  by  the  attorney-general 
declared  the  offending  contract  void.  to  annul  the  contract  of   consolidation 

2  Louisville,  etc.  R.  Co.  i\  Kentucky,  was  tlie  proper  remedy. 

161  U.  S.  677  (1896),  (16  Sup.  Ct.  Rep.  A  suit  by  a  State  to  restrain  a  con- 

714)  ;  Pennsylvania  R.  Co.  v.  Common-  solidation   of    competing    railroads   in 

wealth  (Pa.  1886),  7  Atl.  Rep.  368,  29  violation  of  a  constitutional   provision, 

Am.  &  Eng.  R.  Cas.  145  ;  Pennsylvania  does  not  involve  rights  of  a  proprietary 

R.  Co.  V.   Commonwealth    (Pa.  1886),  or  contractual  nature,  and  the  question 

7   Atl.  Rep.  374 ;  Gulf,  etc.  R.  Co.   v.  whether  a  State  in  such  a  proceeding  is 

State,  72  Tex. 404  (1888),  (10  S.  W.  Rep.  such  a  party  of  the  controversy  as  to 

81).     In  People  v.  Boston,  etc.  R.  Co.,  confer   original    jurisdiction   upon   the 

67 


§  41  INTEUCOnrORATE  RELATIONS.         [PABT  I. 

solidatioii  directly  afTccts  the  interests  of  each  stockholder, 
lie  exchanges  a  larj,'er  interest  in  a  smaller  cor|>oration  for  a 
smaller  interest  in  a  larger  cori)oration.  The  corporate 
funds  arc  rniharkcd  u|)on  a  new  enterprise  of  wider  scojk*. 
As  will  lic  shown,  it  is  only  when  the  rights  of  minority 
stockholders  are  constitutionally  limited  hy  legislation  that 
coiiHoliiliition  can  t>e  effected  without  the  unanimous  couseut 
of  stockholders.' 

A  statement,  however,  that  unanimous  consent,  a»  a  general 
rulfy  is  essential  to  con.solidation  would  be  misleading  in  a 
modern  treatise.  General  ct)nsolidalion  statutes  almost  in- 
variably prescribe  a  pro|)ortion  of  shareholders  whose  consent 
is  necessary  to  effect  consolidation.'  These  statutes  will, 
usually,  be  found  to  antolate  the  orgnni/ation  of  cor{>oration8 
proposing  to  consolidate  at  the  pre.H«'nt  time.  The  American 
railway  corporation  has  not  l)cen  distinguished  for  longevity. 

Where,  therefore,  a  general  statute,  in  force  at  the  time 
when  the  stock  of  the  consolidating  cor|M)ration8  was  sub- 
scribed for,  provides  that  the  consolidation  agreement  may  be 
ratified  by  the  hold»'rs  of  a  majority,  or  greater  proportion, 
of  the  shares  of  each  corporation,  the  consent  of  the  pre- 
scribed   majority    is   sutTicicnt.'     Subscrilicrs    to    the   capital 

Snpreme  Coart  nf  the   United   Statre  fn^nt  to  the  rotnptuij  uf  anthoritr  to 

arinoii  in  the  raitc  <>f  the  .State  of  Wajih-  unit©   or  c<>n»«.Ii<lni«  iu  railn>aii    with 

in^tuii  c.  (iivat   Nortlicrii  K.  Co.  et  al.,  anv   oihrr    raiIroa>l    or    railroaila    then 

DOW  |>«-ii<litig  in  that  court.  conAtnirtcd    <>r   that    might   thervafter 

'  Sre  ni'xt  94<<'ti<>n.  he   conatrartcH    within    the    State,    or 

'  Sow  fyo4l,  §  aa,  "  Formal   Slatulor^  any  other  .State,  which  might  croen  or 

/Z/'7UMi/'-.<i,"  foral>5trartof  ittatuteaahow-  intersect   the  Mune.  or  \te    built  along 

ing    nunilM>r    of     luuioiititig  »han>a    re-  the  line  thereof,  upon   (uch   term*  aa 

quircil  in  diffiTcnt  ronsMilidatiou  m-tji  might  l>e  mutuailv  agreed  upon  between 

•  Nugent   p.  Su|»orvisK)r»,  l»    Wall.  aai<i  company  ami  any  othor  company. 

(U.    8.)    249    (187.1):     "The    general  It   w.15  thcref>>re  contcmplalr*!   hy  the 

fitntnto    of    the     State    nuthorized    all  legislature,  sta  it  mnat  have  lievn  by  all 

fiiiiroad  companies  th«'n  organized,  or  the    sultsMrilHTS    t<»   the   «to<-k    of    the 

thereafter  to  l)o  organized,  to   ri>n.<Mdi-  company,  that    precisely  what    ha.^  oc- 

date  their  pro|>erty  and  st<H-k  witli  eaih  curn'd  might  occur      Suhscriliers  must 

other,  and  with  companie.<»  out  of  the  be    presumed    to  have  known    the  Law 

State,    whenever    their   lines    connect  of  the  State  and  to  have  contracted  in 

with  the  lines  of   such  conip.inies   out  view  of   it.       When    the  voters  of  the 

of  the  State.  .  .  .  Nor  is  this  all.     The  county  of  Putnam  s-anctioned  a  county 

special    charter  of    the  Kankakee    and  snt)scription    by  their    vote,  and   wlien 

Illinoi.s    Hiver   K.iilroad  Company  cou-  the  board  of  supervi.<wr8  in  pnr«uance 

taincd  iu  ita  eleventh  section  au  express  of  that  section  resolved  to  make   the 

68 


CHAP.  IV.] 


ASSENT  OF  STOCKHOLDERS. 


§41 


stock  of  the  corporations  are  presumed  to  know  the  laws  of 
the  State  regarding  consolidation,  and  to  contract  in  view 
of  them.  The  law  enters  into  and  forms  a  part  of  the 
contract. 

A  fortiori  is  this  conclusion  true  where  the  charters  of  the 
corporations  themselves  contain  provisions  authorizing  con- 
solidation by  a  majority  vote.  Such  provisions  become  a  part 
of  the  contract  between  the  stockholders  and  the  corpora- 
tion, and  their  unanimous  consent  is  not  essential  to 
consolidation.! 

Power  to  consolidate  conferred  in  the  laws  under  which 
a  corporation  is  organized,  without  any  provision  as  to  the 
necessary  number  of  assenting  shares,  may  be  exercised 
by  "  proper  corporate  action,"  viz.  a  majority  vote  of  the 
stockholders.^ 


subscription,  they  were  informed  by  the 
law  of  the  State  that  a  consolidation 
with  another  company  might  be  made ; 
that  the  stock  they  proposed  to  sub- 
scribe might  be  converted  into  stock  of 
the  consolidated  company,  and  that  the 
liability  they  assumed  might  become 
owing  to  that  company.  With  this 
knowledge  and  in  view  of  such  con- 
tingencies they  made  the  contract." 

See  also  Wilson  v.  Salamanca,  99 
U.  S.  499  (1878)  ;  Mansfield,  etc.  R.  Co. 
V.  Brown,  26  Ohio  St.  224  (1875)  ; 
Sparrow  v.  Evansville,  etc.  R.  Co., 
7  Ind.  369  (1856) ;  Bish  v.  Johnson,  21 
lud.  299  (186.3). 

1  Fisher  v.  Evansville,  etc.  R.  Co., 
7  Ind.  407  (1856);  Hanna  v.  Cincinnati, 
etc.  R.  Co.,  20  Ind.  30  (1863) ;  Bish  v. 
Johnson,  21  Ind.  299  (1863);  Sparrow  v. 
Evansville,  etc.  R.  Co.,  7  Ind.  369  ( 1 856) ; 
Atchison,  etc.  R.  Co.  v.  Phillips  County, 
25  Kan.  261  (1881). 

Where  the  articles  of  association  of  a 
company  prohibited  consolidation  with- 
out the  consent  of  a  majority  of  the 
Btockholders  it  was  held  that  another 
provision  allowing  the  articles  to  be 
amended  by  a  vote  of  two-thirds  of  the 
executive  committee  and  a  majority  of 
the  trustees  did  not  authorize  an  amend- 


ment changing  the  provision  concerning 
the  stockholders'  consent  to  consolida- 
tion ;  that  it  only  allowed  amendments 
pertinent  to  the  business  and  objects 
for  which  the  association  was  organized. 
Blatchford  v.  Ross,  54  Barb.  (M.  Y.)  42 
(1869),  (5  Abb.  Pr.  434.) 

2  In  Dady  v.  Georgia,  etc.  R.  Co., 
112  Fed.  842  (1900),  Judge  Speer  said: 
"  There  are  several  grounds  upon  which 
complainants  insist  that  they  are  en- 
titled to  relief.  The  first  is  that  it  re- 
quires the  unanimous  consent  of  the 
stockholders  of  the  Georgia  &  Alabama 
Railway,  before  the  complainants  can  be 
permitted  to  consolidate  or  merge  that 
company  with  tlie  Seaboard  Air  Line  or 
the  Florida  Central  &  Peninsular." 
The  judge  then  distinguished  the  case 
of  Alexander  v.  Railway  Co.,  108  Ga. 
866  (1889),  (33  S.  E.  Rep.  866),  and 
continued :  "  In  other  words,  the  Su- 
preme Court  of  the  State  seems  carefully 
to  distinguish  a  case  like  that  before 
them  and  a  case  like  that  before  this 
court ;  for  here  the  Georgia  &  Alabama 
Railway  is  chartered  under  this  general 
law,  and  the  court  adds  that  the  pro- 
visions of  the  general  railroad  law  are 
operative  when  that  law  constitutes  the 
whole    or  a   portion   of    the   railroad 

69 


§42 


INTERCORPORATE    RELATIONS. 


[part  I. 


§  42.  Requl«ite  Number  of  Stockholders  (B)  W^hen  Unaiil- 
mouB  Couaent  ia  necessary.  —  Thu  principle  Upon  \n  hicll 
unanimous  consent  may  be  essential  to  consolidation  is  the 
principle  of  the  Dartmouth  College  case,'  enlarged  in  its 
application  hy  the  long  line  of  authorities  since  that  famous 
decision,  that  the  charter  of  a  private  cor|)oratiou  and  the 
as.sociation  of  the  corporators  thereuntlcr  constitute  e.vecutcd 
contracts,  hetween  the  corporation  and  the  State  and  between 
the  stockholders  and  the  corporation,  within  the  protection  of  the 
constitutional  provision  again.st  laws  impairing  the  ol>ligation8 
of  contracts.'  The  legislature  has  no  right,  e.xcept  by  express 
reservation,  to  pass  any  amendment  to  the  charter  of  a  private 
cor|K>ration  which  makes  any  material  or  fundamental  change 
therein,  without  the  consent  of  all  the  stockholders.  Where, 
therefore,  a  corporation,  when  created,  is  without  authority  to 
consolidate,  either  under  its  charter  or  general  laws,  a  grant 
of  authority  to  consolidate,  except  in  the  form  of  an  enabling 
act,  makes  a  change  of  a  material  and  fundamental  character 
in  its  charter.  The  exercise  of  the  |)ower  conferred  under 
such  conditions  requires  the  unanimous  consent  of  the  stock- 
liolders.^ 


charter.  What,  then,  is  '  proj)er  ror- 
puraCe  actiuu,'  for  tho  {>urpo««  of 
nirrgt'r  ami  consuliilalion,  wlirn  tlii.4  is 
maiio  tho  policy  of  the  State  hy  itnntal- 
atory  law?  Corporate  actioti,  then,  is 
the  majority  vote  of  tho  ci)r{H>rat>on." 

For  Georgia  utatute  under  cou.«iiler- 
atioii  in  thia  case,  see  nntf,  §  22  :  "  What 
Jiailrwtds  maif  consolidate  —  i>talutorif 
I^rovisiorit." 

'  Dartmouth  Colloj^e  i'.  Woo«lward, 
4  Whoat.  (U.  S.)  700  (ISl'J). 

■^  Peuusylvania  CoUeijo  Cases.  13 
Wall.  (U.S.)  212  (1S7I)';  Wilmington 
R.  Co.  V.  Rei.l.  13  W.ill.  (U.  S.)  264 
(1871);  Delaware  K  U.  Tax.  18  Wall. 
(U.  S.)  206  (1873).  In  Pe.irsall  v.  Great 
Northern  U.  Co.,  161  U.  S.  660  (1896), 
(16  Sup.  Ct.  Uep.  7o5),  the  principle  is 
discussed  and  earlier  cases  reviewed. 

*  United  States  :  Clearwater  r.  Mere- 
dith, 1  Wall.  39  (1863) ;  Pearce  i-.  M.adi- 
son,  etc.  R.  Co.,  21  Ilow.  441  (1S58)-, 
70 


Karl  f.  .St'attic,  etc.  li.  Co.,  56  Fed. 
911  (1893);  Knoxvillo  r.  Kuoxville. 
etc.  R.  Co.,  22  Fc.l.  758  (1884). 

To  effect  a  consolidatiou  of  railroad 
companies  auliAistinf;  under  special  char- 
ters not  provitlinp  therefor,  tho  con.-tcnt 
of  every  st»H-kholder  must  be  j;iven ; 
and  any  one  dissenting  stockholder  is 
entitled  to  an  injunction  again.it  such 
con.H«)lidation.  Mowrey  r.  Indianapolis 
etc.  R.  Co.,  4  Biss.  78  (1866) 

lllmoit:  Illinoi.i,  etc.  R.  Co.  r.  Cook, 
29  111.  237  (1^62).  In  Spragne  v. 
Illinois  River  R.  Co.,  19  111.  174  (18.'>7), 
it  was  heltl  that  an  amendment  to  a  rail- 
road charter  which  authorized  the  con- 
solidation of  the  n)ad  to  be  built  under 
it  with  any  other  intersecting  road  was 
not  an  alteration  in  the  charter  of  a 
fundanieutnl  nature. 

Indiana  :  Fisher  r.  EranflTille,  etc 
R.  Co..  7  Ind.  407  (1856). 

The  relation  between  a  railroad  com- 


CHAP.    IV.]  ASSENT   OP   STOCKHOLDERS.  '  §  42 

In  Clearwater  v.  Meredith^  Mr.  Justice  Davis  said  :  "  When 
any  person  takes  stock  in  a  railroad  corporation,  he  has 
entered  into  a  contract  with  the  company  that  his  interests 
shall  be  subject  to  the  direction  and  control  of  the  proper 
authorities  of  the  corporation,  to  accomplish  the  object  for 
which  the  company  was  organized.  He  does  not  agree  that 
the  improvement  to  which  he  subscribed  should  be  changed  in 
purpose  and  character,  at  the  will  and  pleasure  of  a  majority 
of  the  stockholders,  so  that  new  responsibilities,  and,  it  may 
be,  new  hazards,  are  added  to  the  original  undertaking.  He 
may  be  willing  to  embark  in  one  enterprise,  and  unwilling  to 
engage  in  another  ;  to  assist  in  building  a  short  line  of  rail- 
way and  averse  to  risking  his  money  in  one  having  a  longer 
line  of  transit." 

A  statute  declaring  that  "  it  shall  be  lawful  "  for  corpora- 
tions to  consolidate  is,  with  reference  to  corporations  formed 
before  its  passage,  merely  an  enabling  act.  It  gives  the  con- 
sent of  the  State  to  consolidation  when  all  the  stockholders 
approve,  but  does  not  limit  the  rights  of  dissenting  stock- 
holders.2    The  passage  of  an  amendment  conferring  power  to 

pany  and  a  stockholder  is  one  of  con-  73   Tex.   334    (1889),  (11   S.  W.   Rep. 

tract;    and   any   legislative  enactment  342). 

authorizing  a  material    change   in  the  Vermont:    Stevens   v.   Rutland,  etc. 

powers  or  purposes  of  the  corporation,  R.  Co.,  29  Vt.  545  (1857). 

if  acted  upon  by  the  corporation,  is  not  Contra:   Lauman   v.   Lebanon   Val- 

binding  upon  the  stockholder,  without  ley  R.  Co.,  30  Pa.  St.  42  (1858),  where 

his  consent.     McCray   v.   Junction   R.  it  was  held  that  consolidation  might  be 

Co.,  9  lud.  358  (1857).  effected  without  the  unanimous  consent 

Kentiickij :  Botts  v.  Simpsonville,  etc.  of  stockholders  if  security  were  given 

Turnpike  Road  Co.,  88  Ky.  54  (1888),  to    minority   dissenting    stockholders. 

(10  S.  W.  Rep.  134)  ;  Louisville,  etc.  R.  See  post,    §    50. 
Co.  V.  Howard,  15  Ky.  L.  Rep.  25.  i  Clearwater  v.  Meredith,   1    Wall. 

Michigan:   Tuttle  t;.    Michigan   Air  (U.  S.)  40  (1863). 
Line  Co.,  35  Mich.  247  (1877).  2  Mills  v.  Central  R.   Co.,  41  N.  J. 

Mississippi:    New   Orleans,  etc.  R.  Eq.  4  (1886):  "The  provision  in  that 

Co.  V.  Harris,  27  Miss.  517  (1854).  act  that  it  should  be  lawful  to  lease  or 

New    Jersey :     Kean     v.    John.son,  consolidate  is  merely  a  legislative  au- 

9  N.  J.  Eq.  401  (1853);  Black  v.  Dela-  thorization  —  a  concession  on  the  part 

ware,    etc.    Canal   Co.,   24   N.    J.   Eq.  of  the  legislature  of  the  power  to  do 

455  (1873).  that  which  could  not  lawfully  be  done 

Ohio:     Mansfield,    etc.    R.    Co.    v.  without   such   authority.     It  is  not  an 

Brown,  26  Ohio  St.  223  (1875) ;  Chap-  enactment  that  the  directors  may,  with- 

man  v.  Mad  River,  etc.  R.  Co.,  6  Ohio  out  the  consent  of  the  stockholders  of 

St.  119  (1856).  the     company,    lease,    consolidate,    or 

Texas:  Gulf,  etc.  R.  Co.  i;.  Newell,  merge.    Nor  is  it,  in  effect,  an  enactment 

71 


§  43  INTERCORPORATE   RELATIONS.  [PART    I. 

consoliilate  ui>on  a  corporation,  which  it  has  not  attomptod 
anil  may  never  attempt  to  cxerciBC,  docs  not  prr  »e  affect  the 
riglits  of  stockhoUlers.' 

In  KnL'land,  a«  there  arc  no  cotistitmioiiiil  restraints  upon 
Parliament,  the  consolidation  of  existing  corporations  may  bo 
authorized  without  the  unanimous  consent  of  their  stock- 
holders. 

§  4<i.  Reqaialte  Number  of  Stockholders  —  (C)  Uudcr  En- 
actmenta  In  Ezerclae  of  Reseryed  Power.  —  After  the  decision 
in  the  Dartmouth  College  case,  tlie  States  generally  passed 
hiws  jirovidinj?  that  all  charters  thereafter  granted  should  bo 
suhject  to  amendment  or  repeal  at  the  pleasure  of  the  legisla- 
ture and  s|>ecial  provisions  to  tho  same  effect  have  often  been 
insi-rted  in  charters. 

Under  this  reserved  power  tho  decisions  are  uniform  that 
the  legislature  has  the  |M)wcr  to  alter  or  rcjKJol  charters  when 
necessary  to  protect  the  interests  of  tho  State  or  of  the  public, 
but  there  has  U'cn  a  contlict  of  judicial  opinion  as  to  the  power 
of  the  legislature  to  alter  charters  for  the  mere  purpose  of 
changing  the  rights  of  the  shareholders  among  thcm.selves,  as 
in  the  case  of  a  grant  of  power  to  consolidate.  On  the  one 
hand  it  has  been  held  that  the  legislature,  under  such  a  reser- 
vation, has  the  right  to  authorize  a  consolidation  of  corpora- 
tions, which  can  be  carried  into  effect  nt)twithstanding  tho 
objection  of  a  minority  of   the  stockholders;'  on  the    other 

that  they  mar,  with  tho  ronsent  of  the  H»tuirt,   3  Graj   (MaM.),  543    (19M); 

m.ijority  of  thcuttH'kholilont,  ilomi.    Uat  Alexan<lcr  r.    Railway    Co.,    108    Ga. 

tlie  AUttito  in  merely  an  enabling  act  —  866  (1899),  (33  S.  K.  Hop.  866). 

a  law  intoniiotl  to  give,  onco  for  all.  a  '  Fry    v.    Lexington,    etc.    U    Co., 

general    legi.'»l.-itive   authority  to  lease,  2  Mote.  (Ky  )  314  (IS.M). 

consoiid.ito,  or  merge."  '  Market  Street  K.  Co.  v.  Ilcllman, 

In  Clo.irwator  v.  Mereilith.  I  Wall.  109Cal.  571  (1895).  (43  Pac.  Rep.  2-»5) : 

(U.  S.)  .39  (l(*f>3),  the  Supremo  Court  "  Corp<irat ions  cannot,  without  the  con- 

of  tho  I'nittHl  Stales  al.io   ft.ii<l :  '*  The  sent  of  all  their  stockhoMer*,  consoli- 

act  of  the  lei^islature  of  Iniliana  allow-  date  with  others,  except  when  the  p<jwer 

ing  railmad  corporations  to  merge  and  so  to  lio  is  given  by  their  rhart»'r»  or  by 

con.solidato  their    stock,  wa.s    an     ena-  a  general  statute  existing  at  the  date  of 

bling  act  —  w.-v*  pormi!».>*ive,  not  m.and.'i-  incorfH>r.ition.  or  in  those  cases  where 

tory.     It   simply  gave  the   consent   of  the  right  is  reserved  by  constitutional 

the  legislature  to  whatever  could  law-  or  st.atutory  provision  to  the  iegislatore 

fully  be  done,  and  which,  without  that  to  alter  or  amend  the  charter." 

consent,  could  not  be  done  at  all."  See   aUo    II.-ilo    >•.  Cheshire  R.  Co., 

See  also  Hamilton  Mut.  Ins.  Co.  r.  161   -Mass.  443  (1894),  (37  N.  E.  Rep. 
72 


CHAP.   IV.] 


ASSENT   OF   STOCKHOLDERS. 


§43 


hand,  it  has  been  held  that  the  legislature,  under  its  reserved 
power  to  amend  the  charter  of  a  corporation,  cannot  author- 
ize a  consolidation  without  the  unanimous  consent  of  the 
stockholders  when  the  effect  of  the  consolidation  is  to  increase 
the  liabilities  of  the  stockholders  or  diminish  the  value  of 
their  stock  ;  ^  and  in  New  Jersey  it  has  been  broadly  held  that 
such  a  reservation  is  made  by  the  State  for  its  own  benefit,  is 
not  intended  to  effect  or  change  the  rights  of  corporators  as 
between  themselves,  and  does  not  authorize  the  State  to  em- 
power one  part  of  the  stockholders,  for  their  own  benefit,  at 
their  option,  to  change  their   contract  with  the  other  part; 


307) ;  Durfee  v.  Old  Colony  R.  Co.,  87 
Mass.,  230  (1862);  Buffalo,  etc.  R.  Co. 
V.  Dudley,  14  N.  Y.  348  (1856). 

In  the  Pennsylvania  College  Cases, 
13  Wall.  (U.  S.)  213  (1871),  the  Su- 
preme Court  of  the  United  States  dis- 
cussed at  lenjijth  the  nature  of  corporate 
charters  and  the  constitutional  rights  of 
the  legislature  in  connection  therewith. 
Regarding  the  exercise  of  reserved 
powers  the  Court  .said :  "  Cases  often 
arise  where  the  legislature,  in  granting 
an  act  of  incorporation  for  a  private 
purpose,  either  makes  the  duration  of 
the  charter  conditional  or  reserves  to 
the  State  the  power  to  alter,  modify,  or 
repeal  the  same  at  pleasure.  Where 
such  a  provision  is  incorporated  in  the 
charter  it  is  clear  that  it  qualifies  the 
grant,  and  that  the  subsequent  exercise 
of  that  reserve  power  cannot  be  regarded 
as  an  act  within  the  prohibition  of  the 
Constitution.  Such  a  power  also,  that 
is  the  power  to  alter,  modify,  or  repeal 
an  act  of  incorporation,  is  frequently 
reserved  to  the  State  by  a  general  law 
applicable  to  all  acts  of  incorporation, 
or  to  certain  classes  of  the  same,  as 
the  case  may  be,  in  which  case  it  is 
equally  clear  that  the  power  may  be 
exercised  wheuever  it  appears  that  the 
act  of  incorporation  is  one  which  falls 
within  the  reservation  and  that  the 
charter  was  granted  subsequent  to  the 
passage  of  the  general  law,  even  though 
the  charter  contains  no  such  condition 


nor  any  allusion  to  such  a  reservation. 
Reservation  in  such  a  charter,  it  is  ad- 
mitted, may  be  made,  and  it  is  also 
conceded  that  where  they  exist  the 
exercise  of  the  power  reserved  by  a 
subsequent  legislature  does  not  impair 
the  obligation  of  the  contract  created 
by  the  original  act  of  incorporation. 
Subsequent  legislation  altering  or  modi- 
fying the  provisions  of  such  a  charter, 
where  there  is  no  such  reservation,  is 
certainly  unauthorized  if  it  is  prejudi- 
cial to  the  rights  of  the  corporators, 
and  was  passed  without  their  assent, 
but  the  converse  of  the  proposition  is 
also  true,  that  if  the  new  provisions  al- 
tering and  modifying  the  charter  were 
passed  with  the  assent  of  the  corpora- 
tion and  they  were  duly  accepted  by  a 
corporate  vote  as  amendments  to  the 
original  charter  they  cannot  be  regarded 
as  impairing  the  obligation  of  the  con- 
tract created  by  the  original  charter." 

^  Botts  V.  Simpsonville,  etc.  Turn- 
pike Road  Co.,  88  Ky.  54  (1888),  (10 
S.  W.  Rep,  134). 

In  Kenosha,  etc.  R.  Co.  v.  Marsh, 
17  Wis.  13  (1863),  it  was  held  that  the 
legislature,  under  its  reserved  power, 
had  no  right  to  authorize  a  radical 
fundamental  change  in  the  character 
of  an  enterprise;  but  whether  consoli- 
dation worked  such  change  quaere.  See 
also  Mowrey  v.  Indianapolis  R.  Co., 
4  Biss.  (U.  S.)  78  (1866). 

73 


§  44  INTEIICOUPOBATE    ttELATIONS.  fPART    I. 

that  the  jiowcr  to  alter  or  modify  a  chiuitT  is  r\irti.s:ii»li"  only 
with  rcM|K'ct  to  the  j)Ower8  and  fraucliisfa  conftTied  in  it.' 

The  weight  of  authority  is,  however,  opposed  to  the  latter 
coMchision  rmd  is  in  favor  of  the  proposition  that  the  h'gisla- 
ture,  under  its  reserved  jKjwer,  has  the  right  to  authorize  eon- 
solidution  without  the  unanimous  consent  of  stockholders; 
that  the  legislature  and  the  majority  are  not  both  subordinate 
to  the  will  of  a  dissenting  minority.  Tiic  stockholders,  in 
joining  the  corporation,  are  deemed  to  take  their  shares  8ul>- 
ject  to  the  possibility  of  alteration  by  the  legislature.' 

§  44.  Pow^er  of  Legislature  to  compel  Consolldatlou  under  its 
Reserved  Power.  —  Wiiilc  the  weight  of  authority  supjtorts  the 
view  that  the  legislature,  in  the  exercise  of  its  reserved  power, 
may  authorizf  the  consolidation  of  cor|M)rations  by  the  action 
of  a  majority  of  their  stockholders  its  right  to  compd  their 
consolidation,  against  the  will  of  a  majority,  presents  a  very 
dilTerent  «]uestion 

*'  Kach  and  every  shareholder  contracts  that  the  will  of  the 
majority  shall  govern  in  all  matters  coming  within  the  limits 
of  the  act  of  incorporation."  '  This  is  a  fundamental  princi- 
ple, and  the  legislature,  while  it  may  waive  the  j>ul)lic  rights, 
has  no  more  authority  to  divest  the  stockholders  (jf  a  private 
corporation  of  their  vested  rights,  ba.Hed  upon  this  principle, 
and  compel  them  to  become  adventurers  in  a  new  enterprise 
than  it  has  to  force  individuals  to  form  a  corporation.*     For 

'  Zul>ri»kio    v.  Hnrkpniuirk    R.   Co..  patilic  rijjhtji.     It  cooM    not  direat  or 

18  N.J.  E.j.  ITS  (1867),  (90  Am.  Doc.  impair  the  riphta  of  the  ghareholileni. 

617);    Black    »•.    iKLiware.  etc.    Canal  aa  between  thcmselven,  aa  giiarant«^ 

Co.,  24  N.  J.  Eq.  468  (187.1).  by  the  companv'g  cliartor.  without  their 

'  Halo  1-.  Clieahire  H.  Co.,  161  MaM.  consent.     It  waa  upon  the  faith  of  the 

443  (1894),  (.17  N.  E.  Rep.  307) ;  Market  stipulations  contained    in   said    charter 

St.   U.  Co.  V.    IloUman,    109    Cal.    571  that  the  shareholders  suhsrri>>ed  to  the 

(189.')),  (42  Pac.  Kep.  225).  capital  stork,  and  thereby  m.ade  them- 

'  Dudley  r.  Kentucky   High  School,  selves  meml)er8  of  the  corporation.  Theae 

9  Bush,  578   (1873).       Also   Dnrfee   v.  stipiil.itions,  aa  we  have  already  seen, 

(lid  C(dony,  etc.  U.  Co.,  5  Allen  (Mass  ),  contemplated  and  provi<led  for  the  con- 

242  (1862).  Btmction  of  a  railroad  between  the  ter- 

*  In  City  of  Knoxville  v.  Knoxville,  mini   named,    to   be    governed    by    the 

etc.   R.  Co.,   22  Fed.  Rep.  "63  (1884),  shareholders,  in  the  manner  and  upon 

Judge    Baxter  .snid  :    "  But   it   w.-w  not  the  terms  prescribed.     E.vh  corporator 

competent    for    the    legislature    to  do  is   entitled  to  have  the  contract  fairly 

more  iu  thia  respect  than  to  waive  the  interpreted  and  honestly  enforced.    The 

74 


CHAP.    IV.]  ASSENT   OF   STOCKHOLDERS.  §  44 

these  reasons  it  is  clear  that  the  legislature  cannot  compel 
the  consolidation  of  corporations  owing  no  public  duties.^ 

On  the  other  hand  the  legislature  may  compel  the  consoli- 
dation of  municipal  and  other  essentially  public  corporations, 
including,  as  held  by  the  Supreme  Court  of  the  United  States, 
educational  institutions.^ 

It  has  not,  however,  been  directly  decided  that  the  compul- 
sory consolidation  of  railroad  companies  and  other  quasi- 
public  corporations  is  legal,  nor  does  it  appear  that  such  legis- 
lation has  ever  been  attempted.^  Upon  principle  it  seems  that 
the  reasoning  applicable  to  distinctly  private  corporations 
applies  to  them.  They  are  private  corporations  owing  public 
duties.  The  State  may  hold  them  strictly  to  the  performance 
of  those  duties  and,  for  public  reasons,  may  take  away  existing 
rights  to  consolidate.*     It  would  seem  that  the  converse  of 

charter  invests  the  owners  of  a  majority  »  The  question  is  raised  in  Mowrey  v. 

of  the  capital  stock  with  the  right  to  Indianapolis,  etc.  R.  Co.,  4  Biss.  (U.  S.) 

control   the   corporate    business  within  78(1366).     In  an  early  case  in  Connec- 

the    scope   of   its   provisions.      Within  ticut   (Bishop    v.    Brainard,   28    Conn, 

this   limit   the    power    of    a   majority,  289)  (1859),  it  was  said  that  the  legis- 

when  acting  iu  good  faith,  is  supreme."  lature,'   under    its   reserved    power   of 

1  Mason  v.  Finch,  28  Mich.  282  amending  a  charter,  might  effect^  a 
/jg73)  consolidation    of     corporations    by    its 

2  Pennsylvania  College  Cases,  13  direct  action  without  any  action  upon 
Wall.  (U."  S.)  214  (1871):  "Apply  the  part  of  the  stockholders  or  directors 
those  principles  to  the  case  under  con-  of  the  corporation.  It  appeared,  how- 
sideration,  and  it  is  quite  clear  that  the  ever,  that  the  directors  and  a  majority 
decision  of  the  State  court  was  correct,  of  the  stockholders  had  voted  to  ratify 
as  the  fifth  section  of  the  charter,  by  the  consolidation  so  that  the  remarks  of 
necessary  implication,  reserves  to  the  the  court  were  dicta  and  the  decision 
State  the  power  to  alter,  modify,  or  should  rather  be  considered  as  holding 
amend  tlie  charter  without  any  pre-  that  antecedent  action  by  stockholders  is 
scribed  limitation.  Provision  is  there  not  essential  to  consolidation  thau  as 
made  that  the  constitution  of  the  col-  holding  that  the  legislature,  even  in  the 
lege  shall  not  be  altered  or  alterable  by  exercise  of  its  reserved  power,  can  com- 
any  ordinance  or  law  of  the  trustees,  pel  corporations  to  consolidate  against 
'  nor  in  any  other  manner  than  by  an  act  the  will  of  a  majority  of  their  stock- 
of  the  legislature  of  the  Commonwealth,'  holders. 

which  is  in  all  respects  equivalent  to  *  Gibbs  v.  Consolidated  Gas  Co.,  130 
an  express  reservation  to  the  State  to  U.  S.  407  (1889),  (9  Sup.  Ct.  Rep.  553), 
make  any  alteration  in  the  charter  where  it  was  held  that  the  legislature 
which  the  legislature  in  its  wisdom  may  by  a  compulsory  amendment  to  the 
deem  fit,  just,  and  expedient  to  enact,  charter  of  a  gas  company  might  pro- 
and  the  donors  of  the  institution  are  as  hibit  the  exercise  of  an  existing  right 
much  bound  by  that  provision  as  the  to  consolidate  with  any  otlier  gas  corn- 
trustees."  pany.     See  also  ante,  §§  24,  25,  26. 

75 


§  45  ISTKRroilI'OUVTK    RKLATIONS.  [PART   I. 

the  proposition  must  necessarily  follow,  that  the  State  cannot, 
itself,  clianj^e  the  nature  of  the  duties  and  the  ability  of  the 
corporation  to  perform  them  by  coin|x.'llinf^  consolidation 

§  45.  Assent  of  Stocicholders  —  How  manifested.  Acquies- 
oenoe.  Estoppel.  —  Wliilo  the  assent  of  a  stockholder  to  a 
proposed  consolidation  should  regularly  be  expressed  by  his 
vote  at  a  stockholders'  meeting  or  by  his  approval  in  writing 
—  as  the  consolidation  act  may  provide — he  cannot,  after 
acquiescing  in  a  consolidation  antl  after  the  new  corporation 
has  taken  charge  of  the  property  of  the  constituent  corf)ora- 
tions,  attack  the  validity  of  the  consolidation  on  the  ground 
that  he  did  not  assent  thereto.  A  stockholder  who  takes  an 
active  part  in  a  consolidation  estops  hims<df  from  alleging  his 
want  of  consent  and,  in  the  ab.sence  of  fraud,  from  raising 
future  objections.'  A  stockholder  who  consents  to  a  con- 
solidation is  also  estopped  from  questioning  the  regularity 
of  the  steps  leading  up  to  it.  Thus,  where  an  unauthorized 
amendment  was  accepted  and  adopted  by  the  directory  of  a 
corporation,  on  the  faith  of  which  a  consolidation  was  made, 
under  legislative  sanction,  with  another  corporation,  stock- 
holders consenting  to  the  consolidation  were  held  to  be  es- 
topped to  dis|)ute  the  validity  of  the  amendment.'  Where, 
however,  an  amendment  did  not,  on  its  face,  give  the  power 
to  consolidate,  a  stockholder  was  held  not  to  be  estopped  by 
his  failure  to  object  to  it  in  season.'     The  merely  preliminary 

1  Glvmont  Imp.,  etc.  Co.  v.  Tolcr,  now  ami  property,  and  thinl  pera<>na  to 

80  Mil.  278  (189-4),  (30  Atl.   Rep.  651);  purcha.«o   the    mortgage    Ujuds   of  the 

Branch  r.  Atlantic,  etc.  K.  Co.,  3  Wi>od  new   cumfwnT,  and   t«i    acijairR    other 

(U.  S.),49l  (1879);  Boston,  etc.  K.  Co.  rights  and  intere.<tii  luved  on  it«  lawful 

V.  Now  York,  etc.   U.  Co.,  1.1  U.  I.  265  existence,  the  fart  that  at  a  foreclosure 

(1881)  (s.ile)  ;  Phinizy  r.  Augu.sta,  etc.  snle  under  the  mortgage  bond;*   iMued 

R.  Co.,  62  Fed.  684  (1894).  by  therf*  Air/ocomp.iny,  he  notified  pur- 

A  person  subscribing  for  the  stock  ch.xners  that  ho  would  contest  the  con- 

of  a  consolidated  corjxiration   thereby  solidation,  iloes  not  prevent   him  from 

consents  to  the  consolidation.     Fisher  being  estopped  to  attack  such  consoli- 

V.    Evansville,  etc.  R.  Co..   7  Ind.  470  dation.     Brarifonl  v.  Frankfort,  etc.  R. 

(1856).  Co..  142  Ind.  .38-1  (1895).  (40  N.  E.  Rep. 

Where  a  stockholder   in  a  consoli-  741),  (41  N.  E.  Rep.  819). 
dating  corporation    p.irticipated  in  all  '  Deaderick     v.     Wilson,     8    Paxt. 

the  proceedings  incident  to  consolida-  (Tenn.)  108(1874). 
tion  and  permitted  the  corporation  so  •  International,  etc.  R.   Co.  v.    Rr«»- 

formed   to  control  the  corporate  busi-  mond,  53  Tex.  96    (1880):  "Nor  had 

76 


CHAP.    IV.] 


ASSENT   OP   STOCKHOLDERS. 


§46 


vote  of  a  director  in  favor  of  consolidation  will  not  preclude 
him  from  subsequently  objecting  as  a  stockholder.^ 

§  46.  Rights  and  Remedies  of  Dissenting  Stockholders.  — 
When  the  unanimous  consent  of  stockholders  is  essential  to 
consolidation,  a  dissenting  stockholder  is  entitled  to  an 
injunction  restraining  a  proposed  consolidation  on  the  ground 
that  the  funds  of  the  corporation  are  being  diverted  to  objects 
not  authorized  by  its  charter.^  A  dissenting  stockholder  has 
also  a  right  of  action  in  equity  against  the  consolidated 
corporation,  in  the  case  of  an  unauthorized  consolidation, 
upon  the  theory  of  a  wrongful  appropriation  by  it  of  his  equi- 
table interest  in  the  original  corporation.^ 


he,  by  failing  to  object  to  a  subsequent 
enlargement  of  the  charter,  which, 
whether  it  actually  gave  such  power  or 
not,  did  not  on  its  face  purport  to  give 
any  power  to  consolidate,  precluded 
himself  from  objecting  to  a  consolida- 
tion making  so  fundamental  a  change 
in  the  objects  of  the  corporation.  .  .  . 
A  stockholder  may  be  estopped  by  his 
conduct  from  further  objecting  to  a 
consolidation  which  was  attempted 
without  authority  ;  but  in  the  present 
case  the  conduct  and  action  of  Bremond 
have  not  .  .  .  been  such  as  to  preclude 
him  from  still  refusing  to  go  into  the 
new  enterprise,  or  from  demanding  full 
compensation  for  his  interest  in  the 
old." 

1  If  a  member  of  a  board  of  direc- 
tors of  a  corporation  be  present  at  the 
adoption  of  a  resolution,  and  is  aware 
of  what  is  going  on,  and  makes  no  op- 
position to  its  adoption,  he  must  be 
presumed  to  have  assented  to  it.  But 
if  such  proceeding  is  merely  prelimi- 
nary to  a  subsequent  vote  of  the  stock- 
holders on  the  consolidation  of  the 
corporation  with  another,  which  can 
only  ultimately  be  decided  by  the 
stockholders,  he  will  not  be  estopped 
from  afterwards  objecting  as  a  stock- 
holder. Mowrey  v.  Indianapolis,  etc. 
R.  Co.,  4  Biss.  (U.  S.)  78  (1866). 

2  Clearwater  v.  Meredith,  1  Wall. 
40    (1863):     "Clearwater    could    have 


prevented  this  consolidation  had  he 
chosen  to  do  so ;  instead  of  that  he 
gave  his  assent  to  it  and  merged  hia 
own  stock  in  the  new  adventure.  If  a 
majority  of  the  stockholders  of  the  cor- 
poration of  which  he  was  a  member 
had  undertaken  to  transfer  his  interest 
against  his  wish,  they  would  have  been 
enjoined.  There  was  no  power  to  force 
him  to  join  the  new  corporation,  and  to 
receive  stock  in  it  on  the  surrender  of 
his  stock  in  the  old  company." 

See  also  Blatcliford  v.  Ross,  54 
Barb.  (N.  Y.)  42  (1869)  ;  Botts  v.  Simp- 
sonville,  etc.  Turnpike  Road  Co.,  88  Ivy. 
54  (1888),  (10  S.  W.  Rep.  134)  ;  Mow- 
rey V.  Indianapolis,  etc.  R.  Co.,  4  Biss. 
(U.S.)  78  (1866);  Zabriskie  u.  Ilack- 
ensack,  etc.  R.  Co.,  18  N.  J.  Eq. 
178  (1867),  (90  Am.  Dec.  617)  ;  Stevens 
V.  Rutland,  etc.  R.  Co.,  29  Vt.  545 
(1857);  Young  v.  Rondout,  etc.  Gas 
Light  Co.,  129  N.  Y.  57  (1891),  (29 
N.  E.  Rep.  83). 

'  A  stockholder  in  a  railway  com- 
pany, which,  against  his  protest,  has 
been  consolidated  with  another  com- 
pany, by  the  action  of  other  stockhold- 
ers, and  whose  equitable  interest  has 
been  wrongfully  appropriated  by  the 
consolidated  company,  cannot  maintain 
an  action  for  the  injury  against  the 
directors  of  the  company  as  such ;  nor 
are  directors  responsible  for  a  consoli- 
dation effected  by  stockholders.     He, 

77 


§  47  INTEUCORPORATK    RELATIONS.  [I'ART    I. 

When  r.n  illi^j^al  consolidation  has  been  hroufrht  about  by 
the  action  of  the  stockhoKlers  a  dissentini^  stockhohlcr  can- 
not maintain  an  action  for  damages  against  the  directors.' 
While  a  dissenting  stockholder  may  enjoin  a  consolidation, 
one  of  the  constituent  companies,  itself,  cannot,  after  agreeing 
to  a  consolidation,  object  to  its  validity  on  the  ground  that 
all  its  stockholders  did  not  assent  thereto.' 

^47.  Rlghta  and  Remedies  of  Dissenting  Subscribers. — 
Where  authority  to  consnlid.'itc  doi'S  nt)t  exist  at  the  time 
when  a  corporation  is  chartered  and  wiicrc  power  to  amend 
or  re|)eal  is  not  reserved,  a  grant  of  authority  to  consolidate 
works  a  change  of  a  fundamental  nature  in  the  charter  of 
a  corporation  and,  it  is  held,  c.x«merates  dissenting  sub- 
scribers for  the  stock  of  the  corporation  from  further  liability 
upoji  their  subscriptions.^  Mr.  Justice  Strong,  in  Xio/ent 
V.  Superriiinrs*  thus  stated  the  reason  for  the  rule:  '*  It  nnist 
be  conceded,  as  a  general  rule,  that  a  subscriber  to  the  stock 
of  a  railroad  company  is  released  from  obligation  to  j»ay  his 
subscription  by  a  fundamental  alteration  of  the  charter.  The 
reason  of  the  rule  is  evident.  A  subscription  is  always  pre- 
sumed to  have  been  made  in  view  of  the  main  design  of  the 
corporation,  and  of  the  arrangements  made  for  its  accomplish- 
ment. A  radical  change  in  the  organization  or  purposes  of 
the  company  may,  therefore,  take  away  the  motive  which 
induced  the  subscription,  as  well  as  affect  injuriously  the  con- 
however,  has  an  equitnlilf  action  apniniit  riiiori*.  19  Wall.  24S  (187.1) ;  Clearwater 
the  ciinsolid.ito.l  cDmpaiiy  f'>r  the  c.  Mereilith,  1  W.-dl.  25  (lSf..3). 
wronpful  appropriation  of  hi'*  in'crest.  Indiami  :  Shclhyville,  etc.  Turnpike 
InternatioiKii.  etc.  K.  Co.  i'.  lireinomi,  Co.  r.  Barnes,  42  Iml.  498  (187.1) ;  Booe 
53  Tex.  96  (1880).  r.  Junction   R.  Co.,  10  Ind.  93  (1857) ; 

A  stockholder  in  a  conntitnent  cor-     McCray  r.  Junction  R.  Co.,  9  Imi.  358 
poration    who  has    not    converted    his     (1S57)  ;    State    p.    Hailev,   16    Ind.    46 
stock  into  the  stock  of  the  consolidatod     (1861).  (79  Am.  Dec.  405). 
comp.iriy,    li.is  no  fi»tinp   to  mnintiiin  .ytiiisix!ii/>f>i :    New  Orleans,    etc.   R. 

a  stockholders'   hill  against  that  com-     Co.  r.  Harris,  27  Miss.  517  (18.'i4). 
panv.      rhiladolphia,    etc.    R.    Co.    r.  .N'/rrA  ('firo'ina  .•  Charlotte  First  Nat. 

Catawis9.i  R.  Co.,  53  Ta.  St.  20  (1866).     Bank  v.  Charlotte,  85  N.  C.  4.13  (1881 ). 

1  International,  etc.  R.  Co.  r.  Bre-  Enqland :   Donpan's  Case,  28  L.  T. 

mond,  53  Tex.  96  (1880).  Rep.  60  (1873). 

»  St.   Louis,   etc.    R.   Co.   r.    Terre  *  Nnpent  v.  Supervisors,    19   Wall. 

Haute  R.  Co..  33  Fed.  440  (1888).  248  (1873). 

8  United   States:   Nugent  v.  Super- 

78 


CHAP.    IV.]  ASSENT   OF   STOCKHOLDERS.  §  47 

sideration  of  the  contract.  For  this  reason  it  is  held  tliat 
such  a  change  exonerates  a  subscriber  from  liability  for  his 
subscription  ;  or,  if  the  contract  has  been  executed,  justifies  a 
stockholder  in  resorting  to  a  court  of  equity  to  restrain  the 
company  from  applying  the  funds  of  the  original  organization 
to  any  project  not  contemplated  by  it." 

A  subscriber  is,  however,  entitled  to  the  benefit  of  his  con- 
tract as  made  and  is  neither  obliged  to  withdraw  from  it  nor 
to  embark  in  a  new  venture.^ 

This  rule,  that  the  unconstitutional  grant  of  authority  to 
consolidate  operates  as  a  dissolution  of  the  subscription  con- 
tract and  as  a  release  of  dissenting  subscribers,  is  supported 
by  the  highest  authorities.  It  is  difficult,  however,  to  justify  it 
upon  legal  principles.  An  act  unconstitutional  as  to  a  dissent- 
ing subscriber  would  seem  to  be  void  as  to  him.  To  say  that 
it  dissolves  the  subscription  contract  is  to  give  effect  to  a  void 
act.  The  distinction  drawn  between  the  position  of  a  stock- 
holder and  that  of  a  subscriber  —  treating  the  latter  as  a  party 
to  an  executory  contract  only  —  is  inaccurate.  The  effect  of 
an  ordinary  subscription  is,  immediately,  to  constitute  the 
subscriber  a  stockholder,  subject  to  the  liability  to  pay  his  sub- 
scription when  called.  Only  a  contract  to  subscribe  for  stock 
at  a  future  time  can  properly  be  called  an  executory  contract. 

The  general  rule  stated  is  inapplicable  in  a  case  where  it  is 
apparent  from  the  articles  of  association  that  consolidation 
was  one  of  the  purposes  for  which  the  corporation  was  organ- 
ized and  that  the  consolidation  in  question  is  only  carrying 
out  that  purpose.  Consolidation,  under  such  conditions,  does 
not  discharge  a  subscriber  from  the  payment  of  his  sub- 
scription, although  authority  to  consolidate  was  granted  after 
the  subscription.^ 

1  "  The  stockholders  in  the  old  cor-  than  the  whole,  or  for  the  purchase  of 

poration,  who  do  not  enter  into  the  new  the  interests  of  dissenting  stockholders 

corporation,  are.  tlierefore,  in   the  ab-  in  the  event  of  a   consolidation,  it  is 

sence  of  sach  statutes,  entitled  to  with-  conceived  that  he  will  neither  be  bound 

draw  from  the  venture  and  cease  to  be  to  consent   to  the  consolidation  nor  to 

liable  on  their  stock  subscriptions.    But  surrender  his  interest   in   his   original 

in  the  absence  of  a  statute  existing  at  corporation."   1  Thomp.  on  Corp.  §  343. 

the  time  of  his  subscription,  providing  2  Hauna  v.  Cincinnati,  etc.  R.  Co.j 

for  the  consolidation  upon  a  vote  less  20  Ind.  30  (1863). 

79 


§  48  INTERCOUPORATE    RELATIONS.  [PART    I. 

§  48.  Procedure  In  Stockholders'  Actions.  —  When  a  majority 
has  taken  Httj»s  towards  an  unauthorized  consolidation  or 
wlicn  unanimous  consent  is  necessary,  a  dissenting  stock- 
holder may  Die  a  hill  for  an  injunction  ami  it  is  not  necessary 
that  he  should  first  seek  relief  throujrh  the  cor|M)rati(m.  In 
Nathitn  V.  Tompkina^  the  Supreme  Court  of  Alal)ama  said: 
"  When  the  injury  is  to  the  shareholder  individually,  or  there 
is  a  real  contest  hctween  him  and  the  cor[>orati«jn  growing 
out  of  the  acts  of  a  majority  of  the  stockholders  in  conven- 
ti(jii,  aM<l  in  excess  of  their  powers,  express  or  implied,  he 
may  maintain  a  suit  to  prevent  the  wrong  without  the  vain 
and  useless  ceremony  of  attempting  to  induce  the  same 
majority  to  sue  themselves.  A  dissenting  stockholder  may, 
under  such  circumstances,  enjoin  an  unauthorized  con- 
8olidatit>n." 

The  stockholder  is  protecting  hisojr/i  riijhtt,  and  it  is  imma- 
terial whether  he  is  acting  in  good  faith  for  the  interests  of 
the  corporation.'  The  injunction  is  granted  to  restrain  the 
cflicers  and  managers  of  the  corporation  from  diverting  its 
funds,  hut  it  is  necessary  to  make  the  corporation  a  party 
defendant.^  An  injunction  once  issued  restraining  an  at- 
tempted consolidation  will  not  he  dissolved  unless  it  is  estab- 
lished by  proof  that  tlje  consolidation  agreement  has  been 
cancelled.  Allegations  that  the  scheme  has  been  abandoned 
are  not  suflicicnt.* 

'  Nath.-xn   »•  Tompkiim,  82   Aln.  437  tftkn  place,'   ami  b«  fulljr  carried  into 

(1891),  (2  So.  Hep.  747).     CVn/rn,  how-  effect,  —  a  secret,  anc<>minunicate«l  in- 

ever,  Moxloy  c.  AUton,  1    I'hil.  Ch.  790  tentiun  to  abamlon,  n-ntin^iu  the  minda 

(1847).  of  the  mnjority  at  iii<liviiliials,  does  not 

'  Centrnl   R.  Co.  v.  Collins,  40  Ga.  meet  the  re<|airemcnts  nf  e<|uitT." 
617(1861).  In     Blatchf(.rd    v.    Hoss,    54     Rarb. 

8  Kidcway    Township    r.    Griawold,  (N.  Y.)  42  (1869).  it  wan  held  that  an 

1  McCrary  (U.  S.)  151  (1878).  injunction   restraining  the  consuinm.v 

*  Nathan  i".  Tompkins,  82  Al.i.  446  tion  of  the  consolidation  of  two  cor- 
(1886),(2  So.  Rep.  747) :  "  Theauswoni  porations  would  not  be  extended  to 
do  not  aver  that  the  resolutions  have  prevent  the  nse  by  the  con.Holidnted 
been  rescinded,  or  any  attempt  made  to  company  of  property  delivered  before 
rescind  them,  or  any  official  declaration  the  injunction  wa.s  applied  for,  but 
of  the  abandonment.  The  resolutions  would  be  continued  to  prevent  the  de- 
remain  in  force  on  the  minutes,  so  far  livery  of  any  more  property  and  the 
as  the  majority  could  impart  vitality,  taking  of  any  steps  to  enforce  ronsoli- 
In  view  of  the  character  of  the  resoln-  dation  upon  unwilling  stockholders, 
tious,  —  that  the  consolidation  'do  now 

80 


CHAP.   IV.]  ASSENT   OF   STOCKHOLDERS.  §  50 

An  injunction  against  an  attempted  consolidation  will  not 
be  dissolved  upon  an  answer  which  fails  to  allege  the  consent 
of  the  plaintiff,  where  the  unanimous  consent  of  the  stock- 
holders is  essential  to  consolidation.^ 

§  49.  Laches  of  Stockholders.  —  Laches  in  bringing  suit 
will  preclude  a  dissenting  stockholder  from  enjoining  a  con- 
solidation. He  cannot  look  to  equity,  but  must  content  him- 
self with  some  other  form  of  remedy .^  Reasonable  haste  is, 
however,  sufficient.^  Acquiescence  for  an  extended  period, 
during  which  time  the  interests  of  third  persons  have  inter- 
vened, may  itself  constitute  laches  and  prevent  a  stockholder 
from  attacking  a  consolidation  even  on  the  ground  of  fraud.* 

§  50.  Can  a  Majority  effect  Consolidation  upon  giving  Se- 
curity to  Dissenting  Stockholders?  —  It.  was  held  by  the 
Supreme  Court  of  Pennsylvania  in  an  early  case  that  a 
consolidation  might  be  effected  by  the  action  of  a  majority 
of  the  stockholders  of  the  consolidating  corporations,  pro- 
vided dissenting  stockholders  were  secured  from  loss  and 
their  stock  taken  at  an  appraisal,  although  no  statutory  pro- 
vision sanctioned  such  course  nor  removed  the  necessity  for 
unanimous  consent.^ 

1  Botts  V.   Simpsonville,  etc.  Turn-  solidated    company,   and    retnrn,   free 

pike   Road  Co.,  88  Ky.  54  (1888),  (10  from  all  liens,  the  property  contributed 

S.  W.  Kep.  134).  by  the  corporation  in  which  complain- 

3  Chapman  v.  Mad  River,  etc.  R.  Co.,  ants  were  stockholders  where  for  three 

6  Ohio  St.   120  (1856) ;    International,  years  they  had  neglected  to  ask  the  aid 

etc.   R.  Co.   V.   Bremond,  53   Tex.  96  of  equity,  and  had  stood  quietly  by  while 

/jggQ\  the    consolidated    corporation   had    in- 

3  Mills  V.  Central  R.  Co.,  41  N.  J.  curred  liabilities  and  the  rights  of  third 

Eq.  1  (1886),  (2  Atl.  Rep.  453).  persons  had  intervened. 

*  Bell  V.  Pennsylvania  R.  Co.  (N.  J.  ^  Lauman  v.  Lebanon  Valley  R.  Co., 

1887),  10  Atl.  Rep.  741  (1887).     In  this  30  Pa.  St.  42  (1852).     See  also  State  v. 

case  there  was  five  years  delay.  Bailey,    16  Ind.   46    (1861),   (79   Am. 

In  Rabe  v.  Duulap.  51  N.  J.  Eq.  40  Dec.  410). 
(1893),  (25  Atl.  Rep.  959),  it  was  held  InMcVicker  v.Ross,  55  Barb.  (N.  Y.) 
that  where  a  corporation  chartered  prior  247  (1869),  it  was  held,  in  the  case  of 
to  the  passage  of  the  consolidation  act,  a  consolidation  of  two  joint  stock  corn- 
consolidated  with  other  corporations  panics,  that  although  a  dissenting  share- 
for  the  purpose  of  carrving  on  a  busi-  holder  was  not  obliged  to  surrender  his 
ness  essentially  different  from  that  for  interests  to  remaining  associates  at  an 
which  it  was  organized,  equity  might  estimated  valuation,  but  had  the  right 
protect  the  nouassenting  stockholders,  to  have  the  valuation  actually  ascer- 
if  application  was  made  promptly ;  but  tained  by  a  sale,  in  the  ordinary  man- 
that  equity  would  not  dissolve  the  con-  ner  of  closing  up  partnerships   where 


6 


81 


§  51  INTKTICORPORATE    RELATIONS,  [I'ART    I. 

While  this  decision  has  been  referred  to,  apparently  with 
approval,  in  other  cases,  it  is  opposed  to  the  weight  of  author- 
ity and  contravenes  fundamental  principles.  It  is  not  within 
the  power  of  courts  of  law  or  of  ecpiity,  in  the  absence  of 
special  statutory  authority  authorizing  the  exercise  of  the 
power  of  eminent  domain  with  respect  to  ^uaW-public  corpora- 
tions, to  decree  that  the  stock  of  dissenting  Btockholders 
shall  be  taken  for  the  purpose  of  quieting  opposition.* 

The  language  of  Lord  Eldon  in  granting  an  injunction 
against  an  unauthorized  extension  of  the  business  of  a  volun- 
tary association  at  the  suit  of  a  dissenting  member,  althougli 
it  was  |)rojiosed  to  indemnify  him,  is  appropriate:  "  The  right 
of  a  partner  is  to  hold  to  tlie  specific  purposes  his  partners 
while  the  partnership  continues,  and  not  to  rest  upon  indem- 
nities with  respect  to  what  he  has  not  proposed  to  engage 
in."' 

§  61.  The  Right  to  condemn  Stock.  —  The  legislature  has 
power  to  authorize  the  consolidation  of  railroad  and  other 
yM<i«j-public  corporations,  without  the  unanimous  con.sent  of 
their  stockholders,  when  it  makes  provision  for  appraising  and 
|)aying  for  the  sttjck  of  dissenting  stockholders.  This  power 
is  entirely  unaffected  by  the  constitutional  prohibition  against 
impairing  the  obligations  of  contracts  and  is  based  upon  the 
sovereign  power  of  eminent  domain.  Corporate  shares,  as 
well  as  all  other  property,  are  subject  to  the  paramount  neces- 
sities of   the  State   for   the    promotion   of  public    interests.' 

there  U  no  oxpreM  BtipalatioD  ;  yet  tliat  ^  N.itu9ch  v.  Irving,  2  Cooper  Ch. 
wlicrv  tlio  nniuiiut  of  ilis.M'ntiiig  »toi-k  358  (1824).  See  bIjk*  Stevens  v.  Rnt- 
waa  inconsiderable  in  c«>mp.irison  with  land,  etc.  U.  Co.,  29  Vt.  545  (1851). 
the  St  Oik  whose  owners  had  acquiesced  *  In  Black  r.  Delaware,  etc.  Canal 
in  the  agreement  of  consolidation,  the  Co.,  24  N.  J.  V.<i  4ri9  (l.«<:,3),  it  was  held 
court  would  order  the  consolidated  that  in  the  e.\erci.>»e  of  the  right  of  em- 
company  to  give  a  bond  conditioned  inent  domain  the  legi-^Liture  might 
that  ujK)n  final  judgment  all  the  prop-  autiiori/.e  shares  in  corporations  and 
erty  transferred  should,  if  required,  be  corp<jrate  franchi.oes  to  be  taken  for 
delivered  into  the  custody  of  the  court  public  pur|H»se.s  up<jn  jn.<t  compen.na- 
for  the  protection  of  all  tiie  shareholders,  tion,  and  that  the  legislature  might, 
^  Mills  i".  Central  R.  Co.,  41  N.  J.  when  puldic  necessity  required  it,  grant 
Eq.  1  (1886),  (2  Atl.  Uep.  45.3);  Black  authority  to  consolidate  or  lease,  if 
f.  Delaware,  etc.  Canal  Co.,  22  N.  J.  Eq.  it  pruTided  just  comfwn.sation  for  the 
406(1S71)  ;  Mowreyy.  Indianapolis,  etc.  sharesof  such  stockholders,  as  di.'»sente«1, 
R.  Co.,  4  Biss.  (U.  S.)  84  (1866).  and  that  the  act  in  (juestion  did  provide 

82 


CHAP.   IV.] 


ASSENT   OF   STOCKHOLDERS. 


§51 


Accordingly,  in  exceptional  instances,  statutes  have  been 
passed,^  for  the  promotion  of  railroad  and  similar  consolida- 
tions, providing,  under  varying  conditions,  that  the  stock  of 
dissenting  minority  stockholders  may  be  appraised  and  con- 
demned, and  such  statutes  have  been  held  to  be  constitutional  .^ 
Statutes  of  this  character  are,  however,  strictly  construed,  and 
it  has  been  held  that  authority  to  condemn  the  shares  of  dis- 
sentient stockholders  for  the  purposes  of  consolidation  does 
not  warrant  the  taking  of  such  shares  for  the  purposes  of  a 
lease.^ 

These  statutes  must  be  distinguished  from  the  provisions 
in  modern  consolidation  acts  authorizing,  as  a  condition  of 
consolidation,  an  appraisal  of,  and  payment  for,  the  stock  of 
objecting  stockholders.^  It  is  not  the  purpose  of  these  provi- 
sions to  authorize  the  condemnation  of  stock  in  order  to  quiet 
opposition.  Consolidation  statutes  containing  them  do  not 
require  unanimous  stockholders'  consent  nor  can  such  pro- 
visions be  made   available  to   obtain  the   required   consent. 


compensation  for  unwilling  stockhold- 
ers, before  their  property  was  taken. 

See  also  an  article  entitled  "  Corpo- 
rate Shares  and  Eminent  Domain,"  by 
Leonard  M.  Daggett,  published  in  Yale 
Law  Journal,  May,  1896. 

1  The  statute  under  consideration  in 
Black  V.  Delaware,  etc.  Canal  Co.,  24 
N.  J.  Eq.  469  (1873),  was  the  Neiu  Jer- 
sey act  of  March  17,  1870.  See  also 
Illinois  Stat.  1897,  ch.  32,  authorizing 
the  exercise  of  the  right  of  eminent 
domain  in  aid  of  the  consolidation  of 
gas  companies. 

In  Connecticut  the  following  statute 
conferring  most  remarkable  powers 
in  behalf  of  a  majority  interest  was 
passed  in  1895  :  "  In  case  any  railroad 
company  acting  under  the  authority  of 
the  laws  of  this  State  shall  have  ac- 
quired more  than  three-fourths  of  the 
capital  stock  of  any  steamboat  com- 
pany, ferry  company,  bridge  company, 
wharf  company,  or  railroad  company, 
and  cannot  agree  with  the  holders  of 
outstanding   stock  for  the  purchase  of 


the  same,  upon  a  finding  by  a  judge  of 
the  Superior  Court  that  such  purchase 
will  be  for  public  interest,  it  may  cause 
such  outstanding  stock  to  be  appraised 
in  the  manner  provided  by  section 
3464  of  the  general  statutes  [section 
providing  for  the  appraisal  of  real  es- 
tate taken  for  railroad  purposes]  ;  and 
when  said  appraisement  shall  have  been 
paid  or  deposited  as  provided  in  said 
section,  the  stockholder  or  stockholders 
whose  share  or  shares  shall  have  been 
so  appraised,  shall  cease  to  have  any 
interest  therein,  and  shall,  on  demand 
made,  surrender  said  stock  and  all  cer- 
tificates thereof  to  the  corporation  ap- 
plying for  such  appraisal,  and  upon  the 
deposit  of  said  appraisal,  said  certificate 
shall  be  deemed  to  be  cancelled."  Pub. 
Acts  1895,  ch.  232,  §  1. 

2  Mills  V.  Central  R.  Co.,  41  N.  J. 
Eq.  1  (1886),  (2  Atl.  Rep.  453). 

3  Mills  V.  Central  R.  Co.,  41  N.  J. 
Eq.  1  (1886),  (2  Atl.  Rep.  453). 

*  See  "  Statutory  Provisions  for  Ap- 
praisal of  Stock,"  post,  §  57. 

83 


§  62  INTCaCOKPOEATE   RELATI0K8.  [PABT  L 

Their  dc8ign  is  to  afford  tlio  dissenting  stockholder  an  addi- 
tional rcuudy — to  give  liim  the  privilege  of  selling  out  in- 
stead of  emburlking  in  the  new  enterprise. 


CIIAITKIC    V. 

METHOD   OK   COSSOUUATIOX. 

I  53.  Formal  .Statutorr  I{f<«|tti<itoii. 

I  &3.  Whcu  C'i)ik*<>liilatiou  it  iflccted. 

f  M.  Coujitructiuii  ut  .SialuCfM  pre«rriliiiif;  Mmio  of  CuiuuUdAtioo. 

f  55.  What  Stalutur/  I'rovuioiM  C'omlitiuua  I'rM-otJoul. 

f  56.  Wliut  Statutorj  l'rt>Ti«iitiia  iii4  Couditimis  rrecvdeol. 

I  57.  HfaUuUjrjr  I'ruvuiutia  (or  Appraual  of  Sunk 

§  52.  Formal  Sututory  RequUltea.  —  Altinjugh,  as  alrendj 
noted,  it  had  In-en  i>eld  that  tiie  coii.stjlidation  uf  corporations 
luay  bo  cfTectcd  by  tlic  direct  act  of  the  legislature,  without 
any  antecedent  action  on  the  |>art  of  the  corjxjration.H,*  such 
legislative  j)ower,  if  e.xistent,  is  seldom  exercised.  Nearly  all 
the  States,  however,  authorize  the  consolidation  of  corporations 
of  their  own  volition  and  many  have  enacted  general  statutes 
designating  the  steps  necessary  to  bring  about  that  result.* 

'  niiihop  V.  Urainenl,  28  Codd.  289  ati^pcmftnt  "  apon  nach  term*  a/i  din>c- 

(I8.'>9).  l'>r«     of     rv.<|>«rtire     c<>inp.iJiira     mar 

*  Alabama.      Code     1896,     rh.     28,  *sre«    Qp<)n "    mast    b«     aultrntlKxl    to 

{  1166,  {MM  amended  bj  acta  1900-1901,  »t«Kkh<>lder!i  of  the  rrufX'ctive  c<)q)ora- 

p.    2.17)  :     Direotors    of    r.iilroa<l    com-  tions    repre«»iilinu   ihrr^jhurths  of   the 

paiiieji     coasolidatiiif;     enter    into     an  oubacribcd    rapital  itock   and  mniit    be 

af^rccmrnt    ander    ci>r|Mirnte    Mai    for  ratified  and  confirmed    bj  aach  stock- 

consolidation,    proacriMnjj     tho    terms  holilor« 

and    conditions    thereof,   etc.      Affr^*-  ArkanMos.     S.    &    II.    Dige<it,    1894, 

meut    must    bo  iiubinittcd   to  noparnte  SS  6-11.'),  6-1.t2 :  To  effect  coDsoli<lation, 

stockholders'    meetini;s    and    nia.it    l>e  contract,    fixing    terms  and   conditionj 

■auctioned    by  a  rutc  of   at    least  (iro-  mnst    be   a.<.«ented    to  by  two-thirdt    in 

thirds    in  amount   of   the  stockiioldcrs  interest  of  all  the  issued  capital  stock 

present.  of  the  companies  pro(K>sing  to  consoli> 

Sections  1149,  1149  presenile  method  date,  at  a  sto<-kholders"  meeting  rega- 

o£  consolidating  bu.sinesa  corporation."*.  larly  called  for  the  purpose. 

Arizona.       K.  S.  1901 .  par.  8f.4  :    In  Ca'ifomin.     Pom.  Coflo   1901,  §  47.3  : 

consolidation     of    railroad     companies  Method  of  consolidating  railroads  same 

84 


CHAP,    v.]  METHOD    OF    CONSOLIDATION.  §  52 

These  statutes,  while  varying  in  detail,  are  similar  in  their 
general  nature,  and  the  process  of  consolidation  as  prescribed 
in  most  of  them  may  be  outlined  as  follows : 


as  Arizona,  ante.  Code  1886,  §  351 : 
Consolidation  of  mining  companies  re- 
quires consent  of  holders  of  two-thirds 
of  capital  stock. 

Colorado.  Mills  Anno.  Stat.  1891, 
§  605,  authorizes  consolidation  of  rail- 
road companies  under  certain  con- 
ditions by  majority  vote,  and  §  625  re- 
quires a  tico-thirds  vote  —  applicable  to 
consolidation  under  different  statutes. 

Consolidation  of  business  corpora- 
tions requires  vote  of  three-fourths  of 
Btocic,  ib.  §  628. 

Connecticut.  G.  S.  1888,  §§  3444, 
3445  :  Directors  of  railroad  companies 
enter  into  joint  agreement  prescribing 
terms  and  conditions  of  consolidation. 
Agreement  must  be  submitted  to 
stockholders  of  each  company  at  a 
special  meeting  thereof,  called  sepa- 
rately for  the  purpose,  and  if  two-thirds 
of  all  the  votes  of  all  the  stockholders 
are  for  the  adoption  of  the  agreement, 
the  companies  may  consolidate.  P.  A. 
1901,  ch.  157,  §  38,  prescribes  a  similar 
method  for  consolidation  of  business 
corporations. 

Delaware.  Laws  1899  (Corp.  Law), 
§  54 :  Directors,  or  majority  of  them, 
enter  into  an  agreement  under  the  cor- 
porate seal  of  respective  corporations 
prescribing  terms  and  conditions.  The 
written  consent  of  the  owners  of  at  least 
two-thirds  of  the  capital  stock  of  each 
corporation  is  necessary  to  the  validity 
and  adoption  of  the  afrreement. 

Under  1901  Act  (Corp  Law),  §  59, 
p.  303  :  Directors,  or  majority  of  them, 
enter  into  an  agreement  under  corpo- 
rate seals  of  respective  corporations. 
Agreement  submitted  to  stockholders 
of  each  corporation  at  a  meeting  called 
separately  for  the  purpose,  and  must  be 
ratified  by  two-thirds  in  amount  of  the 
capital  stock. 

Illinois.  R.  S.  1901,  §39,  p.  1376: 
Terms  of  consolidation  must  be  ap- 
proved by  stockholders  owning  not  less 


than  two-thirds  in  amount  of  the  capital 
stock  of  each  corporation. 

Indiana.  R.  S.  1901  (Burns'), 
§  5237  :  Consolidation  may  be  upon  such 
terms  as  corporations  may  mutually 
agree  upon  in  accordance  with  the  laws 
of  the  adjoining  State  with  whose  road 
or  roads  connections  are  formed. 

Idaho.  Laws  1901,  p.  214:  Article 
stating  terms  of  consolidation  must  be 
approved  by  each  corporation  by  a  vote 
of  the  stockholders  owning  a  majority 
of  the  stock  (Applies  to  Laws  1901 
"  Consolidation  "  ). 

R.  S.  1887,  §  2673  :  No  amalgama- 
tion or  consolidation  can  take  place 
without  the  written  consent  of  the 
holders  of  three-fourths  in  value  of  all 
the  stock  in  each  corporation. 

Iowa.  Code  1897,  §  2036  :  Consoli- 
dation must  be  made  with  the  consent 
of  three-fourths  in  interest  of  all  the 
stockholders  upon  such  terms  as  may 
be  agreed  upon. 

Kansas.  G.  S.  1897,  ch.  70,  §  93  : 
Companies  contract,  fixing  terms,  which 
must  be  ratified  and  approved  by  hold- 
ers of  two-thirds  of  all  the  stock  of 
each  company,  either  at  a  meeting  of 
the  stockholders  called  for  the  purpose 
or  by  approval  in  writing. 

kentuchi.  Stat.  1899,  ch.  32,  §  555, 
Art.  1  :  Directors  enter  into  agree- 
ment prescribing  terms  and  condi- 
tions, which  must  be  ratified  by  the 
owners  of  at  least  two-thirds  of  the  cap- 
ital stock  of  each  corporation. 

Louisiana.  R.  L.  1897,  §  757  :  Terms 
and  conditions  are  agreed  upon  in  writ- 
ing by  corporations  and  must  be  ap- 
proved by  a  majority,  or  such  a  number 
as  may  be  required  by  the  original 
charters  of  consolidating  companies. 

R.  S.  1897,  p.  758  :  Only  formalities 
required  for  consolidation  are  the  pas- 
sage of  a  resolution  to  consolidate  by 
the  vote  of  three-fourths  of  all  the  stock- 
holders, at  a  special  meeting  called  for 

85 


5  52 


INTKIICOUI'OR.VTK    RELATION'S. 


fpAUT    I. 


(1)    The   tiiifctors   ol    the  rorjM»r:itinii.s   j»r'»|M».HMj;^'    t<»   coM- 
iiolidatc  enter  iiiti>  an  ogrrrnuMit  for  tin-  cousoliilrition  thereof. 


the  |iur|x'<«e.     I/ouiniaiia  "itatnle  r>  .  . 
to    cuimol illation    of    l>UAiheM   corp«>rft- 
tiuun  (At't    of    Dor     \'i.   IH74)  r«>«|oirM 
thr  nft«ontti  of  th«  uwnen  of  (Ar««-/i/IAj 
of  the  HtiM-k. 

Maryland.     I^wa  of  1890.   ch.  563: 
8|>4HMal    iiiectinj;    fiiii«t    '■«'     ■  al!r.|   fi.r 
tli««  |>urpo««  of  ' 
witirh  iiiuat  br  K.i 

rr*   of   a   mnjorttif  of    th«  •tockbulden 
of  the  roni(>afiie«. 

liuiin^M  corporation  law  (Stat  IMm, 
<  h  H,$  Vi),  rc«|uirea  a  maj<>rttv  «ri>t«  b1«<>. 

Muhiitin  ToMic  Ana  IS'J'J.  \>  4M» : 
I)ir«li>r*  ptit«r  into  an  ni;rr<<nirnt  an- 
ilcr  i*or]H)ratr  acal  jir«-»« ni-ing  trrma 
and  t*«>n<litiona  ainl  nvA"  of  rarrvin^ 
aanift  into  rffrrt.  A(;rr«<inr>nt  niu«t  h* 
aubtnittni  t..  thf  .1 ...  ikh  !.!■  r«  .f  rath 
rorp«>ration  'viooad 

hy  votra  »l 

Mtnne^otn.  (i.S  lt.14.  §  -i;i6:  Coo- 
aolidation  niar  ><«  ciffecttMt  bjr  ou0  ror- 
(H>rati>>n  arqairiDg  tb*  ilocta,  booda, 
rtc  ,  of  another. 

Artii-lni*  itatin)(  trrraa  of  rnnaolida- 
tion  niDst  b«  approved  hr  rath  ror|M>- 
r.ition  hj  a  vote  of  the  atockholdcra 
owuinf;  a  majoritr  of  the  stork. 

/A.  S  2718:  I)irr«tor«  enter  into 
ajjrernient  whirh  i.«  «ul>niitted  to  atock- 
hoMcm  «»f  c.ioh  rorjiorution  ae{>aratclr 
and  intiAt  \n>  natirtioned  hr  ri>ie  of  at 
Iraat  tiixhihirils  in  anioout  of  the  atock- 
holdera  preacnt. 

MitniMippi.  Anno.  C«Mle  1892  :  Con- 
aolidation  is  ba<t  br  the  couaent  of  the 
railroad  rommission  and  a{Min  aurb 
terms  a.i  the  companies  mar  a(;ree  u|h>d. 

Minsouri.  U.S.  1899.  §  1059:  Kail- 
road  I'ompanica  enter  into  af;reemeut 
which  must  be  ratified  and  approved 
by  a  mnjiiritij  in  interest  of  all  the  stock 
held  in  ciich  company. 

Consolidation  of  business  corpora- 
tions requires  assent  of  thrrrjif'thM  of 
stockholders.     K.  S.  18,89.  §  2786. 

Montiinii.  Civil  Code  1895,  vol.  2, 
§  911  :  Agreement  for  consolidation  of 
railroad  compauies,  entered  iuto  oiider 

86 


!  V  prrsidnnt 
and    av<-retarir«,  i  t<<rnui  and 

conditions,  nta«t   '■■■  i  \>y  nt'M-k- 

boldera  at  rei^ular  or  apoi-Lil  n..  •  ..; 
by  a  Ti»te  of  holdera  of  at  1<- 1''.  r  "*■ 
Jiftk*  in  amount  of  capital  atuck. 
(^•>i.<-  II I  tt:  .ti  of  mininf;  rurafianiee 
••■nt  of  atockholdera  hold- 
.ofatoik.     Co.ie.  5  527. 

.V»6rci»i«i.  Corop.  Stat.  l9ol.  J  17ft5, 
p  .191  .  Director*  enter  into  af^ret^nieut 
ntatnif;  irrma  and  romiitii^ua  which  ia 
deemrd  the  afjrernient  if  tli«  rMr|)ura- 
ti<.a«  when  it  haa  Ijren  •  >  the 

at..«V'.  .1  !•  r«    of  each    ■  i       i    and 

a.a  .   vote  of  at  leaal  Itco-tkirdt 

in    :  •'.  •  V,  r>-|ir«<M>nted. 

.V«-  5  874  :   Manner 

of  «  ..n  «  -  ..\  I    I-.  .in;  .i!.'f« 

d. 

couaent  of  ('  f  atockholdcra 

iu  iiiterrat  of  .  :  "'T- 

Is.  I  1075:  '*Aii  and  any  corpora- 
tions" may  ronaolitlate  ufMin  the  writ- 
ten conaetit  or  re<|ue«t  of  tho  holders  of 
tkrrr-i'oitrtht  of  the  atock  ap>n  trnna 
afCT*ed  upon  by  directora  or  truateea. 

.V»«p  Jtrtty.  K.  IL  I.JIW,  par.  250 
(Ci.  8.  1895,  p.  3696):  Directora  of 
eacb  corfwration  a.rri.'  i..!ii'.!k  nnder 
corj>«>rate    se«l»  |  r  •   and 

condition*.       Agr<  .-1    to 

■tockhuldera  of  each  cor]>oratioD  at 
a  meeting  called  acparatdy  ;  vote  bj 
ballot  and  to  adopt  tho  agreement,  a 
mnj-'Tiiif  of  all  the  votea  cast  at  each  of 
au<-h  meeting*,  is  neceaaar}*.  U.  U.  Jaw, 
par.  1'8I  k;.  S.  1895.  p.  27ai) :  Director* 
of  the  several  cuq>orationa  aerov  jointly, 
prescribing  terms  and  conditions,  etc  ; 
Agreement  submitted  to  atockholdera  of 
each  company  at  a  meeting  thereof: 
rote  by  ballot  and  will  be  adopted  if 
tuo-thirdt  of  all  the  atuckholder*  voting 
aep.irately  favor  it. 

K.  H.  Law.  par.  •')I2,  as  amended  by 
ch.  137.  p.  2-35.  I^iws  of  1898:  If  cor- 
p<irationa  desire  to  effect  consoliilation 
thev  mar  execute  and  effect  it  br  coin 


CHAP,    v.] 


METHOD    OF   CONSOLIDATION. 


§52 


prescribing  the    terms  and  conditions    of    consolidation,  the 
mode  of  carrying  the  same  into  effect,  the  name  of  the  new 


tract,  which  contract  must  be  approved 
by  two-thirds  of  the  stockholders  given  iu 
writing  or  by  vote,  but  consent  of  leg- 
islature must  be  obtained.  The  above 
statutes  relate  to  the  consolidation  of 
railroads  under  different  acts.  The 
General  Corporation  Act  of  1896  (§  105, 
subdiv.  1 1 )  provides  that  the  consolida- 
tion agreement  of  business  corporations 
must  be  submitted  to  stockholders, 
and  that  vote  of  two-thirds  of  stock 
of  each  company  is  necessary  for  its 
adoption. 

New  Mexico.  Comp.  Laws  1897, 
§  3847  :  Consolidation  agreement  must 
be  ratified  in  writing  by  stockholders 
of  respective  corporations  representing 
three-fourths  of  the  subscriljed  capital 
stock.  (Applies  to  consolidation  au- 
thorized  in    that   section). 

Ih.  §  3S93  :  Stockholders  atjree  upon 
terms  and  conditions,  and  submit  them 
to  stock liolders  of  each  company  at  a 
meeting  called  separately  for  tiiat  pur- 
pose. A  vote  by  ballot  taken,  and  if 
two-tliin/s  of  all  the  votes  of  all  tlie 
stockliolders  shall  be  for  tlie  adoption 
of  the  agreement,  companies  are  con- 
solidated.    (Applies    to  ih.  §  3892). 

New  York.  R.  S.  1896  (liirdseye's). 
Railroad  Law  §  71  :  Form  of  consoli- 
dation substantially  that  stated  iit  text. 
Approval  of  stockholders  owning  two- 
thirds  of  stock  of  each  corporation 
is  nece.«sary.  Business  Corp.  Law. 
(amended  to  1901)  §  9,  contains  similar 
provisions. 

North  Dakota.  Rev.  Codes  1899, 
§  2954 :  Articles  stating  the  terms  of 
consolidation  must  be  approved  by  each 
corporation  by  a  vote  of  the  stockholders 
owning  a  majority  of  the  stock,  at  a 
meeting  called  for  the  purpose. 

Oklahoma.  Stat.  1893,  ch.  17,  §  15, 
par.  1016:  Articles  stating  the  terms 
of  consolidation  must  be  approved  by  a 
vote  of  stockholders  holding  a  majority 
of  the  stock  at  annual  or  special  meet- 
ing, or  by  consent  of  such  stockholders 
in  writiniT. 


Ohio.  Bates' Anno.  Stat.  1787-1902, 
§  3381  :  Directors  enter  into  joint  agree- 
ment under  corporate  seal  prescrib- 
ing terms,  conditions,  etc.,  which  must  be 
submitted  to  stockholders  of  each  com- 
pany at  meeting  called  for  the  purpose ; 
vote  by  ballot,  and  if  two-thirds  of  all 
the  votes  cast  at  meeting  be  for  adop- 
tion, the  companies  may  consolidate. 

Pennsylvania.  Bright,  Pur.  Dig., 
1894,  §  108,  p.  1801:  Directors  agree 
jointly  under  corporate  seal  of  each  cor- 
poration, and  prescribe  terms  and  con- 
ditions. Agreement  is  submitted  to 
stockholders  of  each  corporation  at  a 
meeting  called  separately  ;  vote  by  bal- 
lot, and  if  a  majority  of  all  the  votes 
cast  at  each  of  such  meetings  shall  be 
in  favor  of  the  agreement,  companies 
may  consolidate.  (Applies  to  p.  1801, 
§  107,  "Consolidation.") 

76.  §  115,  p.  1803:  Directors  agree 
jointly,  prescribe  terms,  etc.  Meeting 
of  each  corporation  called  separately. 
Agreement  submitted  to  stockliolders  ; 
vote  by  ballot.  Two-thirds  of  all  votes 
of  stockholders  required.  (Applies  to 
ib.  §   114,  p.   1803.) 

See  also  tl>.  §  126,  p.  1805;  §  182, 
p.  1814. 

South  Carolina.  R.  S.  1893,  §  1616: 
Directors  enter  into  joint  agreement 
prescribing  terms,  conditions,  etc. 
iVgreement  is  submitted  to  stockhold- 
ers of  each  corporation  at  a  meeting 
thereof  called  separately  for  that  pur- 
pose. Vote  by  ballot.  Majority  of 
votes  of  all  the  stockholders  is  required. 
See  also  ib.  §  1546. 

South  Dakota^  Anno.  Stat.  1901, 
§  3906  :  Terms  and  conditions  agreed 
upon  by  directors  but  must  be  ratified 
and  approved  by  persons  holding  or 
representing  a  majority  in  amount  of 
the  capital  stock  of  each  of  said  com- 
panies, at  annual  or  special  meeting  or 
by  approval  iu  writing  of  a  majority  in 
interest  of  the  stockholders  of  each 
company. 

Tennessee.    Code  1896,  §§  1523, 1524  : 

87 


§-.2 


INTERCOUPORATK    RELATIONS. 


[VAin    I. 


corporation,  the  nmiilxT  ami  names  of  tliu  directors  and  other 
oflicers,  the  ntuuber  and  par  value  of  the  shares  of  the  capital 
stock,  and  the  manner  of  converting  the  cajtital  stock  of  tlie 
constituent  companies  into  that  of  the  consolidated  corpora- 
tion, with  such  other  details  as  they  may  deem  necessary  to 
perfect  the  new  organization  and  the  consolidation  of  the 
companies. 

(2)    The  agreement  of  the  directors  is  next  8ul)niitteil  to 
thf*  stockholdtTH  of  t-aeh  of  the  compiinies  at  a  nuctinL'  thereof 


Agrecitirut  shall  t)C  iu  writing  ftixl  wt 
forllt  the  trniis  and  cumlitiou*.  Mimt 
Im)  approved  \}y  a  mujurtiif  of  the  tttick- 
h<>l<l<<n  of  ruch  of  the  cnnnuliilaling  com- 
paitioM  At  a  rvi^ular  ni««tiiif;.  (Applio* 
to  S  1522.  Co«lo    1896,  "  CouiM)liilalioU-") 

§  l.%.1.'):  Agrooment  mtut  l>«  ap- 
provotl  t>y  nuijuiit^  of  tho  •tockhoMert 
ut  I'acii  of  tho  roii.iolikJaUnf;  mlriKuls. 
(Appliin  to  S  IW2,  Code  18^6,  "  Con- 
•olidatioii.") 

Utah.  iMwt  1901.  ch.  26.  p.  20. 
S  6;  Aurtoiuent  must  ajiccifjr  whether 
there  nhall  l>o  a  n>erjjer  of  one  or  more 
roiiipaiiicit  into  another  without  crea- 
tion of  new  company  or  a  coniuiliilntion 
forniiii;j  n  new  (-oii!M>liilate<l  cor|>oratii>n. 
Aj;reeni«nt  niinit  he  ratitlcii  hj  slock- 
holiier;*  of  donioittic  corfMimtion  and 
olso  hy  stockholilfrs  of  any  foreign  cor- 
poration r(>u.«olidating.  in  the  manner 
preacriliod  hy  the  laws  of  the  jurisdiction 
where  such  corporation  was  organized. 
Tvco-thirtis  vote  rfijuired  for  consolida- 
tion of  husiness  corporations.  K.  S. 
189«,  §  340. 

Washinijton.  Ballingcr's  Anno. 
Code  and  Stat.  1897.  §  4304  :  Articles 
stating  term.-*  of  consolidation  mn.it  be 
approved  hy  each  corjwratiou  hy  a  vote 
of  the  stockholders  owning  a  fiKyiri/y 
of  the  stock,  at  annual  or  sj>€cial  meet- 
ing, or  hy  consent  in  writing  of  such 
stockholders  annexed  to  snch  articles. 

West  Vinjinia.  Code  1899  (as 
amended  by  acts  1901.  108).  ch.  54, 
§  53 :  Consolidation  may  be  effected 
upon  term.s  .and  conditions  .igrced  upon 
by  stockholders  owning  a  mnjoritif  of 
the  stock  in  each  companv  so  consoli- 

88 


dating  (Applied  to  1901  Act  of  •'Con- 
iiolidalion."  ( I ))  l>ir«rtor»  agreo  on 
terniJ  and  ctmditions  of  runaolidatioo. 
anil  to  b«  effective  agreement  mast 
)>e  ratified  by  the  votes  of  ttro-thirdt 
in  amount  of  all  tho  stockholders  of 
eath  of  the  companies  either  at  annual 
or  special  meeting  (Applies  to  1901 
Act  of  ••  Cons«didation."  (2))  Consoli- 
dation mar  l>e  had  u(M>n  such  terms  u 
Boarls  of  Directors  agree  U|>on  with 
the  consent  of  the  stockhohlers  owning 
a  mnjorii^  of  the  st<N-k  of  e.ich  of  tho 
corporations  intereste<i.  (Applies  to 
1901  Act  of  "  Cons«didation."  (3)) 

iruronfin.  Stat.  1898,  %  183.1  (m 
amended  by  I.4»ws  1899,  ch.  191):  Arti- 
cles itating  the  terms  of  consolidation 
must  be  approved  by  each  coqK>ration 
by  a  vote  of  the  stockh'dilors  holding 
a  miij'yrity  of  the  st'>rk  at  annual  or 
special  meetings  or  by  the  consent  in 
writing  of  such  stockholder*. 

n>./n/ii';.  K.  8.  1899.  §  3202: 
Trustees  of  corporations  enter  into 
agreement  under  corporate  seal  of  each, 
prei<cribing  the  terms  and  conititions 
thereof,  etc..  and  all  tho  stockhiddcr*  in 
either  of  such  corporations  must  ratify. 
(.Xpplies  to  (A)  in  1899  "  Consolida- 
tion   Act.") 

§  3206:  Trnstees  or  directors  agree 
np)n  term.i  and  conditions  which  must 
be  ratifie<l  and  npprovc<l  by  a  mnjnritif 
in  amount  of  the  capital  stock  of  eHch 
of  companies  at  nnnu.al  or  special  meet- 
ing or  by  approval  in  writing  by  a 
m.ijority  in  interest  of  such  stock- 
holders. (Applies  to  (B)  in  1899, 
"  Consolidation  Act.") 


CHAP,    v.]  METHOD    OP    CONSOLIDATION.  §  53 

called  for  the  purpose  of  taking  the  same  into  consideration, 
after  due  notice  to  the  respective  stockholders. 

(3)  At  the  stockholders'  meeting  the  agreement  is  con- 
sidered and  a  vote  by  ballot  taken  for  its  adoption  or  rejec- 
tion. If  the  prescribed  proportion  of  the  stock  of  each 
company  is  voted  for  the  adoption  of  the  agreement,  then 
that  fact  is  duly  certified  to,  and  the  agreement,  or  a  certified 
copy,  thereof,  is  filed  in  the  office  of  the  Secretary  of  State, 
thus  completing  the  consolidation. 

In  some  of  the  States,  as  will  be  observed,  the  written  con- 
sent of  a  majority  or  other  proportion  of  the  stocivholders 
is  required  instead  of  their  votes  at  stockholders'  meetings. 
These  statutes  treat  consolidation  as  being  effected  by  the  act 
of  the  directors,  which  the  stockholders  may  approve  by  their 
individual  assents  as  well  as  by  their  votes. 

Where  the  act  authorizing  consolidation  uses  general  lan- 
guage and  does  not  clearly  designate  the  means  by  which  the 
result  is  to  be  obtained,  the  method  of  consolidation  is  to  be 
determined  by  the  contracting  corporations.^ 

Statutes  of  some  of  the  States  authorizing  the  consolidation 
of  corporations  provide  that  they  "  may  consolidate  their 
capital  stock  "  and  under  such  a  statute  it  was  said,  in  a  New 
Jersey  case,  that  the  purchase  by  one  corporation  of  sub- 
stantially the  entire  capital  stock  of  another  for  the  purpose 
of  consolidation,  followed  by  practical  consolidation,  would 
be  held  in  equity  to  be  a  consolidation  in  accordance  with 
the  statute.^ 

§  63.  When  Consolidation  is  effected.  —  As  the  steps 
pointed  out  by  the  consolidation  statute  must  be  taken,  in 
addition  to  the  execution  of  the  agreement,  to  make  a  con- 

^  Dimpfel    v.    Ohio,    etc.     R.    Co.,  consolidation,  and  the  consequent  actual, 

9  Diss.  (U.  S.)  127  (1879),  (8  Rep.  641).  practical    and    absolute    consolidation, 

2  Williamson  v.  New  Jersey  South-  completely  recognized  in  all  things, 
ern  R.  Co.,  26  N.  J.  Eq.  401  (1875)  :  will  be  held  in  equity  to  be  a  consolida- 
"  In  fact,  the  consolidation  was  actual  tion  in  accordance  with  the  powers  of 
and  complete  in  all  respects.  The  the  Acts.  If  the  proceedings  are  lack- 
purchase  and  sale  and  delivery  of  ing  it  is  not  in  substance  but  in  form 
the  stock  (sixteen-seventeenths  of  the  merely ;  the  consolidation  has  been 
whole),  by  virtue  of  the  legislative  au-  fully  acquiesced  in." 
thoritv   referred  to,  for  the  purpose  of 

89 


§  64  INTEUCUUI'DUATK    HKLATIOSS.  [I'AUT    I. 

solidation  effectual,  an  at;rcemcnt  to  coiiaolidato  docs  not 
Work  a  consolidation.  The  status  uf  the  conipanicH  is  not 
alTccted  until  the  consolidatiou  is  completed.*  The  precise 
time  when  that  result  takes  place  is  generally  prescribed 
by  the  statute,  and  it  is  usually  provided  th;it  the  cor()ora- 
tions  hIkiH  bo  consolidated  upon  filing  the  agreement  of  con- 
solidation in  the  oflico  of  the  Secretary  of  State.  Under  such 
n  statute  it  has  been  held  that  corporations,  parties  to  an 
agreetnent  to  consolidate,  continue  in  the  full  enjoyment  of 
their  franchises  and  may  accept  subscriptions  to  their  capital 
stock  until  the  agreement  is  filed.* 

§  64.  Construction  of  Statatea  prescrlbLng  Mode  of  Con- 
solidation. —  Under  a  statute  authorizing  the  consolidation  of 
corporations,  u[)on  the  written  consent  of  three-fourths  in 
value  of  the  stock  of  such  corporations,  the  proportion  is 
based  upon  the  number  of  shares  issued  and  not  upon  the 
number  authorized  ;  ^  and  under  the  same  statute  it  was  held 
that  the  faot  that  trustees  consented  as  the  legal  owners  of 
stock  did  not  affect  the  validity  of  a  consolidation.* 

Railway  companies  consolidating  under  the  Ohio  consolida- 
tion act,  may  agree  upon  the  number  and  amount  of  shares 
of  the  proposed  consolidated  company,  may  classify  such 
stock  into  "common"  and  "preferred,"  and  may  issue  a 
greater  or  less  number  of  shares  than  the  aggregate  of  the 
constituent  companies  in  onler  to  secure  a  just  and  e<piit- 
able  division  uf  property  between  the  sliarchuldcrs  of  siieh 
corporations.^ 

»  Shrewshnrj,  etc.  R.  Co.  r.   Stonr  •  Market  St  R.  Co  r.  FIoIlmaD,  109 

Valley   R.   Co..  21    KnR.   L.  &  Eq.  628  Cal.  571  (1895).  (42  I'ac.  Rep.  225). 

(1853).  2  De  Gex,  M.  &  O.  866.  *  Market  St.   R.  Co.  i-.  Hellm.in.  109 

a  Mansfield,  etc.  R.  Co.  r.  Brown,  26  Cal.  571  (1895),  (42  I'.oc.  Rep.  225). 

Ohio  St.  22.3    (1875).     In    McCliire  f.  It  h.is  also  been  hcM   in  a  snit   by  a 

Peoples  Freight  R.    Co.,  90  Pa.  .'^t.  269  stockholder  to  enjoin  an  attempted  con- 

(1879).  where  a  sulwcription  wa.s  made  solidation  that  the  record  of  stockholder* 

after   the  agreement  for  consolidation  npon   the  .itock   book   mn.it  determine 

had  been  siirned,  but  before  it  was  filed  the  person.'*  entitled   to  vote  npon  the 

in  the    office   of   the  secretary   of   the  question   of  consolidation.     I>,inj:an   «'. 

Commonwe.ilth,  it  w.-w*    held  that    the  Fmnklyn.   29  Abb.   N.  C.    102   (1892), 

filing  of  the  agreement  in  the  office  of  (20   N.    Y.  Snpp.  404) 

the  secretary  was  not  necessary  to  vali-  '  Rnrke  r.  Cleveland,  etc.  R.  Co.,  22 

date  the  subscription.  Weekly  Law  Bulletin  (Ohio),  1 1  (1889). 
90 


CHAP,    v.]  METHOD    OF    CONSOLIDATION,  §  55 

A  statute  authorizing  the  directors,  with  the  assent  of  three- 
fifths  of  the  stockholders  of  the  original  corporations,  to  effect 
a  consolidation,  does  not  authorize  them  to  place  stock  of 
non-participating  stockholders  on  an  inferior  footing  to  their 
own  nor  to  transfer  the  rights  of  such  stockholders  to  a  third 
person  without  their  consent.^ 

A  statute  2  providing  that  any  railroad  corporation  may- 
consolidate  its  stock  with  that  of  a  corporation  in  an  adjoin- 
ing State  "  upon  such  terms  as  may  be  agreed  upon,  in  ac- 
cordance with  the  laws  of  the  adjoining  State,"  does  not 
require  that  a  meeting  of  the  stockholders  of  a  domestic 
corporation,  for  the  purpose  of  acting  upon  a  proposition  to 
consolidate  with  a  corporation  of  an  adjoining  State,  should 
be  called  and  conducted  in  accordance  with  the  laws  of  such 
State,  but  only  that  the  terms  of  consolidation  should  not 
conflict  with  those  laws.^ 

§  55.  What  Statutory  Proviaions  Conditions  Precedent. 
When  corporations  undertake  to  consolidate,  the  preliminary 
steps  which  the  statute  points  out  —  in  so  far  as  they  con- 
stitute conditions  precedent  as  distinguished  from  mere  di- 
rections —  must  be  taken  before  the  consolidation  takes  effect 
and  the  new  company  comes  into  existence.  Thus,  if  the 
statute  requires  the  consolidation  agreement  or  a  certificate 
of  consolidation  to  be  filed  with  the  Secretary  of  State,  until 
that  is  done  the  new  corporation  does  not  exist.  "  The  new 
corporation,  deriving  its  franchises  from  the  State  law,  cannot 
act  until  the  State  has  the  requisite  evidence  of  its  claim  to 
corporate  existence.  The  statute  is  the  only  source  of  such 
existence  and  its  conditions  are  imperative."*  Where  it 
appeared,  however,  that  the  certificate  was  deposited  with 
the  Secretary  of  State,  it  was  held  that  the  law  would  presume 
that  it  was  recorded,  and  that  the  Secretary  could  be  com- 

1  Fee  V.  New  Orleans  Gas  Light  Co.,     Mich.   507  (1874).     See  also  Common- 
35  La.  Ann.  413  (1883).  wealth  v.   Atlantic,  etc.  R.  Co.,  53  Pa. 

2  Indiana  Rev.  Stat.  (1894),  §  5257.      St.  9  (1856)  ;  Mansfield,  etc.  R.  Co.  v. 
8  Bradford  v.  Frankfort,  etc.  R.  Co.,     Brown,  26  Ohio  St.  223  (1875)  ;  Mans- 

142   Ind.   383    (1895),    (40   N.  E.  Rep.     field,  etc.  R.  Co.  v.  Drinker.  30  Mich. 
741).  124  (1874). 

*  Peninsular   R.   Co.   v.   Tharp,   28 

91 


§55 


INTERCORPOR.VTE   RELATIONS. 


[part  I. 


pelled,  by  mandamus,  to  do  any  necessary  ministerial  act  in 
tlie  matter.*  Where  the  statute  provides  for  the  paynu-nt  of 
fees  before  the  consolidation  agreement  can  be  filed  or  re- 
corded the  payment  of  such  fees  is  essential  to  consolidation.' 
The  consolidation  agreement  must  follow  the  provisions  of 
the  statute,  and  it  has  been  held  that  a  failure  to  set 
forth  therein  the  residences  of  the  directors  of  the  consoli- 
dated company,  as  required  by  the  statute,  renders  a  con- 
solidation invalid  when  attacked  in  </U'>  warranto  proceedings 
by  the  State.'  The  election  of  a  new  board  of  direetors  has 
also  been  held,  under  one  statute,  to  constitute  a  condition 
precedent  to  the  aoiuinition,  by  the  con.solidatcd  company,  of 
the  rights  and  franchises  of  tlif  (•uii«*ti»ii.iif  CMmt'atiii-.H.* 


•  In  C<)mnii>nwe«Uh  r  Allantir.etr 
R.  Co..  &3  I'a.  St.  9  ( IHtiC),  it  wm  held 
that: 

(n)  Filing  in  l\w  i>fflt-«  of  the  Mcr*- 
Xmxj  u(  the  Cutnmonwcalth  the  r«r- 
ttfloate  of  coniio|iilatit>n  of  r«rt«in 
railroail  ron){>.niii0«  coiiiititut««i  thr  one 
com|>aiiv  thu«  i-reatctl  a  legal  cor^Mira- 
tion  iu  i'eun«vlrania. 

('<)  In  a  '/>«'  wiirranta  apkinitt  inch 
company  "nultul  r«ror</"  l»  well  replied 
to  a  ple:i  that  the  defendants  heranie  a 
corporation  liy  contract  of  coniolidation 
ander  »aid  net. 

(f)  It  lieinjj  prored  that  the  certifi- 
cate wait  d«'|M)!»itei|  with  the  necretarj 
of  the  Commonwealth  in  hii  office,  the 
preflomption  is  that  he  filed  the  same 
of  record  and  that  it  remains  of  record 
there. 

((/)  Under  a  rejoinder  that  there  is 
•nch  a  record  with  a  fprout  patrt  ptr 
nciirdum,  upon  in8|>ection  of  the  record 
and  sarh  proof,  judgment  will  be  en- 
tered for  the  defemlants. 

(f)  A  mamlamn.s  will  issue,  if  neces- 
sary, to  thi'  secretary,  to  add  the  date 
of  filing  and  any  other  necessary  act  in 
the  premises. 

>  State  r.  Chicago,  etc.  R.  Co..  U5 
Ind.  229  (1896).  (43  N.  E.  Rep.  226). 
See  also  Ashley  i'.  Ryan,  49  Ohio  St. 
504  (1892),  (31  N.  E.  Rep.  721),  ajffirmtd 

92 


IM  U.  S.  436  (liiM).  (U  Snp.  Ct.  Rep. 
865). 

■  State  V.  Vanderbilt.  37  Ohio  St. 
645    (ISA-.*)      "A    fatal    defect    in    the 

organication  of  this  company  i*  f<  tind 
in  the  fart  that  under  Her.  Suu.  $  .rHi 
(Ohio),  the  ciirei  tort  of  the  conoolidat- 
ing  companies  must  set  forth  in  their 
joint  agre«ment  the  places  of  residenca 
of  the  new  diret-tora,  as  wrll  m  their 
namher  Thi.*  provision  of  the  ttatute 
has  not  been  complied  with.  Thrre  is 
no  designation  of  %xir  sach  \t\zr9  of 
residence.  We  are  not  to  sppculate  aa 
to  the  propriety  of  this  prorision  nor 
as  to  the  manner  it  l>«came  im-orpo- 
rated  into  the  xt.atutos  in  \X%  present 
form.  It  is  suffii  lent  to  say  that  the  pro- 
rision is  in  no  setme  director}-  and  that 
a  compliance  with  it  is  indi.<>pen!table". 

♦  .Man!ifi»>M,  etc.  R.  Co.  r.  Drinker. 
30  Mirh  126  (1874)  :  "By  that  law  it 
will  be  seen  that  the  corporations  were 
not  to  become  merge«l  nntil  the  agre«^ 
ment  for  consolidation  was  duly  filed 
in  the  oflSce  of  the  Secretary  of  State 
This  was  not  done  nntil  May  2.1,  l'«71. 
Before  that  time  only  an  inchoate  agree- 
ment for  consolidation  existed  and  no 
merger ;  and  it  was  impossible  that 
any  action  as  a  consolidated  corpora- 
tion could  take  place.  The  circuit 
judge  held  that  the  election  of  a  board 


CHAP,    v.]  METHOD    OF   CONSOLIDATION.  §  56 

§  56.  What  Statutory  Provisiona  not  Conditiona  Precedent.  — 
A  provision  in  a  consolidation  act  requiring  each  of  the  con- 
solidating corporations  to  file  with  the  Secretary  of  State 
a  resolution,  adopted  by  the  corporation,  accepting  the  provi- 
sions of  the  act  before  they  can  consolidate,  is  directory,  and 
a  failure  to  comply  therewith  does  not  affect  the  consolidation, 
as  between  stockholders  of  a  constituent  corporation  and 
bondholders  of  the  consolidated  company  .^  A  statute  author- 
izing the  consolidation  of  a  domestic  corporation  with  a  corpo- 
ration of  an  adjoining  State  "  in  accordance  with  the  laws  of 
such  State  "  does  not  require  that  all  the  enactments  concern- 
ing consolidation  in  such  other  State  should  be  strictly  fol- 
lowed ;  2  nor  are  statutory  provisions  relating  to  incorporation 
applicable  to  foreign  corporations  consolidating,  under  legis- 
lative authority,  with  domestic  ones.^ 

The  provisions  of  a  general  incorporation  act  requiring 
directors  to  be  stockholders  do  not  apply  to  a  consolidated 
corporation  formed  under  a  special  act  containing  no  such 
provision.*  Where  the  consolidation  act  did  not  require 
notice  to  be  given  to  the  directors  of  the  meeting  of  the  board 
to  act  upon  an  agreement  for  consolidation,  and  it  was  not 
shown  that  the  articles  of  association  or  by-laws  of  the  com- 
pany required  such  notice,  the  unanimous  action  of  a  majority' 
of  the  directors,  being  a  quorum,  at  a  meeting  held,  without 

of  directors  was  a  condition  precedent  be  held  to  be  directory,  and  designed 

to   its    acquiring   the  rights  and  fran-  to  secure  evidence  that  each  of  the  com- 

chises  of  the  respective  companies,  and  panics  intending  to  consolidate  recog- 

in  that  he  is   supported  by  the  unam-  nized  the  statute  as  the  sole  authority 

biguous  provisions  of  the  statute  itself."  for  such  consolidation,  and  tlieir  obliga- 

1  In  Leavenworth  v.  Chicago,  etc.  R.  tion  to  be  governed  by  its  provisions. 

Co.,  134  U.  S.  688  (1890),  (10  Sup.  Ct.  If  the  other  essential  provisions  of  the 

Rep.  708),  where  a  provision  for  tiling  act    were  complied   with,  it  does   not 

with  the  Secretary  of  State,  by  each  of  necessarily  follow  that  the  whole   pro- 

the  consolidating  companies,  of  a  reso-  ceediug  would  be  void   for  a  failure  to 

lution  accepting  the  provisions  of  the  comply  with  this  direction  of  the  act." 
act,  passed  by  a  majority  of  the  stock-  ^  Bradford  v.  Frankfort,  etc.  R.  Co., 

holders,   at   a   meeting  called   for   the  142  lud.  383  (1895),  (40  N.  E.  Rep.  741). 
purpose,  was  not  observed,  it  was  held  ^  Monroe   v.   Fort   Wayne,   etc.  R. 

that  its  nonobservance  did  not  render  Co.,  28  Mich.  271  (1873). 
the    consolidation    void.       The    Court         *  Camden  Safe  Deposit,  etc.  Co.  v. 

quoted   with    approval    the    following  Burlington    Carpet   Co.  (N.   J.    1895), 

language    of   the    Circuit    Court :    "  It  33  Atl.  Rep.  479. 
is   also   a    provision   which    may   well 

93 


S  57 


INTERCORPORATE    RELATIONS. 


[part  I. 


notice  to  all  the  directors,  was  hold  valid.'  Tlie  certification 
upon  the  af^rcement  of  consolidation  by  the  secretaries  of  the 
constituent  corporations  that  it  has  been  adopted  bj  their 
respective  companies  is  not  essential."''  A  statutory  pro- 
vision rcfiuirinir  notice  of  consolidation  to  be  published  "one 
month"  was  held  ,to  be  complied  with  by  publication  in  five 
consecutive  issues  of  a  weekly  paper  and  by  publication  from 
October  ISth  to  Nov.  ITtli,  inclusive,  in  a  daily  papcr.^ 

§  57.     Statutory  Provisions  for   Appraisal  of    Stock.  —  While 

a  stockholder  iti  a  corporation  orjranized  while  general  consol- 
idation statutes  are  upon  the  statute  book,  takes  his  stock 
subject  to  the  possibility  that  the  prescribed  majority  may 
efTect  consolidation  without  his  consent,  the  change  is  still  of 
a  fundamental  nature  and  may  materially  affect  his  interests. 
Recognizing  this  position  of  minority  stockholders  the  policy 
of  several  States,  as  indicated  in  their  consolidation  acts,  is  to 
provide,  as  a  part  of  the  process  of  consolidation,  for  the  ap- 
praisal of,  and  payment  at  the  appraisement  for,  the  shares  of 
stockholders  who  arc  imwilling  to  j)articipate  in  the  new  enter- 
prise.*    As  said  by  the  Supreme  Court  of  Ohio  in  Pittsburg, 


»  Wella  V.  Rodgers,  fiO  Mich.  527 
(1886).   (27  N.  W.  K«.p.  671). 

'^  riiiiiizy  V.  Augn.sta,  etc.  R.  Co.,  62 
Fed.  68+  (1894). 

An  apreement  for  the  consnlidation 
of  two  railroad  companies  which  wm 
duly  sijjned  and  sealed  hy  the  pre.^iilcnt 
after  the  meetinijs  of  the  directors  of 
both  companies  had  been  liehl  and  tiie 
consolidation  oniered,  was  not  rendered 
invalid  by  the  fact  that  it  bore  date 
prior  to  the  meeting  of  the  director* 
of  one  company.  Wells  v.  Rodgers, 
60  Mich.  555  (1886).  (27  N.  W.  Rep. 
671). 

8  Market  St.  R.  Co.  v.  Hellman.  109 
Cal.  571  (189)),  (42  Pac.  Rep.  225). 

♦  The  Dtlnware  Statute  (Gen. 
Corp.  Law  1899.  §  56)  applicable  in 
the  consolidation  of  business  corpora- 
tions is  illustrative  of  appraisal  statutes  : 
"  If  any  stockholder  in  either  corpo- 
ration consolidating  as  aforesaid,  who 
objected  thereto  in  writing,  shall  within 

94 


twenty  d.ays  after  the  agreement  for 
con.v}ii(lation  hxt  been  tiled  and  recorded 
B.s  aforesaid,  demand  in  writing  from 
the  con.Holidated  corjforation  payment  of 
his  stock,  said  t^orixiration  shall  within 
three  montiis  thereafter  j)ay  him  the 
value  iif  his  stock  at  the  d.ite  of  such 
consolidation  ;  in  case  of  disagreement 
as  to  tlje  value  thereof  it  shall  bt-.-usier- 
tained  by  three  disinterested  persons, 
one  of  whom  shall  be  chosen  by  the 
BttK-khfdiler,  one  by  the  directors  of  the 
consolidated  corp)ration,  and  the  third 
by  the  two  selected  as  aforesaid  ;  and  in 
case  the  said  award  shall  not  be  paid 
within  sixty  days  from  the  making 
thereof  and  notice  given  to  said  stock- 
holder and  consolidated  corporation,  the 
amount  of  said  award  shall  be  evi- 
dence of  the  amount  due  by  said  corpo- 
ration and  may  be  collected  as  other 
debts  are  collectible,  and  on  receiving 
payment  of  the  award  said  stockholder 
shall  transfer  bis  stock  to  the  consoli- 


CHAP,    v.] 


METHOD    OF    CONSOLIDATION. 


§57 


etc.  R.  Co.  V.  Garrett}  "  From  the  first  statute  to  the  present, 
authorizing  the  consolidation  of  railroad  companies  in  this 
State,  it  has  been  the  policy  of  the  legislature  to  require 
payment  to  be  made  to  the  stockholder  of  the  value  of  his 
stock  when  he  refuses  to  convert  it  into  the  stock  of  the  new- 
company." 


dated  corporation  to  be  disposed  of  bj 
the  directors  thereof  or  to  be  retained 
for  the  benefit  of  the  remaining  stock- 
holders." 

See    also : 

Alabama:  Acts  1900-'01,  p.  237, 
amending  Code  1896,  §  1166  (rail- 
roads). 

Connecticut:  Pab.  Acts  1901,  ch.  157, 
§  51.  Almost  identical  with  Delaware 
statute. 

Nebraska:  Comp.  Stat.  1901,  §  1764, 
p.  390  (railroads). 

Neio  York:  Business  Corp.  Law  as 
amended  to  1899,  §  9,  is  similar  to  the 
Connecticut  and  Delaware  statutes  ex- 
cept that  it  provides  for  the  appoint- 
ment of  appraisers  by  the  courts  instead 
of  by  the  parties  and  that  both  the 
stockholder  and  the  consolidated  com- 
pany may  apply  for  their  appointment. 

In  Langan  v.  Frankly n,  20  N.  Y. 
Supp.  404  (1892),  it  was  held  that  this 
statute  did  not  afford  a  dissenting  stock- 
holder his  exclusive  remedy  but  that  he 
might  seek  relief  in  equity. 

As  to  whether  stockholder  is  entitled 
to  interest  on  appraised  value  of  stock, 
see  Trask  v.  Peekskill  Plow  Works, 
6  Hun  (N.  Y.),  236  (1875). 

New  Jersey:  Corp.  Act  1896,  §  108. 
This  act  is  similar  to  that  of  New 
York  in  its  form  of  procedure  but  ap- 
plied only  to  such  corporations  author- 
ized to  consolidate  as   "  shall  have  the 


right  to  exercise  any  franchise  for 
public  use." 

Ohio :  Anno.  Stat,  as  amended  to 
1902,  §  3388  (railroads).  Under  this 
act  it  is  the  duty  of  the  railroad  com- 
pany proposing  to  consolidate  to  ascer- 
tain who,  if  any,  of  its  stockholders, 
refuse  to  convert  their  stock  into  stock 
of  the  consolidated  corporation  and  to 
cause  the  value  of  the  stock  of  any 
who  refuse  to  be  ascertained  and  paid 
"  before  the  consolidation  takes  effect ; " 
and  it  was  held  that  a  failure  to  make 
demand  before  tlie  proposed  consoli- 
dated company  acquired  the  status  of 
an  incorporated  company  or  a  failure  to 
make  an  attempt  to  agree  with  the 
company  as  to  the  value  of  the  stock, 
did  not  defeat  the  right  of  a  stock- 
holder, refusing  to  convert  his  stock,  to 
be  paid  its  full  value.  Pittsburgh,  etc. 
R.  Co.  V.  Garrett,  50  Ohio  St.  405 
(1893),  (34  N.  E.  Eep.  493). 

Pennsylvania  :  Laws  1901 ,  p.  349-352, 
§5. 

South  Carolina :  R.  S.  1893,  §  1622 
(railroad  companies). 

Wyoming:  R.  S.  1899,  §  3022,  (rail- 
roads). 

England:  Companies' Clauses  Con- 
solidated Act  (8  &  9  Vict.  ch.  16,  §§  128- 
134),  construed  in /le  Anglo  Italian  Bank, 
L.  R.  2  Q.  B.  452  (1867). 

1  Pittsburgh,  etc.  R.  Co.  i-.  Garret,  50 
Ohio  St.  414  (1893),  (34  N.  E.  Rep.  493). 


95 


§  58  INTtliCOUroUATE    UKLATlONd.  [I'AUT    I. 


CHAPTER   VI. 

EFFECT    OF    rONSOLIDATION    UPON    STATU3   OP   CONSOLIDATINO 
CORPORATIONS   AND   TOEIR  STOCKHOLDERS. 

§  5A.     KfTcct  of  Conaoliilation  nuLj  b«  Foaion.  Merf;er  or  Continned  Rxiatence. 

§  5'J.     Kffuct  uf  CuuHoliilAtioii  dc(>ODiJa  upon   Torni*  of  Cutuoliiiatiuii  Act. 

{  CO.     At  a  Gciioral  Uulo,  KCfoct  uf  Cuoaolidation  it  Creatiou  of  New  Corp<jr*- 

tinti  and  DiMolution  of  ConttituenU. 
§  01.     r.XL«>ptiuiijt  to  the  Kulo  —  Merger  anil  Continoanre  of  Corporaliona. 
S  C2.     Construction  of  rartu-ular  CotuulidaUuo  AcU.     Caau*  aliuwiug  Crtwtion 

of  l>ii«tinit  Corporation. 
I  63.     Coii.ttruition  of  i'articular  Cunaolidation  Actji.     Caaca  of  Abaorptioo  or 

McrjC'-r. 
§  C4.     KfTcttof  Valid  CouauIidatioD  upon  Stockholdera  of  Cooatitaent  Corpor»> 

tiona. 

§  f)S.  Effect  of  Conaolidatloo  may  be  Fualon,  Merger  or  Coo- 
tinued  Exiatence. — As  already  shown,  the  term  ''consolida- 
tion "  as  used  in  statiitos  and  cliartcTS  authorizini^  the  union 
of  cor[)orations  has  aoiuircd  no  wfll-duliued  meaning  hut  is 
used  to  d«'scrihc  tliree  forma  of  cor|)orato  conjunction  :  ' 

(1)  The  dissolution  of  all  tho  constituent  corporations  and 
the  creation,  at  the  same  instant,  in  their  stead,  of  a  new  and 
distinct  corporation,  with  franchist'S,  privileges  and  proj>orty 
derived  from  those  passing  out  of  existence. 

(2)  The  mer^'ing  of  one  corporation  in  anotlior,  hy  which 
the  former  only  is  dissolved  and  the  latter  continues  its  ex- 
istence, with  the  franchises,  privileges  and  projxjrty  of  the 
merging  corporation  added  to  its  own. 

(3)  The  continuance  of  all  the  consolidating  corporations, 
for  all  purposes  or  for  formal  purposes  connected  with  the 
winding  up  of  their  afTairs. 

Consolidating  corporations  often  possess  valuable  privileges 
and  immunities  which  the  consolidated  corporation  is  desirous 
of  succeeding  to,  but  which  the  courts,  as  a  rule,  do  not  favor,' 
80  that  the  question  whether  the  effect  of  a  particular  consoli- 

»  See  antf,  §  8:  "Uses  of  the  Term  U.  S.  20  (1901).  (21  Sup.  Ct.  Rpp.  240); 
dlstinnnished"  St.  Loui.-*  etc.  U.  Co.  r.  Rerrv,  113  U.  S. 

^  Yazoo,  etc.   R.  Co.  r.  Adams,  180     405  (1885),  (5  Sup.  Ct.  Rep.  529). 

96 


CHAP.  VI.]        EFFECT  OF  CONSOLIDATION.  §  59 

dation  is  to  dissolve  the  constituent  companies  is  often  of 
much  importance. 

§  59.  Effect  of  Consolidation  depends  upon  Terms  of  Consoli- 
dation Act.  — The  word  "  consolidation  "  being  applied  to  dif- 
ferent processes  producing  different  results,  the  effect  of  a 
consolidation  authorized  by  statute,  upon  the  existence  and 
status  of  the  constituent  corporations,  depends  entirely  upon 
the  terms  and  provisions  of  such  statute  and  the  acts  and 
agreements  of  the  consolidating  corporations  pursuant  thereto.^ 

In  People  v.  New  York,  etc.  R.  Co!^  the  New  York  Court  of 
Appeals  said :  "  It  is  perfectly  competent  for  the  legislature, 
in  consolidation  acts,  to  declare  what  shall  be  the  status  of 
domestic  corporations  which  shall  avail  themselves  of  their 
provisions,  and  also  of  the  consolidated  company.  Whether 
the  consolidation  shall  create  a  mere  business  union  between 
the  constituent  companies,  leaving  them  in  existence  as  cor- 
porations, or  whether  it  shall  operate  as  a  surrender  of  the 
corporate  franchises  and  the  extinguishment  of  their  corpo- 
rate existence,  and  as  creating  a  new  corporation  combining, 
to  the  extent  permitted  by  the  act,  the  powers  of  the  corpora- 
tions out  of  which  it  was  formed,  and  vesting  in  it  the  property 
of  the  constituent  companies,  depends  upon  the  legislative 
intention." 

The  Supreme  Court  of  the  United  States  has  said  that  "  if 
in  the  statutes  there  be  no  words  of  grant  of  corporate  powers 
it  is  difficult  to  see  how  a  new  corporation  is  created.  If  it  is, 
it  must  be  by  implication,  and  it  is  an  unbending  rule  that  a 
grant  of  corporate  existence  is  never  implied."^  Notwith- 
standing this  dictum,  as  controversies  concerning  the  effect  of 
consolidation  nearly  always  arise  in  cases  turning  upon  tlie 

1  Keokuk,  etc.  R.  Co.   v.   Missouri,  statute  under  which  the  cousolidation 

152  U.  S.  305  (1894),  (U  Sup.  Ct.  Rep-  took  place." 

592):    "In    the  numerous  cases  which  See  also  Yazoo,  etc.  R.  Co.  r.  Adams, 

have   arisen    in   this   court   as   to    the  180  U.   S.   1    (1901),  (21   Sup.  Ct.  Rep. 

effect  of  a  consolidation  upon  the  exist-  240)  ;  Railroad  Co.  v.  Georgia,  98  U.  S. 

ence  and  status  of  the  constituent  corpo-  362  (1878). 

rations  it  has  been  held  that  the  question  2  People  r.  New  York.  etc.  R.  Co.,  129 

of  the  dissolution  of  such  corporations  N.  Y.  482  (1892),  (29  N.  E.  Rep.  959). 
depended  upon  the  language    of  the  ^  Central  R.,  etc.  Co.  v.  Georgia,  92 

U.  S.  670  (1875). 
T  97 


§  GO  INTERCOUPORATF    RELATIONS.  [PART    I. 

question  whetljcr  tlio  ronsoliiJatfd  corporation  1ms  inlu'ritod 
certain  exemptions  and  inuuunities  from  the  old  conipanira, 
not  favored  by  the  law,  in  case  the  consolidation  statute 
Bftcaks  of  the  consolidated  corporation  as  a  "now"  corpora- 
tion, or  in  any  way,  even  in  peneral  terms,  indicates  an  inten- 
tion to  create  a  new  corporation,  the  courts  will  not  he  slow  in 
liolding  that  the  effect  of  the  consolidation  is  to  dissolve  the 
old  companies  and  extinj^iish  their  special  exemptions. 
"  Indeeii,"  says  Mr.  Justice  Brown  in  a  very  recent  case,  "  it 
is  not  too  much  to  say  that  courts  are  astute  to  seize  upon 
evidence  tendinis  to  show  either  that  such  exemptions  were 
not  really  intended,  or  that  they  have  become  inoperative  by 
chanp:e8  in  the  original  constitution  of  tlic  companies."  * 

It  is  not  necessary  that  the  powers  of  the  new  corporation 
should  be  sfx^cially  enumerated  nor  is  its  status  afTccted  by 
reference  to  the  charters  of  the  old  companies.' 

§  00.  As  a  Oeneral  Rule,  Effect  of  Consolidation  la  Creation 
of  New  Corporation  and  Dissolution  of  Constituents. —  One  of 
the  earliest  decisions  ui>oii  the  sulijrct  of  tlu'  consolidation  of 
corporations  was  piven  by  the  Supreme  Court  of  Indiana, 
which  held  in  McMnhon  v.  M>rri^nn  ^  that  the  effect  «)f  a  con- 
solidation, by  legislative  authority,  was  a  dissolution  of  the 
oripfinal  corporations  and,  at  the  same  instant,  the  creation  of 
a  new  corporation  with  property,  liabilities  and  stockholders 
derived  from'  those  passim^  out  of  existence.  This  decision 
was  approved  by  the  Supreme  Court  of  the  United  States,* 
and  the  conclusion  there   reached  has  been  adopted  as  ap- 

1  Y.tzoo,  etc.   R.  Co.  V.  A'lam^,  ISO  A  now  corporation  may  he  n^  readily 

U.  S. 'J2  (1901).  (21  Sup.  Ct.   Hep.  2-»0).  cre.ite«l    l>y  the  nni.>n  of   two  or  more 

'  K.-iilruml    Co.    r.  .Maine,  96  I'.  S,  corporal ionii  m  by  the  anion  of  indiviti- 

510  (1877)  :  "  The  .Maine  Central  Rail-  a.aU  ;  and  its  |)ower!«  and  privil(j;p.s  may 

road  Company  was,  npon  the  consolida-  a.«»  well   be  dpsijjnatcd   by    reftrenre  to 

tion  of  the  original  companies,  a  new  the  charters  of  other  companies   .-is  by 

corporation,  ii.s  distinct    from  them    as  vpeciai  ennmoration." 
thout^h  it  had  been  created  In-foro  their  See  also  Shields  r.  Ohio,   95    U.   S. 

existence.     The  fact  tliat   the   powers,  319  (1877). 

privilc;:;es,  and  immunities  which  they  J  M«M.ahon  r.  5forri9on,  16  Ind.  172 

had  posscs.sed  were  conferred  upon  the  (1801).  (79  Am.  Dec.  418^. 
new  company,  so  far  as  they  couM  be  ♦  Clearwater  v.   Meredith,    1   Wall. 

exerci.>»ed  or  enjoyed  by  it,  in  no  respect  (U.  S.  ),  40  (1863). 
affected  its  character  as  a  distinct  body. 

98 


CHAP.    VI.] 


EFFECT   OF   CONSOLIDATION. 


plicable  to  different  consolidation  statutes  in  a  long  line  of 
decisions  from  many  States.^ 

As  a  general  rule,  therefore,  the  effect  of  consolidation  is 
the  creation  of  a  new  and  distinct  corporation  and  the  disso- 
lution of  the  constituent  companies.  "  The  general  current  of 
authority  is  to  the  effect  tliat  statutes  for  the  consolidation  of 
domestic  corporations  are  to  be  treated  as  acts  of  incorpora- 
tion, and  that,  on  consolidation  being  effected  under  their  pro- 
visions, the  constituent  companies,  unless  such  an  intention 
is  excluded  by  the  language  of  the  statute,  are  deemed  to  be 
dissolved,  and  their  powers  and  faculties  to  the  extent  author- 


^  United  States :  Yazoo,  etc.  R.  Co. 
V.  Adams,  180  U.  S.  1  (1901),  (21  Sup. 
Ct.  Rep.  240) ;  Minneapolis,  etc.  R.  Co. 
r.  Gardner,  177  U.  S.  332  (1900),  (20 
Sup.  Ct.  Rep.  656)  ;  Keokuk,  etc.  R.  Co. 
r.  Missouri,  152  U.  S.  301  0894),  (14 
Sup.  Ct.  Rep.  592);  Pullman  Palace 
Car  Co.  V.  Missouri  Pac.  R.  Co.,  115  U. 
S.  587  (1885),  (6  Sup.  Ct.  Rep.  194)  ; 
Railroad  Co.  r.  Georgia,  98  U.  S.  364 
(1878) ;  Railroad  Co.  v.  Maine,  96  U.  S. 
•510(1877);  Shields  v.  Ohio,  95  U.  S. 
320  (1877) ;  Ridgway  Township  v.  Gris- 
wold,  1  McCrary  (U.  S.),  151  (1878). 

Arkansas:  Zimmerr.  State,  30  Ark. 
677  (1875). 

Georgia :  Central  R.,  etc.  Co.  v.  State, 
54  Ga.  401  (1875). 

Illinois :  Ohio,  etc.  R.  Co.  v.  People, 
123  111.  467  (1888),  (14  N.  E.  Rep.  874). 

Indiana  :  Eaton,  etc.  R.  Co.  r.  Hunt, 
20  Ind.  457  (1863)  ;  State  v.  Bailey,  16 
lud.  46  (1861),  (79  Am.  Dec.  46).  ' 

Iowa:  Carey  v.  Cincinnati,  etc.  R. 
Co.,  5  Iowa,  357  (1857). 

Louisiana  :  Charity  Hospital  v.  New 
Orleans  Gas  Light  Co.,  40  La.  Ann.  382 
(1888),  (4  So.  Rep.  433)  ;  Fee  v.  New 
Orleans  Gas  Light  Co.,  35  La.  Ann.  413 
(1883). 

Maine :  State  v.  Maine  Central  R. 
Co.,  66  Me.  48S  (1877),  affirmed  96  U. 
S.  510  (1877). 

Missouri:  State  v.  Keokuk,  etc.  R. 
Co.,  99  Mo.  30  (1889),  (12  S.  W.  Rep. 
290) ;  Kinion  v.  Kansas  City,  etc.  R. 
Co.,  39  Mo.  App.  382  (1889).' 


North  Carolina  :  Cheraw,  etc.  R.  Co. 
V.  Anson,  88  N.  C.  519  (1883). 

Ohio :  Shields  v.  State,  26  Ohio  St. 
86  (1875);  State  v.  Sherman,  22  Ohio 
St.  411  (1872). 

Pennsi/lvania :  Lauman  v.  Lehanon 
Valley  R.  Co.,  30  Pa.  St.  42  (1858), 
(72  Am.  Dec.  685). 

South  Carolina :  Charlotte,  etc.  R. 
Co.  I'.  Gibhes,  27  S.  C.  385  (1887),  (4  S. 
E.  Rep.  49). 

Tennessee :  Miller  v.  Lancaster, 
5  Cold.  514  (1868). 

Texas  :  Indianola  R.  Co.  v.  Fryer, 
56  Tex.  609  (1882). 

The  rule  is  clearly  stated  in  a  note  to 
McMahon  v.  Morrison  in  79  Am.  Dec. 
424  :  "  The  effect  of  consolidation  upon 
former  companies,  except  so  far  as  the 
contrary  may  be  provided  by  the  statute 
authorizing  consolidation  is,  as  a  gen- 
eral rule,  to  dissolve  all  the  old  corpo- 
rations and  to  create  a  new  one,  assum- 
ing the  liabilities,  and  succeeding  to 
the  rights  of  the  old  companies." 

As  opposed  to  these  authorities  the 
following  extract  from  the  opinion  in 
Phinizy  i'.  Augusta,  etc.  R.  Co.  62  Fed. 
684  (1894),  stands  alone:  "It  must  be 
kept  in  mind  that  the  consolidation  of 
railroads  does  not  create  a  new  corpora- 
tion, with  powers  of  its  own,  distinct 
from,  greater  or  less  than  those  enjoyed 
by  the  consolidating  companies  sepa- 
rately." 


99 


§61 


INTERCORPORATF    IMLAIIONS. 


[part  I. 


izcd  become  vested  in  the  consolidated  company  as  a  new 
corporation  created  by  the  act  of  consolidation."  • 

While  the  "  property,  liabilities  and  stocklioldrrs  "  of  the 
new  corporation  may,  in  the  language  of  McMahon  v.  Morri- 
son, be  "derived  from  those  |):issing  out  of  existence,"  the 
proposition  that  legislative  consent  to  consolidation  has  the 
efTect  of  dissolving  the  old  corporations  and  creating  eo  in- 
Htauti  a  new  corporation  in  their  stead,  is  based  upon  the 
theory  that  the  consolidated  corporation  derives  its  pnwerM 
from  the  act  authorizing  the  consolidation  and  not  from  the 
constituent  corporations.  As  said  by  Mr.  Justice  Swayne  in 
Shit'hh  V.  Ohi)^  ''The  new  organization  took  the  powers  and 
faculties  designated  in  advance  in  the  acts  authorizing  the 
consolidation  —  no  more  and  no  less.  It  did  not  ac(iuire  any- 
thing by  mere  transmission.  It  took  everything  by  creation 
and  grant." 

§  61.  Exceptions  to  the  Rule — Merger  and  Continuance  of 
Corporations.  —  While,  as  ft  general  rule,  the  elTect  of  consoli- 
dation is  the  dissolution  of  the  constituent  companies,  the 
legislature,  by  a|)propriatc  language,  may  authorize  a  consoli- 
dation by  merger  or  absorption,  in  which  case  the  existence 
of  only  the  merging  corporation  is  terminateil.^  In  Chicaifn, 
etr,  R.  Co.  V.  As/tlint/*  the  Supreme  Court  of  Illinois  said: 
**The  general  rule  that  the  consolidation  of  two  or  more  cor- 


'  People  «'.  New  York,  etc.  R.  Co. 
129  N.  Y.  482  (1892).  (29  N.  E.    Rep. 

959).  (/xr  Andrew.^,  J.). 

9  SliicIJs  V.  Ohio,  95  U.  S.  323. 
(1877). 

»  In  Central  R.,  etc.  Co.  r.  Georgia, 
92  r.  S.  f.7.1  (1875),  tlie  Snpreme  Court 
of  the  United  St.itrs  .said  :  "  If  then 
this  constrnrtion  of  the  act  be  correct 
(anil  we  c.iiinot  douht  that  it  i»),  th.it 
act  contcmj)l.'\ted  no  such  nnion  and 
consolid.itii>n  of  the  two  companie.s  as 
should  work  a  surrender  of  their 
charters  by  both  of  them,  and  the 
creation  of  a  new  company.  At  moat, 
it  intended  a  nierper  of  the  Maron  and 
Western  Railroad  Company  into  the 
other,  a  mode  of  transfer  of  that  com- 

100 


pany'n  franchise,  ami  profK>rty  ami  pay- 
ment tlu-n-for  with  st<K'k  of  the  Central 
Comp.any.  It  i.s  of  no  im|Mmance  to 
the  inquiry  whether  a  new  cor[>oration 
was  created  by  the  nnion  and  cons<di- 
dation,  that  the  Central  aci|uired  nmliT 
llip  act  new  and  enlarged  powers  a5 
well  as  new  stockholdenj." 

See  al.«o  Meyer  r.  Johnston,  64  Ala. 
603  (1879);  New  York  Central,  etc. 
R.  Co.  r.  Saratoga,  etc.  R.  Co,  39 
Barb.  (N.  Y.)  289  (1861);  E.iton  v. 
Hunt,  20  Ind.  457  (1863).  ALso  Thila- 
delphia,  etc.  R.  Co.  v.  Howard,  13  How. 
(C.  .><.)  3.33  (1851). 

♦  Chicago,  etc.  R.  Co.  r.  Ashling, 
160  111.  382  (1896),  (43  N.  E.  Rep. 
373). 


CHAP.    YI.]  EFFECT   OF   CONSOLIDATION.  §  62 

porations  into  one  creates  a  new  company  and  works  a 
dissolution  of  the  original  corporations  forming  the  con- 
solidated company  is  subject  to  exceptions  and  depends 
upon  the  statute  under  which  the  consolidation  is  effected. 
.  .  .  We  see  no  reason  why,  under  the  statutes  in  question, 
one  corporation  may  not  be  consolidated  with  another  under 
the  name  of  such  other,  which  is  continued  in  existence  with 
enlarged  powers,  franchises  and  property  rights.  It  is,  in 
substance,  so  provided,  and  such  consolidations  are  frequently 
made." 

Merger,  as  so  authorized,  is  illustrated  by  the  ordinary  case 
of  the  absorption  by  one  railroad  company,  through  the  inter- 
change of  stock,  of  branches  and  short  connecting  roads. 

The  legislature  may  also  authorize  the  consolidation  of  cor- 
porations and  yet  provide  for  the  continued  existence  of  all  of 
them  for  such  formal  purposes  as  may  be  necessary  to  wind 
up  their  affairs.^  Indeed,  the  constituent  corporations  may 
be  continued  in  existence  for  all  purposes ;  but  this  form  of 
consolidation  as  distinguished  from  a  mere  alliance,  to  which 
the  term  consolidation  is  inappropriately  applied,  is  confined 
to  the  consolidation  of  corporations  of  different  States.^ 

§  62.  Construction  of  Particular  Consolidation  Acts.  Cases 
Showing  Creation  of  Distinct  Corporation.  —  Where  a  Louisiana 

statute  authorized  the  consolidation  of  two  corporations  into 

1  In  Edison  Electric  Light  Co.  v.  into  one,  or  even  to  extinguish  their 
New  Haven  El.  Co.,  35  Fed.  2.33  (1888),  original  individual  existence.  In  re- 
it  was  held  that,  by  the  consolidation  of  gard  to  the  effect  of  such  a  consolida- 
two  corporations,  the  old  corporations  tion  it  does  not  necessarily  follow  that 
did  not  become  extinct,  so  as  not  to  be  it  would  extinguish,  to  all  intents  and 
unable  to  wind  up  their  business,  but  purposes,  the  existence  of  those  cor- 
that  the  assignment  of  the  legal  title  of  porations.  It  is  possible  for  them  still 
a  patent  in  writing  to  the  new  corpora-  to  subsist  for  certain  purposes  not- 
tion,  by  the  president  and  secretary  of  withstanding  they  should  be  thus 
one  of  the  old  corporations,  after  the  amalgamated." 

consolidation,  in  pursuance  of  a  vote  of  See  also  Lightner  v.  Boston,  etc.  R. 

its   executive   committee    passed   prior  Co.,    1     Lowell    (U.     S.),    338    (1869); 

thereto,   was  sufficient  to  convey  such  United   States   v.   Southern  Pac.   Co., 

title.  46  Fed.  683    (1891). 

Bishop   r.   Brainerd,    28  Conn.   299  ^  gge  post,  §  102:    "Effect  of  Inter- 

(1859) :     "  No  question  was  there  made  state  Consolidation  upon  Status  of  Consti- 

as  to  the  competency  of  those  legisla-  tuent  Corporations." 
tures  to  consolidate  these  corporations 

101 


§  02  INTERCORPORATK   IlKLATIONS.  [I'AriT    I. 

"  one  consolidated  company  holding  and  enjoying  all  the 
riglits  "  l)elon!^ing  to  each,  it  was  held  that  the  corisolidatt-d 
corporation  was  a  new  corporation,  and  that  tlio  njenilK.*rs  of 
the  constituent  corporations  were  transmuted  into  inemhera 
of  the  consolidatetl  company.* 

Under  a  Maine  act,  providing  that,  after  filing  the  consoli- 
dation agreement,  the  corporations  making  it  were  "  to  bo 
consolidated  and  together  to  constitute  a  new  corporation," 
it  was  held  that  the  consolidated  company  was  a  distinct  cor- 
poration and  that  the  old  companies  were  dissolved.' 

A  consolidation  effected  under  a  Mississippi  charter  provid- 
ing that  "all  of  the  companies  so  consolidating  shall  ho 
merged  into  and  bn'ome  one  company^  and  the  company  so 
formed  shall  he  deemed  and  held  to  bo  a  corporation  created 
by  the  laws  of  this  State "  under  which  two  companies 
agreed  to  consolidate  their  stock,  take  a  new  name,  elect  a 
new  board  of  directors,  and  that  the  constituent  corporations 
should  cease  to  do  business,  created  a  now  corporation.^ 

An  Ohio  statute  spoko  of  the  consolidated  company  as  the 
"new  corporation;"*  a  Missouri  statute  spoke  of  "one  com- 
pany" and  provided  for  the  issue  of  stock  in  the  "new  con- 
solidated comj)any  ;  "  ''  a  statute  of  Arkansas  provided  that  all 
the  j)roporty  of  each  company  should  l)e  taken  and  deemed  to 
be  transferred  to  the  consolidated  company  "  as  such  new 
corporation  ;"^  a  Missouri  consolidation  act  spoke  of  the  con- 

*  Fo«  r.  Now  Orli>.in.'' Ci.T*  I.ipht  Co.,  evor.  Citizonn  St.   R.   Co.  c  Mcmphu, 

35Ln.  Ann.  416  (ISS.1).  "  Tho  article*  M  Fo.i.  715  (1S9.T). 

of  as-oociation  and  tin'  legislative  act  bjr  '  State   v.    Maine    Central    R.    Co., 

authority  of  which  thev  were  pxocutod,  66  Me.    498   (1877),  atlinnotl  suh  nom. 

evidently   present   a   ca-so  of  comjdete  Railroad  Co.   v,   Maine,  'J6  U.   S.  499 

and  perfect   amalgamation,   the   effect  (1877). 

of  which  was,  under  American  author-  '  Vazoo,  etc.  R.  Co.  v.  A>lams,  ISO 

itios,  to  terminate  the  existence  of  the  U.  S.  1  (1901),  (21   Sup.  Ct.  Hep.  240), 

original  corporations,  to  create  a  new  affirminrj  77  Miss.   194  (1899),  (24  So. 

corporation,  to  transmute  the  memhers  Rep.  200). 

of   the   former    into    members   of    tlio  *  Shields    v.   Ohio,     93    U.    S.   319 

latter,  and  to  operate  a  tran.sfer  of  the  (1877). 

property  rights  and  lialjilities  of  each  '  Pullman  Palace  Car  Co.  v.  Mis- 
old  company  to  the  new  one."  sonri  Pac.  R.  Co.,  115  U.  S.  587  (1885), 

See  a.ho  New  Orleans  Gas  Light  Co.  (6  Sup.  Ct.  Rep.  194). 

I'.    Louisiana,   etc.    Co.,    11     Fed.    277  •  St.  Louis,  etc.  R.  Co.  v.  Berry,  113 

(1882),   where    the   same   statute    was  U.   S.    465   (1835),   (5   Sup.   Ct.    Rep. 

ander    consideration.      Compare,   how-  529), 

102 


CHAP.  VI.]        EFFECT  OP  CONSOLIDATION.  §  63 

solidatioii  as  "  making  one  company  of  the  two  ;  "^  a  Georgia 
statute  gave  the  consolidated  company  the  same  name  as  one 
of  the  old  companies,  and  conferred  upon  it  full  corporate 
powers.^  In  all  these  cases  the  Supreme  Court  of  the  United 
States  held  that  new  and  distinct  corporations  were  created, 
and  that  the  constituent  companies  were  dissolved. 

A  general  law  of  New  York  authorized  any  railroad  com- 
pany "  organized  under  the  laws  of  this  State.  ...  to  merge 
and  consolidate  its  capital  stock,  franchises  and  property  with 
the  capital  stock,  etc.,  of  any  other  railroad  company,  .  .  ." 
and  provided  for  the  conversion  of  the  stock  of  the  consoli- 
dated companies  "  into  that  of  the  new  corporation,"  and  it 
was  held  that  such  consolidation  created  a  new  and  distinct 
corporation.^ 

Consolidation  under  the  California  Civil  Code,  which  pro- 
vides that  the  consolidation  of  corporations  may  be  made  "  in 
such  manner  as  may  be  agreed  upon  by  their  respective 
directors,"  has  been  held  to  make  the  consolidated  corporation 
"  a  distinct  entity  —  a  new  corporation."  ^  It  would  seem, 
however,  under  such  a  statute,  which  involves  a  legislative 
delegation  of  powers,  that  the  effect  of  a  consolidation  should 
depend  upon  the  terms  of  the  agreement  actually  entered 
into.  A  new  corporation  might  or  might  not  be  created  by 
such  agreement.^ 

§  63.  Construction  of  Particular  Consolidation  Acts.  Cases 
of  Absorption  or  Merger.  —  Where,  under  a  Georgia  statute, 
two  railroad  companies  were  authorized  "  to  unite  and  consol- 
idate "  their  "  stocks  "  and  all  their  *'  rights,  privileges,  im- 
munities, property  and  franchises,"  under  "  the  name  and 
charter  "  of  one  of  the  companies  through  the  exchange  of 
shares,  it  was  held  by  the  Supreme  Court  of  the  United 
States  that  consolidation  under  this  act  was  not  a  surrender 

1  Keokuk,  etc.    R.  Co.  v.  Missouri,  61  Huu  (N.  Y.J,  66  (1891),     (15  N.  Y. 

152  U.  S.  301  (1894),  (U  Sup.  Ct.  Rep.  Supp.  635). 

592).     See  State  o.  Keokuk,  etc.  R.  Co.,         *  Market   St.    R.   Co.   v.   Hellman, 

99  Mo.  30  (1839),  (12  S.  W.  Rep.  290).  109    Cal.    571    (1895),    (42   Pac.    Rep. 

■-  Railroad   Co.  v.  Georgia,  98  U.  S.  225). 
359(1878).     See  Atlanta,  etc.  R.  Co.  r.  ^  See    Green     County   v.    Conness, 

State,  63  Ga.  483  (1879).  109  U.  S.  104  (1883),  (3  Sup.  Ct.  Rep. 

3  People  V.  Isew  York,  etc.  R.  Co.  69). 

103 


§  G4  INTERCORPORATE   RELATIONS.  [p.MlT    1. 

of  the  cxistln;^  charters  of  the  two  cijinpanies,  and  did  not 
work  the  extinction  of  the  absorbing  company  nor  the  crea- 
tion of  a  new  company.* 

A  consolidation  of  two  railroad  companies  under  a  Mis- 
souri statute  giving  authority  to  consolidate  "  upon  such 
terms  as  may  bo  deemed  just  and  proper  "  merges  the  fran- 
chise and  privileges  of  each  in  the  new  company,  so  that  they 
continue  to  exist  with  respect  to  the  roads  thus  consolidated.' 

Under  an  Alabama  statute  it  was  held  that  neither  the 
adoption  of  a  new  name,  sanctioned  by  legislative  authority, 
nor  the  legislative  grant  of  new  {K)wer8,  clianged  the  identity 
of  a  corporation  nor  created  a  new  one,  and  that,  consequently, 
an  act  authorizing  the  consolidation  of  railroad  companies  *^  so 
as  to  form  one  consolidated  railway  company  "  under  a  new 
name  did  not  create  a  new  corporation.'  It  has  also  been 
held  that,  under  an  Illinois  consolidation  act,  one  corporation 
may  be  consolidated  with  another  under  the  name  of  tho 
latter,  which  is  continued  in  existence  with  enlarged  powers, 
franidiises  and  property  rights.* 

§  01.  Effect  of  Valid  Consolidation  upon  Stockholders  of 
Constituent  Corporations.  —  As  elsewhere  shown,  when  a 
consolidation  is  invalid  for  want  of  the  consent  of  stock- 
holders, a  dissenting  stockholder  is  released  from  his  sub- 
scrij)tion  ;  *  may  enjoin  the  consolidation  and  may  maintain 
an  equitable  action  against  the  consolidated  corporation  for 
the  wrongfjil  appropriation  of  his  interest  in  the  original 
corporation.® 

When,  however,  the  consolidation  is  valid,  either  becau.sc 
all  the  stockholders  approve  or  because  the  aj)proval  of  only 
a  part  of  them  is  necessary,  tho  rights  of  stockholders  of  tho 
consolidating  corporations  are  generally  determined  by  pro- 

1  Central  R.,  etc.  Co.  r.  Georgia,  92  (1879).     Compare   cases   cited   in   not« 

U.  S.  663  (1875).  to  §  62. 

*  Green  County  i».  Conness,  109  ♦  Ciiicajjo,  etc.  II.  Co.  r.  Ashlinp, 
U.  8.104(188,3),  (.3  Sup.  Ct.  Kep.  69).  160  111.  373  (1894),  (43  N.  E.  Kep. 
ComfHtre  Market  St.  R.  Co.  r.  Ilellman,  373). 

109    Cal.    571    (1895),    (42    Pac.     Rep.  '  See  ««/?,§  47  :    "  liir/hts  and  Heme- 

223).  dif.i  of  iJitsenlinfj  Subscril>ers." 

*  Mever     v.   Johnston,    04  Ala.   C03  '  See  antf,  §  46 :  "  Rirjhts  and  Reme- 

dies of  Dissenting  Stockholders." 

104 


CHAP.   VI.] 


EFFECT   OF   CONSOLIDATION. 


§64 


visions  in  the  consolidation  act  or  agreement.  It  is  usually 
provided  that  the  consolidated  corporation  shall  issue  its 
shares  in  exchange  for  the  shares  of  stockholders  of  the 
constituent  companies  and,  as  already  noticed,  objecting 
stockholders  sometimes  have  the  right  to  take  the  appraised 
value  of  their  shares  in  money  instead  of  the  new  securities.^ 
In  the  absence  of  such  provisions  it  is  the  better  view,  that, 
by  force  of  the  consolidation  proceedings  under  legislative 
authority,  the  stockholders  of  the  constituent  corporations  are 
transmuted  into  stockholders  of  the  consolidated  companies.^ 
The  holder  of  stock  in  a  constituent  corporation  upon  so 
becoming  a  stockholder  of  the  consolidated  company  is  en- 
titled to  the  same  proportion  of  stock  in  the  new  company  as 
is  secured  in  the  consolidation  agreement  to  his  fellow  stock- 
holders and  may  maintain  an  action  against  the  new  company 
therefor.3  The  holder  of  preferred  stock  in  a  constituent 
corporation  has  a  right  of  action  against  the  consolidated 
company,  upon  a  contract  of  the  constituent  corporation 
with  its  stockholders  relating  to  the  payment  of  dividends 
upon  its  preferred  stock.* 


1  See  ante,  §  57  :  "  Statutory  Provis- 
ions for  Appraisal  of  Stock." 

'^  Fee  V.  New  Orleans  Gas  Light  Co., 
35  La.  Ann.  413  (1883)  ;  Eiilgway 
Township  v.  Griswold,  1  JlcCrary 
(U.S.),  151  (1878) ;  Copland  v.  Minong 
Min.  Co.,  33  Mich.  2  (1875).  It  has 
been  held,  however,  that  a  stockholder 
in  a  constituent  company,  not  assenting 
to  a  consolidation,  does  not  become  a 
member  of  the  consolidated  company. 
Gardner  v.  Hamilton  Mut.  Ins.  Co.,  33 
N.  Y.  421  (1865).  Also  Philadelphia, 
etc.  R.  Co.  V.  Catawissa  R.  Co.,  53  Pa. 
St.  20  (1866). 

^  Fee  V.  New  Orleans  Gas  Light 
Co.,  35  La.    Ann.   413   (1883). 

Where,  however,  a  person  had  sub- 
scribed for  stock  in  a  Pennsylvania 
corporation,  paying  ten  per  cent  upon 
his  subscription,  and  thereafter  the 
corporation  was  consolidated  with  an- 
other company  upon  an  agreement  that 
each  stockholder  of  the  former  company 


should  be  entitled  to  one  share  of  the 
consolidated  company  for  two  of  the 
old  company,  and  such  person  then 
brought  an  action  against  the  consoli- 
dated company  to  compel  the  issuance 
of  such  new  shares  to  him,  it  was  held 
that  the  action  should  be  dismissed  ;  that 
the  plaintiff  could  not  maintain  an  action 
against  the  consolidated  company  which 
could  not  be  maintained  against  tlie  old 
company,  and  that  he  was  not  entitled 
to  a  certificate  of  full  paid  stock  upon 
which  he  had  paid  but  ten  per  cent. 
Babcock  v.  Schuykill,  etc.  R.  Co.,  133 
N.  Y.  420  (1892),  (31   N.  E.  Rep.  30). 

*  Boardman  v.  Lake  Shore,  etc.  R. 
Co.,  84  N.  Y.  157  (1881).  Compare 
Prouty  V.  Lake  Shore,  etc.  R.  Co.,  52 
N.  Y.  363  (1873). 

Where  two  railroad  companies,  in 
their  agreement  for  consolidation,  in- 
serted an  article  providing  for  the 
completion  of  the  route  of  one  of  the 
companies,  and  the  directors  of  the  con- 

105 


§  65  INTLUCOUPOUATE    RELATIONS.  [PART    I. 

When  the  effect  of  cousolidation  is  to  create  a  new  cor- 
poration, the  liubihty  for  the  corporate  debts,  of  stockhtjldera 
of  the  cunsulidating  corporations  who  become  stociiholdcrs 
in  the  consohdated  company,  is  determined  by  the  laws  in 
force  at  tiie  time  of  consolidation,  and  exemptions  from  lia- 
bility theretofore  attaching  to  such  stockholders  are  lost.^ 


CUAITEU   VII. 

RIGHTS    AND    POWEUS    OP   CONSOLIDATED    CORPORATION. 

I.    Stalutorif  TranMmission  of'  Piofftrty,  Franchitet,  and  Prn-ilnjts. 

§  65.  General  Uulo.     I>?pil  Prcaumption. 

%  66.  H«-ul  K.Htato  ami  Ui^hU  in  StreeU. 

{  67.  ('h'l^fs  ill  Actiou. 

§  68.  Suliscriptiutiit. 

§  69.  Eiiforccnieiit  of  Sab«criber'«  Obligatiuns.     Conditional  Sabscriptions. 

§  70.  Muiiii'i|i.-vl  A  ill. 

§  71.  Cuii.Htitiilioiial  Limitations  upon  Grants  uf  Privileges  and  Immunities. 

§  72.  Exemptions  from  Taxation. 

§  73.  Special  Privileged  and  Immunities  other  than  Tax  Exemplioui. 

II.    Powers. 

§  74.  Powers  of  Con.solidatcd  Corfxiratiou.     lu  General. 

§  7j.  Power  to  is.-*iie  .Mort;;age  Bunds. 

§  76.  Iti^lit  of  Eminent  Domain. 

§  77.  Miscellauooud  Powers. 

I.    Statutory  Transmission  of  Property,  Franchises,  and 

Privilr'jis. 

§   Co.    General    Rule.      Legal    Presumption.  —  When    consoli- 
dation j)roceedings  arc  completed  the  consolidated  corporation, 

8olidate«l  company  failed  to  comply  with  fusal    or    neglect    on   the   part  of  the 

such  provi.-<ion9,  it  was  held   that  if  the  direitorn  to  discliarge  the  duty,  must 

duty  thus  created  was  owing  to  all  the  bring    before    the   court    not  only    the 

stockholders,    one   of   the  stockholders  directors  of  the  company,  but  the  two 

could  not  sustain  an  action  against  the  classes  of  stockholders.     Port  Clinton 

directors  to  enforce  a  compliance  there-  R.    Co.    i».    Cleveland,    etc    R.  Co.,    13 

with;  and  that  if  the  duty  was  owing  Ohio  St.  545  (1862).     See  al.so  Lord.  c. 

to   a   class  of   stockholders  having,  in  Copper    Mines   Co.,    1     H.   &    Tw.   85 

respect   to   the  matter,  an  interest  or  (1848). 

right  distinct  from  another  class,  any  ^  The  act  of  Minnesota  of  March  2, 

proceeding  to  obtain   relief  for  a   re-  1881,  cb.  113,  authorizing  the  consoli- 

106 


CHAP.    VII.] 


RIGHTS   AND    POWERS. 


§65 


according  to  the  usual  statutory  provision  becomes  possessed 
of  all  the  rights,  property,  privileges  and  franchises  thereto- 
fore vested  in  its  constituent  companies.^     As  observed  by 


dation  of  several  railroad  companies 
created  a  new  corporation,  upon  which 
it  conferred  the  franchises,  exemptions 
and  immunities  of  the  constituent  com- 
panies ;  but  that  did  not  include  an 
exemption  of  stockholders  in  the  old 
companies  from  the  payment  of  corpo- 
rate debts,  or  their  liability  to  pay  them. 

Minneapolis,  etc.  K.  Co.  v.  Gardner, 
177  U.  S.  332  (1900),  (20  Sup.  Ct.  Eep. 
656),  affirming  Gardner  v.  Minneapolis, 
etc.  R."  Co.,  73  Minn.  517  (1898),  (76 
N.  W.  Rep.  282). 

^  The  provisions  of  the  New  York 
Consolidation  Statute  (R.  S.  1896 
(Birdseye's)  Railroad  Law,  §  72, 
p  2554),  are  illustrative :  "  Upon  the  con- 
summation of  said  act  of  consolidation 
as  aforesaid,  all  and  singular  the  rights, 
privileges,  exemptions  and  franchises 
of  each  of  the  corporations,  parties  to 
the  same,  and  all  the  property,  real, 
personal  and  mixed,  and  all  the  debts 
due  on  whatever  account  to  either  of 
them,  as  well  as  all  stock  and  subscrip- 
tions and  other  things  in  action  belong- 
ing to  either  of  thera,  shall  be  taken 
and  deemed  to  be  transferred  to  and 
vested  in  such  new  corporation,  with- 
out further  act  or  deed  ;  and  all  claims, 
demands,  property,  rights  of  way  and 
every  other  interest,  shall  be  as  effectu- 
ally the  property  of  the  new  corpora- 
tion as  they  were  of  the  former 
corporations,  parties  to  such  agree- 
ment and  act ;  and  the  title  to  all 
real  estate,  taken  by  deed  or  otherwise, 
under  the  laws  of  this  State,  vested  in 
either  of  such  corporations,  parties  to 
said  agreement  and  act,  shall  not  be 
deemed  to  revert  or  be  in  any  way 
impaired  by  reason  of  this  act,  or  any- 
thing done  by  virtue  thereof,  but  shall 
be  vested  in  the  new  corporation  by 
virtue  of  such  act  of  consolidation." 

Other  statutory  provisions  of  a 
similar  nature  applying  to  railroads 
are: 


Alabama:  Code  1896,  §  1166  (as 
amended  by  Acts  of  1900-01,  p.  237), 
§  1168.  §  1151  applies  to  business 
corporations. 

Arizona:    R.  S.  1901,  §  864,  par.  3. 

Arkansas:  S.  &  H.  Dig.  1894, 
§  6328. 

Colorado:  Mills' Anno.  Stat.  1891, 
§  628,  p.  688. 

Connecticut:  G.  S.  1888,  §  3446;  P. 
A.,  1901,  ch.  157,  §  40  (business  cor- 
porations). 

Delaware:  Laws  1901,  §§  60,  91, 123  ; 
Lawsl899,  §§  88,  121.  Corp.  Law  1899, 
§  55  applies  to  business  corporations. 

Idaho:    Laws  1901,  p.  214. 

Kansas:    G.  S.  1897,  ch.  70,  §  92. 

Kentucky  :  Stat.  1899,  ch.  32,  §  770; 
Stat.  1894,  §  556  applies  to  business 
corporations. 

Louisiana:  R.  L.  1897  (Art.  39 
(1877),  p.  50),  §  2.  La.  Act  of  Dec. 
12,  1874,  applies  to  business  corpora- 
tions. 

Maryland:  §  39a,  act  of  April  7, 
1892,  supplementing  G.  L.  1888,  ch.  23. 

Michigan:  P.  A.  1899,  §  29,  p.  451  ; 
Comp.  Laws  1897,  §  30. 

Minnesota :  G.  S.  1894,  §§  2715,  2718, 
2720. 

Missouri:  R.  S.  1899,  §§  1059,  1060; 
Stat.  1889,  §  2786  (manfg.  companies). 

Montana:  Civ.  Code  1895,  §  911. 
§  527  applies  to  mining  companies. 

Nebraska:  Comp.  Stat.  1901,  §§  1764, 
1767. 

Nevada:    Gen.  Stat.  1885,  §  1075. 

New  Hampshire:  Pub.  Stat.  & 
Session  Laws  1901,  ch.  156,  §  22  p.  503. 

New  Jersey :  Railroad  Law,  §  1 , 
par.  249  (G.  S.  1895,  p.  2696  et  seg.)  ; 
§  3,  pars.  251,  282 ;  §  4,  par.  283.  Cor- 
poration Law,  §  106,  applies  to  business 
corporations. 

Neiv  Mexico:  Comp.  Laws  1897, 
§§  3847,  3895. 

New  York:  Business  Corp.  Law 
(amended  to   1900),  §   10. 

107 


§65 


INTERCORPORATE   RELATIONS. 


[part  I. 


Judge  Ilolmes,  in  John  ffancock,  etc.  In*.  Co.  v.  WorcenUr^ 
etc.  It.  Co.  :  '  "It  is  usual  for  consolidating  statutes  to  intro- 
duce more  or  less  of  the  element  of  succession,  or  continuity 
of  legal  person  as  to  existing  rights  and  duties  notwithstand- 
ing the  fact  that  in  <jtlur  respects  the  old  and  new  corpora- 
tions arc  not  the  same.  .  .  .  It  is  for  the  legislature  to  say 
how  far  the  new  corporation  shall  be,  as  it  were,  the  heir, 
executor  or  continuer  of  the  old." 

Wiicrc,  however,  the  consolidation  statute  is  silent  the 
general  rule,  based  upon  the  yresuined  intention  of  the  legis- 
lature, is  the  same  —  that  the  consolidated  corporation  suc- 
ceeds to  all  the  privileges  and  franchises  of  each  of  the 
constituent  corporations  with  respect  to  the  property  acquired 
from  such  corporation.^  "  The  i)resum|)tion  is,  until  the  con- 
trary appears,  that  the  united  or  consolidated  company  has 
all  the  powers  and  privileges,  and  is  subject  to  all  the  restric- 
tions and  liabilities,  of  those  out  of  which  it  was  created."  ^ 

Dakota:    Uov.    Code*    1899, 


North 
§  2954. 

Oklahoma:  Stat.  1893,  ch.  17.  §  15, 
par.  1016. 

iHiio:  Hatca'  Anno.  SL-it.  1902, 
§§  3.382,  3;J84. 

Pfimsijlraniii :  Rriccht.  Pnrd.  Diir. 
1894.  p.  1801.  §§  109.  110,  113;  p.  1803, 
§116;  p.  1814.  §  182. 

South  Carolin,! :  §  U.  S.  189.1.  §1617. 

South  Dakota:  Anno.  Stat.  1901, 
§  3906. 

Tennessee:  Code  1896.  §  1527. 

Utah:  II.  S.  1898,  §  311  (business 
corporations). 

\\'ttshirifjf(in:  Ballingor's  Anno.  Code 
1897.  §  4304. 

Wisrvnsin:  Laws  1899,  ch.  191, 
amending  §    1833.   Stat,  of  1898. 

Wtfominrj:    R.  S.  1899,  §  3202. 

Knrjland :  Kailwaj  Clauses  Act 
1863  (2f.  and  27  Vict.'ch.  92,  §§  38-44). 

'  John  Il.incock,  etc.  Ins.  Co.  i*. 
Worcester,  etc.  R.  Co.  149  Slass.  220 
(1889).  (21   N.  E.  Rep.  364). 

2   United  States :  Keoknk,  etc.  R.  Co. 

V.   Mis.souri.    152  U.S.  305   (1894),  (14 

Sup.  Ct.  Rep.   592);   Green  Conntv  v. 

Coimess,  109  U.  S.  104  (1883),  (3  Sup. 

108 


Ct.  Rep.  69)  ;  Central  R..  etc.  Co.  v. 
Georpia.  92  U.  S.  665  (1875);  Tomlin- 
Bou  1-.  Hranch,  15  W.ill.  460  (1872); 
L<wis  r.  Clarendon.  6  Rep.  609  (1878); 
Ridpw.iv  Townsdiip  v.  Oriswold, 
I  McCrary.  151  (1878);  McAIpine  v. 
I'nion  Pac.  II,  Co.  23  Fed.  168 
(1885). 

Arknnsnt:  Zimtner  v.  State,  30  Ark. 
677  (1875). 

(iforgia:  Montpomerr,  etc.  R.  Co. 
f.  Borinp.  51  Ga.  582  (1874);  Selma. 
etc.  R.  Co.  V.  Harbin,  40  Ga.  706 
(1870). 

Illinois:  Chicago,  etc.  R.  Co.  v. 
Moffitt.  75  111.  524  (1874):  Robertson 
1-.  Rockford.  21  III.  451  (1859). 

Indiana:  Ix)ui.xvillo,  etc.  R.  Co.  r. 
Boney,  117  Ind.  501  (1888),  (20  N.  E. 
Rep.  432) ;  Paine  v.  Lake  Erie,  etc.  R. 
Co.:  31  Ind.  2^3  (1869). 

Massachusetts  :  Abbott  v.  New  York, 
etc.,  R.  Co.  145  Mass.  453  (18881,(15 
N.  E.  Rep.  91). 

Missouri:  Thompson  v.  Abbott,  61 
Mo.  176  (1875). 

Tennessee :  Miller  i'.  Lancaster, 
5  Cold.  514   (1868). 

8  Tennessee  v.  Whitworth,  117  U.S. 


CHAP.    VII.] 


RIGHTS   AND   POWERS. 


^66 


Generally,  the  consolidation  act  confers  upon  the  con- 
solidated corporation  all  the  powers  and  privileges  of  its 
constituents,!  although  it  was  held  under  a  Maine  statute 
providing  that  the  new  corporation  should  "  have  the  powers, 
privileges  and  immunities  of  each  of  the  corporations,"  that 
it  acquired  the  privileges  and  immunities  which  all  the  con- 
stituent companies  had,  and  did  not  acquire  those  special 
powers,  privileges  and  immunities  which  some  had  and  which 
some  did  not  have.^ 

§  66.  Real  Estate  and  Rights  in  Streets.  —  Wlien  consoli- 
dation is  completed  the  real  estate  of  the  consolidating  cor- 
porations vests  in  the  consolidated  corporation,^  generally 
"without  any  other  deed  or  act  of  transfer,"*  and  this  rule 


147  (1886),  (6  Sup.  Ct.   Kep.  649),  per 
Waite,  C.  J. 

In  Green  County  v.  Coune.ss,  109 
U.  S.  106  (1883),  (3  Sup.  Ct.  Kep.  69) 
the  Supreme  Court  also  said :  "  When 
the  companies  are  autliorized  to  con- 
solidate their  roads,  it  is  to  be  pre- 
sumed that  the  privileges  of  each 
continue  to  exist  in  respect  to  the 
several  roads  so  consolidated." 

See  also  Keokuk,  etc.  11.  Co.  v. 
Missouri,  152  U.  S.  305  (1894),  (14 
Sup.  Ct.  Rep.  592). 

The  consolidation  of  the  property 
and  franchises  of  different  companies 
by  their  own  act  does  not  enlarge  tlie 
franchises,  powers  or  privileges  of  the 
original  companies.  The  new  company 
takes  the  rights  and  privileges  it  ac- 
quired by  the  consolidation,  subject  to 
the  original  conditions  and  limitations. 

Consolidated  Traction  Co.  v.  Eliza- 
beth, 58  N.  J.  L.  619  (1896),  (34  Atl. 
Rep.  146)  ;  Wilbur  v.  Trenton  Pass.  R. 
Co.,  57  N.  J.  L.  212  (1894),  (31  Atl.  Rep. 
238). 

See  also  Tomlinson  v.  Branch,  15 
Wall  (U.  S.)  460  (1872). 

1  Boston,  etc.  R.  Corp.  v.  Midland 
R.  Co.,  1  Gray  (Mass.),  359  (1854): 
"  By  these  proceedings,  thus  ratified, 
the  consolidated  corporation  succeeded 
to  and  became  entitled  to  exercise  all 
the  powers  and  privileges,  and  subject 


to  the  duties  and  obligations,  of  each 
of  the  three  corporations,  as  they  then 
stood,  and  as  they  were  respectively 
affected  by  their  several  acts  of  incor- 
poration, and  by  the  acts  done,  the 
obligations  incurred  and  property  held, 
under  them." 

2  State  V.  Maine  Central  R.  Co.,  66 
Me.  488  (1877)  (affirmed  sub  nom.  Rail- 
road Co.  u.  Maine,  96  U.S.  499  (1877)), 
where  it  was  held :  Where  a  new  cor- 
poration is  formed  out  of  two  or  more 
previously  existing  corporations  and  by 
the  act  creating  it  is  to  "  have  the 
powers,  privileges  and  immunities  pos- 
sessed by  each  of  the  corporations" 
whose  union  constitutes  such  new  cor- 
poration, the  new  corporation  will  have 
the  "  privileges,  powers  and  immu- 
nities," which  they  all  (i.  e.  ever}'  one 
of  them  all)  had,  and  it  will  not  have 
those  special  powers,  privileges  and 
immunities  which  some  had  and  some 
did  not  have. 

3  Cashman  v.  Brownlee,  128  Ind. 
266  (1890)  (27  N.  E.  Rep.  560);  Tar- 
pey  V.  Deseret  Salt  Co.,  5  Utah,  494 
(18S8),  (17  Pac.  Rep.  631). 

*  A  large  number  of  consolidation 
acts  provide  that  the  effects  of  the  con- 
solidating corporations  shall  vest  in  tlie 
new  company  by  virtue  of  the  consoli- 
dation proceedings,  "  without  any  other 
deed  or  act  of  transfer." 

109 


§  G7  INTERCORPORATE   RELATIONS.  [PAItT    I. 

applies  in  the  case  of  successive  consolidations.  Thus  where 
land  was  conveyed  in  fee  simple  to  a  corj)oration  and  after- 
wards that  company  was  consolidated  witlj  another  and 
further  consolidations  took  place  from  time  to  time,  it  was 
held  that  the  new  companies  formed  hy  the  successive  con- 
solidations succeeded  to  tlie  real  estate.' 

Under  an  act  providing  that  a  consolidated  street  railway 
company  should  have  all  the  franchises,  and  be  subject  to  all 
the  duties  of  its  constituents,  the  right  of  a  constituent  cor- 
poration to  occupy  with  its  tracks  the  streets  of  a  city  passed 
to  the  consolidated  company.'  It  has  also  been  held  that  the 
franchisos  of  several  street  railway  companies,  contained  in 
their  incpealablc  charters,  to  use  the  streets  of  a  city  were 
not  subjected  to  the  lial)ility  of  legislative  repeal  by  their  con- 
solidation, althou^rh  at  the  time  of  consolidation  a  reserved 
power  to  amend  or  repeal  charters  was  u{)on  the  statute  book.^ 

§  GT.  ChoacB  in  Action. — Consolidation  statutes  generally 
provide  that  all  chositt  in  artion  of  the  constituent  companies 
shall,  upon  consolidation,  pass  to  the  consolidated  corj)oration. 
Without  specific  desiirnation,  they  would  pass  with  the  other 
cfTects  of  the  com}>anies.*  Thus  a  consolidated  company  suc- 
ceeds to  the  rijjht  to  use  patents  under  a  license  granted  to  a 
constituent  corporation.''  An  indemnity  bond  given  to  a  con- 
stituent corporation  enures  to  the  benefit  of  the  consolidated 
company  and  the  sureties  thereon  are  lial)lc  for  breaches  tak- 
ing jilacc  both  before  "^  and  after  the  consolidation."     The  vcst- 

1  Ca.shman   v.   Brownlee,    128   Ind.  Pacific  Railro.'id  with  the  Union  Pacific 

266  (1800).  (27  N.  E.  Kcp.  560).  Kailroa.l  it  was  held  that  the  prp  oxist- 

'  Africa  v.   Knoxville,  TO  Fed.  729  inp  afjrpemonts  of  tho  former  with  the 

(ISO.'i).     See  also  PittsliiirKh.etc.  R.  Co.  govcrnmont  remained  nnch.angod  a»  to 

V.  Reich,  101  111.  1.^7  (1881).  compensation    for    services   performed 

8  Citizens  St.  R.  Co.  r.  Memphis,  ^3  either    before   or   after   the    consolida- 

Fed.    71.5    (1893).      Judge     Hammond  tion.     The  Pacific  R.  R.  Cases,  16  Ct. 

placed  his  decision  in  this  ca.«e  upon  of  Claims, . 354  (1880). 
the  proniid  th.at  the  con.solidation  act  *  1  ightner  i-.   Boston,   etc.    R.    Co. 

did  not  evidence  a  legislative  intention  1  T-owell  (U.  S.)  .338  (18G9). 
to  create  a  new  and  distinct  corpora-  «  London,  etc.   R.  Co.  v.  Goodwin, 

tion   and    make    the   charters   snliject  6  Eng.   Ry.  Cas.  177  (1849);  3  Exch. 

to    repeal.     Comparf   Railroad    Co.    v.  Rep.  320. 
Georgia  98  U.   S.  S.-jg  (1878).  "  Penn.sylrania,  etc.  R.  Co.  v.  Har- 

*  Under  the  act  of  Congress  author-  kins,   149   I'a.   St.   121    (1892),  (24  Atl. 

izing  the  consolid.ition  of  the  Kansas  Rep.   175);   Eastern   Union    R.  Co.  v. 

110 


CHAP.    VII.]  RIGHTS   AND    POWERS.  §  68 

ing  of  choses  in  action  of  a  constituent  corporation  in  the 
consolidated  company  by  a  consolidation  act  which  substitutes 
it  for  the  original  corporation,  without  prejudice  to  the  other 
party,  passes  the  right  to  the  new  corporation,  without  ex- 
press grant,  to  sue  thereon  in  its  own  name.^ 

The  general  rule  that  choses  in  action  of  constituent  com- 
panies enure  to  the  benefit  of  the  consolidated  corporation 
is,  however,  inapplicable  to  contracts  which,  from  their  nature, 
can  be  carried  out  by  the  constituent  corporation  alone.^ 
Thus  where  a  railroad  company  agreed  to  give  its  bonds,  in 
consideration  of  certain  moneys  to  be  paid  in  instalments, 
and  afterwards,  by  legislative  authority,  becoming  consolidated 
with  other  companies,  bonds  of  the  consolidated  company  were 
tendered  and  suit  brouglit  for  the  money,  it  was  held  that 
such  suit  would  not  lie,  the  consideration  offered  not  being 
that  agreed  upon.  The  Court  said  :  "  Neither  the  court  nor 
the  legislature  can  alter  the  bargain  between  these  parties. 
The  defendant  had  the  right  to  stipulate  for  bonds  of  a  par- 
ticular company,  and  it  is  clear  that  he  cannot  be  compelled 
to  accept,  in  lieu  of  the  promised  consideration,  the  obliga- 
tions of  any  other  company.  .  .  .  The  consolidated  companies, 
in  the  nature  of  things,  cannot  be  the  same  as  one  of  their 
constituents.  Such  a  company  has  larger  purposes,  wider 
powers  and  heavier  responsibilities  than  those  inherent  in 
either  of  its  component  parts."  ^ 

§  68.  Subscriptions.  —  Contracts  of  subscription  for  stock  in 
a  constituent  corporation,  upon  which  there  is  an  existing 
liability,  enure,  with  other  choses  in  action,  to  the  benefit 
of  the  consolidated  corporation,  and  it  may  enforce  the  obli- 
gation of  the  subscriber,  provided  the  consolidation  proceed- 
ings are  binding  upon  him.^ 

Cochrane,  24  Eng.  L.  &  Eq.  495  (1853),  also  Union  Pac.  R.  Co.  u.  Gochenour, 

17   Jur.    1103,    23  L.    J.    Kep.    (n.   s.)  56    Kan.    543    (1896),    (43    Pac.    Rep. 

Exch.    61.      See   also   Miller   v.    Lan-  1135). 

caster,  5  Coldw.  (Tenn.)  514  (1868).  ^   ^^^    Jersey    Midland  R.    Co.    v. 

1  University  of  Vermont  v.  Baxter,  Strait,  35  N.  J.  L.  322  (1872). 

42  Vt.  99  (1869);  Miller  r.  Lancaster,  *  Wells   v.   Rodgers,  60   Mich.  525 

5  Coldw.  (Tenn.)  514  (1868).  (1886),   (27  N.  W.  Rep.  671);  Cooper 

2  New  Jersey  Midland  R.  Co.  v.  v.  Shropshire  Union  R.,  etc.  Co.,  13 
Strait,  35  N.  J."  L.     322  (1872).     See  Jur.  443  (1849),  6  Eng.  Railw.  Cas.  136 

111 


INTERCORPORATE  RELATIONS. 


[rAUT   I. 


When  authority  to  consolidate  is  contained  in  the  original 
charters  or  is  authorized  by  an  act  in  force  at  the  time  of  the 
subscription,  the  provisions  of  the  statutes  enter  into  and 
form  a  part  of  the  contract  of  subscription,  and,  in  case  of 
consolidation,  a  subscriber  is  not  released  from  his  subscrip- 
tion, and  cannot  withdraw  from  the  venture.^  A  subscriber 
is  also  bound  by  consolidation  proeeedinjjjs  autliorized  by  the 
legislature  in  the  exercise  of  its  reserved  power. ^ 


(1849).  See  also  Uidj^way  Township 
t;.  Griswold,  1  McCrury  (IJ.  S),  151 
(1878). 

'  In  Nugent  r.  Supervisors,  19  \V;ill. 
(U.  S.)  L'4'J  (1873),  the  Supreme  Court 
of  the  United  States  said  :  "  It  wjw 
therefore,  contemplated  \>y  the  legis- 
lature, as  it  must  have  hecn  l>y  :ill  tliu 
Buhscrihers  to  the  stock  of  the  con)- 
I>any,  tluit  i)recisely  wliat  h.'ui  occurred 
might  occur.  Suhscrihers  must  be  pre- 
Bumed  to  liave  known  the  law  of  the 
State  and  to  have  ct>ntracted  iu  view  of 
it.  When  tlie  voters  of  the  County  of 
I'utnam  sanctioned  a  county  Buhscrip- 
tiou  hy  tlieir  vote,  and  when  the  board 
of  supervisors,  in  pursuance  of  that 
section,  resolved  to  make  the  Hubscrip- 
tion,  they  were  informed  by  the  law  of 
the  State  tliat  a  consolidation  with 
another  company  might  1)0  made  ;  that 
the  stock  tlicy  proposed  to  subscribe 
might  be  converted  into  stock  of  the 
consolidated  company,  and  that  the 
liability  they  .assumed  might  become 
owing  to  that  company.  With  this 
knowledge  and  in  view  of  such  contin- 
gencies they  made  the  contract.  The 
consolidation,  therefore,  wrought  no 
change  in  the  organization  or  design 
of  the  company  to  which  they  sub- 
scribed otlier  than  they  contemplated 
at  the  time  .as  possible  and  legitimate. 
It  cannot  be  said  that  any  motive  for 
their  subscription  has  been  taken  away, 
or  that  the  consideration  for  it  has 
failed.  Hence  the  reason  of  the  gen- 
er.al  rule  we  have  conceded  does  not 
exist  in  tliis  case,  and,  consequently, 
the  rule  is  inapplicable.  In  a  multitude 
of  cases  decided  iu  England  and  in  this 

112 


country  it  has  been  determined  that  a 
»ubscril)er  for  the  «tock  of  a  company  is 
not  released  from  his  engagement  to 
take  it  and  p.ay  for  it  by  any  alteration 
of  the  organi/4itiun  or  purpo.ses  of  the 
company  which,  at  the  time  the  8nl>- 
siription  was  made,  were  authorized 
either  by  the  general  law  or  by  s|>ccial 
charter,  an<l  a  dear  ilistinction  is  recog- 
nized iictween  the  effect  of  such  altera- 
tions and  the  effect  of  those  made  umler 
legislation  sulisecjucut  to  the  contract  of 
subscription." 

See  al.so  : 

t'ontiertirnt :  Bishop  i;.  Rrainerd,  28 
Conn.  '280  (18.''»9). 

Dflawnrc :  Delaware  R.  Co.  v.  Tharp, 
1  Houst.  149  (1866). 

Illinois :  Terre  Haute,  etc.  U.  Co.  i;. 
Earp,  21  111.  291  (18."i9);  Sprague  v. 
Illinois  Uiver  U.  Co.,  19  111.  174  (1857). 

Iiniiana:  Sparrow r.  Evansville,  etc. 
R.  Co.,  7  Ind.  .309  (1H5G)  ;  Hisii  v.  John- 
son. 21  Ind.  299  (1863). 

Kfuturkji :  Fry  v.  Lexington,  etc.  R. 
Co.,  2  Mete.  314  (1859). 

Missouri :  I'.acific  li.  Co.  v.  Renshaw, 
18  Mo.  210  (1853). 

Ohio:  Mansfield, etc.  R.  Co. c.  Brown, 
26  Ohio  St.  223  (1875). 

Pennsijlvania :  Hamilton  v.  Clarion, 
etc.  R.  Co..  144  Pa.  St.  34  (1891),  (23 
Atl.  Rep.  .V3). 

Compare  Cork,  etc.  R.  Co.  v.  Pat- 
terson, 18  C.  B.  414  (1856),  (37  Eng. 
L.  &  Eq.  398)  ;  Kenosha,  etc.  R.  Co.  v. 
Marsh,  17  Wis.  13  (1863). 

'■^  See  cases  cited  in  preceding  note. 
Also  iinte,  §  43  :  "  Requisilo  Xttmber  of 
Stockholders  —  (C)  Under  Enactments  in 
Exercise  of  Reserved  Power." 


CHAP.    VII.]  RIGHTS    AND   POWEBS.  §  69 

§  69.  Enforcement  of  Subscriber's  Obligations.  Conditional 
Subscriptions.  — Thc  consolidated  corporation  may,  in  its  own 
name,  enforce  the  liability  of  subscribers  to  stock  by  appro- 
})riate  actions,^  but  it  cannot  maintain  such  actions  until 
all  the  statutory  conditions  precedent  to  consolidation  have 
been  complied  with  and  it  has  acquired  a  distinct  corpo- 
rate existence.2  Thus,  it  has  been  held,  under  the  require- 
ments of  different  statutes,  that  no  such  action  can  be 
maintained  until  the  consolidated  company  has  elected  a  new 
board  of  directors,^  or  filed  its  certificate  of  consolidation 
with  the  Secretary  of  State,*  In  such  an  action  to  enforce 
an  obligation  upon  a  contract  made  with  another  corporation 
it  is  necessary  for  the  consolidated  corporation  to  show  that 
it  has,  and  in  what  manner  it  has,  succeeded  to  the  rights  of 
the  original  company  upon  such  contract.^  Proof  of  the  exist- 
ence of  the  consolidated  company  as  a  corporation  de  facto  is 
not  enough.  "  It  may  be  a  corporation  de  facto  and  entitled, 
as  such,  to  enforce  contracts  as  against  parties  who  have  dealt 
with  it,  without  at  the  same  time  in  any  manner  having  suc- 
ceeded to  the  riglits  of  the  .  .  .  company  with  which  the 
contract  of  the  defendant  was  made."  ^  Transfer  by  assign- 
ment or  transfer  by  succession  must  be  shown." 

If  a  subscription  to  the  stock  of  a  constituent  corporation 
is  made  upon  condition,  it  passes  to  the  consolidated  com- 

1  As  subscription  obligations,  with  ^  Mansfield,  etc.  R.  Co.  v.  Drinker, 
other  clwses  in  action,  pass  directly  to     30  Mich.  124  (1874). 

the  consolidated  corporation  by  virtue  g  Mansfield,  etc.  R.  Co.  v.  Drinker, 

of  the  consolidation  agreement  and  pro-  30  Mich.  124   (1874).     See  also  Tuttle 

ceedings  thereunder,  an  additional  for-  v.  Michigan  Air  Line  Co.,  35  Mich.  249 

mal  assignment  is  unnecessary,  but  such  (1877) ;  Mansfield,  etc.  R.  Co.  v.  Brown, 

assignment  is  sometimes  delivered  and  26  Ohio  St.  223  (1875)  ;  Peninsular  R. 

is  convenient  in  case  of  suit,  in  obviat-  Co.   v.    Tharp,  28   Mich.    506   (1874); 

ing  the  necessity  for  proving  the  fact  of  Brown  v.  Dibble,  65  Mich.  520  (1887), 

consolidation.  (32  N.  "W.  Rep.  656). 

2  Midland  R.  Co.  v.  Leech,  3  H.  L.  7  An  assignee  of  a  consolidated  cor- 
Cas.  872  (1852)  ;  Mansfield,  etc.  R.  Co.  poratiou  of  a  claim  upon  a  stock  sub- 
V.  Brown,  26  Ohio  St.  223  (1875)  ;  Kodg-  scriptionof  a  constituent  company  must, 
ers  V.  Wells,  44  Mich.  411  (1880),  (6  N.  likewise,  fail  in  his  action  to  collect  the 
W.  Rep.  860).  same  if  he  does  not  show  the  observance 

^Peninsular  R.  Co.  v.  Tharp,  28  of  the  statutory  conditions  to  con  solida- 
Mich.  506  (1874).  tion.     Rodgers  v.  Wells,  44  Mich.  411 

*  Mansfield,  etc.  R.  Co.  o.   Brown,     (1880),  (6  N.  W.  Rep.  860). 
26  Ohio  St.  223  (1875). 

8  113 


§  69  INTERCOUPORATK    RKLATIONS.  [I'AUr    I. 

puny  subject  tlicreto  ami  that  corporation  must  perform  the 
cunditiou  before  it  can  mainlain  any  action  upon  the  subscrip- 
tion. A  consolidated  corporation  may  also,  by  the  perform- 
ance of  conditions,  accept  a  continuing  conditional  offer  to 
subscribe  for  the  stock  of  one  of  its  constituent  companies,' 
Thus,  for  example,  a  condition  in  a  subscrijjtion  to  the  capital 
stock  of  a  railroad  company  that  its  railroad  shouhl  pass 
through  a  certain  place  might,  upon  its  consolidation,  l>e  com- 
plied with  by  the  consolidated  company  ;  and  the  subscription 
would  become  absolute  on  the  location  of  the  road  through 
the  place  named.' 

Calls  or  requisitions  for  the  payment  of  subscriptions  in 
instalments,  made  during  the  pendency  of  consolidation  pro- 
ceedings, continue  in  force,  after  consolidation,  for  the  benefit 
of  the  consolidated  company.  Such  recpiisitions  apply  not 
only  to  subscriptions  absolute  at  the  date  of  the  call  but 
to  conditional  subscriptions,  as  soon  as  the  conditions  are 
performed."' 

While,  generally,  consolidation  terminates  the  existence  of 
consolidating  corporations  so  that  they  cannot  thereafter 
maintain  actions,*  it  was  held  that  a  constituent  corporation 
might  bring  an  action  after  consolidation  against  a  sub- 
8cril)cr  upon  his  contract  of  subscription,^  which  could  be 
maintained,  unless  the  fact  of  consolidation  were  pleaded  in 
abatemout."  Upon  principle,  however,  it  would  seem  that 
the  dissolution  of  the  plaintiff  corporation  might  be  suggested 
upon  the  record  at  any  time. 

1  Mansfield,  etc.  11.  Co.  i-.  Pettii<,  26  the    ronsoli<l.itcd     company.       Dix    v. 

Ohio  St.  2.-)9  (187.5).  Shaver.  14  Ilun  (N.  Y.),  392  (1878). 

-  Mansfield,  etc.  R.  Co.  r.  Stoat,  26  «  .Mansfield,  etc.  R.  Co.  v.  Stout,  26 

Ohio  St.  241  (187.T).  Ohio  St.  241  (1875). 

Where  a  subscriiition  was  based  on  a  *  Pennsylvania    College    Ca.ses,   13 

corporation's  locating  its  road  at  a  cer-  Wall.  (U.  S.)  215  (1871)  :  "Neither  of 

tain  point,  but  the  road  was  not  built  the  original  corporations  is  competent  to 

by  that  company,  but  by  a  new  com-  sue  for  any  cause  of  action  subsequent 

pany  consolidated  with  one  orjjanized  in  date  to  their  acceptance  of  the  new 

on    foreclosure   of  the  first  company's  act  of  incorporation." 
property  and  franchise,  it  was  held  that  ^  Ilanna  r.  Cincinnati,  etc.  R.  Co., 

the  subscription  was  lacking  in  consid-  20  Ind.  30  (18G3). 
eration,  and  could  not  be  enforced  by         8  Swartwout  v.  Mich.    Air  Line  R. 


Co.,  24  Mich.  403  (1872). 


114 


CHAP.    VII.] 


RIGHTS   AND   POWERS. 


§70 


§  70.  Municipal  Aid. —  Counties  and  towns  through  which 
they  ran  furnished  the  principal  means  by  which  the  early 
railroads  in  the  Western  States  were  constructed.  The 
policy  of  rendering  such  aid  was  in  accordance  with  the  pub- 
lic sentiment  of  the  period.^  Aid  was  usually  rendered 
through  subscriptions  to  stock  and  payment  therefor  in  mu- 
nicipal bonds,  but  donations  were  not  uncommon  and  stand 
upon  the  same  legal  basis  as  subscriptions.^ 

Upon  consolidation  the  subscription  contracts  of  municipal 
corporations  pass  to  the  consolidated  company  in  the  same 
manner  as  other  subscriptions  and  it  succeeds  to  their  rights 
to  receive  municipal  aid.^     Tlie  power  given  by  the  legislature 


^  In  Scotland  County  v.  Thomas,  94 
U.  S.  693  (1876),  Mr.  Justice  Bradley 
said  :  "The  project  of  the  railroad  prom- 
ised a  great  public  improvement,  condu- 
cive to  the  interests  of  Alexandria  and 
the  counties  through  which  it  would  pass. 
Its  construction,  however,  would  greatly 
depend  upon  the  local  aid  and  encour- 
agement it  might  receive.  The  inter- 
ests of  its  projectors  and  of  the  country 
it  was  to  traverse  were  regarded  as 
mutual.  The  power  of  the  adjacent 
counties  and  towns  to  subscribe  to 
its  stock,  as  a  means  of  securing  its 
construction,  was  desired  not  only  by 
the  company,  but  by  the  inhabitants. 
Whether  the  policy  was  a  wise  one  or 
not  is  not  now  the  question.  It  was  in 
accordance  with  the  public  sentiment 
of  that  period.  The  power  was  sought 
at  the  hands  of  the  legislature,  and  was 
given.  It  was  relied  on  by  those  who 
subscribed  their  private  funds  to  the 
enterprise.  It  was  involved  in  the  gen- 
eral scheme  as  an  integral  part  of  it, 
and  as  much  contributory  and  neces- 
sary to  its  success  as  the  prospective 
right  to  take  tolls.  Why  it  should  not 
still  attach  to  this  portion  of  the  road, 
as  one  of  the  rights  and  privileges  be- 
longing to  it,  into  whose  hands  soever 
it  comes,  by  consolidation  or  otherwise, 
it  is  difficult  to  see." 

^  Railroad  Co.  v.  County  of  Otoe,  16 
Wall.  (U.  S.)  675  (1S72) :  "  It  is  urged, 
however,  against  the  validity  of  the  act 


now  under  consideration,  that  it  author- 
ized a  donation  of  the  county  bonds  to 
the  railroad  company,  and  it  is  insisted 
that  if  even  the  legislature  could  em- 
power the  county  to  subscribe  to  the 
stock  of  such  a  corporation,  it  could  not 
constitutionally  authorize  a  donation. 
Yet  there  is  no  solid  ground  of  distinc- 
tion between  a  subscription  to  stock 
and  an  appropriation  of  money  or  credit. 
Both  are  for  the  purpose  of  aiding  in 
the  construction  of  the  road ;  both  are 
aimed  at  the  same  object,  securing  a 
public  advantage,  obtaining  a  highway 
or  an  avenue  to  the  markets  of  the 
country ;  both  may  be  equally  burden- 
some to  the  taxpayers  of  the  county. 
The  stock  subscribed  for  may  be  worth- 
less, and  known  to  be  so."  See  also  New 
Buffalo  V.  Iron  Co.,  105  U.  S.73  (1881). 
3  United  States :  Livingston  County 
V.  First  Nat.  Bank,  128  U.  S.  102  (1888), 
(9  Sup.  Ct.  Rep.  18);  Bates  County  v. 
Winters,  112  U.  S.  325  (1884),  (5  Sup.Ct. 
Rep.  157)  ;  New  Buffalo  v.  Iron  Co.,  105 
U.  S.  73  (1881)  ;  Harter  v.  Kernochan, 
103  U.  S.  562  (1880) ;  Menesha  v.  Haz- 
ard, 102  U.  S.  81  (1880);  Empire  Town- 
ship V.  Darlington,  101  U.  S.  87  (1879)  ; 
Henry  County  v.  Nicolay,  95  U.  S.  619 
(1877) ;  East  Lincoln  v.  Davenport,  94 
U.  S.  801  (1876);  Callaway  County  v. 
Foster,  93  U.S.  567  (1876);  Scotland 
County  V.  Thomas,  94  U.  S.  682  (1876) ; 
Nugent  u.  Supervisors,  19  Wall.  (U.  S.), 
241  (1873) ;  Washburn  v.  Cass  County, 

115  . 


§  70 


INTERCORPORATE   RELATION'S. 


[part  I. 


to  a  municipal  corporation  to  make  a  donation  in  aid  of  the 
construction  of  a  railroad  is  itself  a  privilege  of  the  railroad 
corporation,  and  passes,  with  other  rights  and  privileges,  upon 
consolidation,  to  the  new  company.'  Whert-,  however,  before 
a  consolidation  was  effected,  a  constitutional  provision  bad 
been  adopted  prohibiting  county  aubscrijttions  without  the 
vote  of  the  people,  it  was  luld  that  the  consolidated  corpora- 
tion did  not  acquire  the  right  of  constituent  corporations  to 
receive  such  aid  without  such  vote.^ 

A  discussion  of  the  right  of  consolidated  companies  to 
receive  municipal  aid  voted  to  their  constituents  is,  prin- 
cipally, of  historic  value.  Public  sentiment  has  changed. 
Public  policy  as  indicated  by  constitutional  and  statutory 
provisions  is  adverse  to  municipal  aid  to  railroad  comjtanii'S, 
and,  only  in  exceptional  instances,  is  such  aid  granted  at  the 
present  time. 


3  Dill  (U.  S),  251  (1875):  L«wi«  ». 
Clarcuilon,  6  Hep.  609  (1878). 

lUinoit:  Kdwanls  v.  i'coplo.  8S  111. 
340  (I87H)  ;  Kolwrt.Hon  r.  Uih  kft)r«l.  '2\ 
111.  451  (1859);  Niaiitic  Savings  Hank 
r.  Doufjlass,  5  111.  A]>\k  57'J  (IST'J). 

Indiana  :  Scott  v.  ilaitshear,  94  luil.  1 
(188.3). 

Kansas :  Atchison,  etc,  H.  Co.  r. 
Phillipa  County,  25  Kan.  261  (1881); 
Chicago,  etc.  K.  Co.  r.  Stnffonl  County, 
36  Kan.  121  (18S7),  (12  Pacific  Hop. 
593). 

Missouri:  Stato  v.  Greene  County, 
54  Mo.  540  (1874);  Smith  r.  Clark 
County,  54  Mo.  58  (1873);  Hannibal, 
etc.  R.  Co.  V.  Marion  County,  36  Mo. 
294  (1865). 

Texas :  MorrcU  i;.  Smith  County,  89 
Tex.  529  (1896),  (36  S.  W.  Hep.  56). 

1  Harter  v.  Kernochan,  103  U.  S. 
574  (1880):  "The  act  .  .  .  fully  au- 
thorized the  consolidation  between  those 
two  companies,  and  upon  such  consoli- 
dation the  new  comi)any  succeeded  to 
all  tlie  rights,  franchises  and  powers  of 
the  constituent  comp-inies.  The  power 
in  the  township  to  maive  a  donation  in 
aid  of  the  construction  of  the  Illinois 

116 


SoQtheaatem  railwuy  was  alto  a  priri- 
lege  of  the  lattor  cor]>oration,  and  that 
privilege,  u|M>n  the  oinsolidation,  paMed 
to  the  now  ci>tn|>any." 

See  also  .Smith  r.  Clark  County,  54 
Mo  67  (IH73),  followed  in  Scotland 
County  r.  Thomas,  94  U.  S.  682  (1876), 
and  ca«cs  cited  in  preceding  note. 

"  Wagner  v.  .Mcctv,  69  Mo.  150 
(1878). 

In  llarehman  r.  Rates  County,  9S 
U.  S.  569  (1H75),  the  Supreme  Court 
of  the  United  States  held  where  author* 
ity  IukI  lioen  given  to  a  county  court  by 
the  electors  of  a  town.thip  to  .tubscribe, 
in  its  behalf,  for  st<H-k  in  a  certain  rail- 
road company  that,  upon  principles  of 
the  law  of  attorney  and  constituent, 
the  consolidation  of  such  company  with 
an^>ther  revoked  the  power. 

In  WiUon  v.  S.ilamnnc,i,  99  U.  S.  499 
(1878),  however,  the  Court  distingui.shed 
the  al)ove  case  from  a  case  where  a  sub- 
scription had  been  maile  under  similar 
conditions  by  a  township  trustee  and 
clerk,  holding  that  they  acted  in  tlicir 
official  capacity  as  township  authorities 
and  not  as  mere  agents,  and  that  the 
township  was  liable. 


CHAP,    VII.]  RIGHTS   AND    POWERS.  §  72 

§  71.  Constitutional  Limitations  upon  Grants  of  Privileges 
and  Immunities.  —  Constitutional  provisions  in  many  States 
prohibit  the  grant  of  special  privileges  and  immunities. 

When  consolidation  takes  the  form  of  merger  these  provi- 
sions are  inapplicable,  for  the  privileges  and  exemptions  of 
the  merging  companies  pass  to  an  existing  corporation,  which 
takes  by  transfer  and  not  bj  grant.^ 

When,  however,  the  effect  of  consolidation  is  to  dissolve 
the  consolidating  companies  and  to  create  in  their  stead  a 
new  and  distinct  corporation  this  new  corporation  takes  every- 
thing by  grant  —  express  or  by  reference  —  and  the  legisla- 
ture is  controlled  by  existing  constitutional  limitations  in 
granting  it  privileges.^  The  new  consolidated  corporation  is 
subject  to  all  constitutional  provisions  in  force  at  the  time  of 
its  creation  in  precisely  the  same  manner  as  other  new  cor- 
porations. Where  corporations  enjoying  irrepealable  privi- 
leges and  exemptions  consolidate  and  a  new  corporation  is 
created  it  takes  such  privileges  subject  to  constitutional  or 
statutory  provisions  reserving  to  the  legislature  power  to 
repeal  the  charter  provisions  granting  them.^ 

Questions  as  to  the  effect  of  constitutional  provisions  upon 
the  special  immunities  of  consolidating  corporations  generally 
arise  in  connection  with  exemptions  from  taxation  and  are 
further  considered  in  the  next  section. 

§72.  Exemptions  from  Taxation.  —  As  already  indicated, 
the  purpose  of  acts  permitting  the  merger  of  corporations  is, 
generally,  to  vest  in  the  absorbing  company  the  privileges  and 
immunities,  including  exemptions  from  taxation,  of  the  com- 

1  Tennessee  y.  Whitworth,  117  U.S.  413);  St.  Louis,  etc.  E.  Co.  v.  Berry, 
147  (1885),  (6  Sup.  Ct.  Rep.  649)  ;  Cen-  113  U.  S.  46."}  (1885),  (5  Sup.  Ct.  Rep. 
tral  R.,  etc.  Co.  v.  Georgia,  92  U.  S.  665  529) ;  Railroad  Co.  v.  Georgia,  98  U.  S. 
(1875);  Southwestern  R.,  etc.  Co.  i-.  359  (1878);  Railroad  Co.  v.  Maine,  96 
Georgia,  92  U.  S.  676,  note  (1875).  U.  S.  499  (1877);  Shields  v.  Ohio,  95 
Compare  Zimmer  v.  State,  30  Ark.  677  U.  S.  319  (1877) ;  Keokuk,  etc.  R.  Co. 
(1875).  V.  Scotland  County,  41  Fed.  305  (1890). 

2  Yazoo,  etc.  R.  Co.  v.  Adams,  180  ^  Railroad  Co.  v.  Georgia,  98  U.  S. 
U.  S.  1  (1901),  (21  Sup.  Ct.  Rep.  240) ;  359  (1878).  See  also  cases  cited  in  note 
Minneapolis,  etc.  R.  Co.  v.  Gardner,  2.  Compare  Citizens'  Street  R.  Co.  v. 
177  U.  S.  332  (1900),  (20  Sup.  Ct.  Rep.  Memphis,  53  Fed.  715  (1893).  See  ante, 
656) ;  Norfolk,  etc.  R.  Co.  v.  Pendleton,  §  66  :  "  Real  Estate  and  Rights  in 
156  U.  S.  673  (1895),  (15  Sup.  Ct.  Eep.  Streets." 

117 


§■2 


INTERCORPORATE   RELATIONS. 


[part  1. 


panics  absorbed,  and  such  is  tlie  legal  presumption.'  The 
merger  docs  not,  hinvever,  cnhirgc  the  rights  acquired  nor 
bestow  new  iniinunilies.*  Thus,  where  one  railroad  corpora- 
tion which  enjoyed  an  exemption  from  taxation  for  a  limited 
period  was  merged  in  another  company  having  a  perpetual 
excmi»tion,  it  was  held  that  such  j>er|)etual  exemption  did  not 
a|)ply  to  the  railroad  of  the  absorbed  comi)any,  and  that  it 
became  subject  to  taxation  upon  the  expiration  of  the  period 
limited.^ 

When  a  new  corporation  is  created  as  tlic  result  of  consoli- 
dation the  question  whether  it  acquires  the  exemptions  from 
taxation  enjoyed  by  its  constituent  companies  depends  upon 
the  constitution  of  the  State  and  the  terms  of  the  consoli- 
dation act.  If  the  constitution  prohibits  the  grant  of  such 
exemptions  they  cannot,  as  shown  in  the  last  section,  be 
bestowed  on  the  consolidated  company.* 


*  TcnncMco  r.  Wliiiworth,  117  I.'.  S. 
147  (188J).  (6  Sap.  C't.  U«p  M9). 

«  Ciiilrnl  U.,  otc.  Co.  i-.  (JoorRia,  92 
U.  S.  675  (LS75).  "The  obvious  pur 
IMWo  of  the  net  wn.H  to  vest  in  the  Central 
Company  the  rij^hls,  privilcjjeii,  iin- 
munitie.t,  property,  nntl  fnujrhi.Hrs  which 
had  belonged  to  the  Macon  and  West- 
ern Company ;  not  to  enlarpc  those 
rij^hts,  or  to  bestow  new  immunities. 
If,  therefore,  the  Maron  and  Wostcm 
heM  its  franchi.Hos  an<l  property  .nubjoct 
to  taxation,  tlio  Central,  succeeilinjj  to 
the  francliises  and  property,  hoMs  them 
alike  subject.  It  took  them  just  as  they 
wcre,aci|uirinp  no  additional  or  enlarged 
right.''  u.s  again.st  the  State." 

See  also  .'^outhwc-'tern  R.,  etc.  Co.  v. 
Georgi.-i,  'r2  U.  S.  676  (1S75).  in  note  to 
above  case.  Also  Keoknk,  etc.  R.  Co.  i*. 
Missouri,  152  U.  S.  301  (1894),  (14  Sap. 
Ct.  Kep.  392) ;  State  v.  Philadelphia, 
etc.  R.  Co.,  45  Md.  361  (1876),  (24  Am. 
Rep.  511). 

'  Tomlinson  i'.  Branch,  15  Wall. 
(U.  S.)460  (1872). 

*  In  St.  Louis,  etc.  R.  Co.  v.  Berry, 
113  U.  S.  465  (1885).  (5  Sup.  Ct.  Rep. 
529),  it  w.ns  held  :  A  consolidation  of 
two   railway  companies   by  an   agree- 

118 


ment  which  proMded  that  all  the  prop- 
erty of  each  comjwvny  should  be  taken 
an<i  deemed  to  be  transferred  to  the 
coiis<didated  company  "as  such  new 
corporation  without  further  act  or  deed," 
crt-atcd  a  new  corjHiration,  with  an  ex- 
istence dating  from  the  time  when  the 
con.Holidntioii  took  effect,  and  subject 
to  constitutional  provisions  res{>ecting 
t.ixatiou  in  force  in  the  State  at  tliat 
time. 

In  Keoknk,  etc.  R.  Co.  v.  Scotland 
County,  41  Fed.  ."JOS  (1890),  the  Court 
said  that  a  consolidation  of  two  railroad 
companies  under  the  Mi.^souri  consoli- 
dation act  o|>crated  as  tlic  creation 
of  a  new  corporation,  wliolly  distinct 
from  the  constituent  corporations  out  of 
which  it  W.1S  forme<l,  which  new  corpo- 
ration derived  its  powers  and  franchi.*es 
from  the  cons<jlidation  act ;  ami  since 
Const.  Mo.  1865,  Art.  11,  par.  16,  pro 
hibiting  legi.slative  exemption  from 
taxation,  was  adopted  before  the  pas- 
sage of  the  act,  the  consolidated  corj>o- 
ration  did  not  acquire  the  immunity 
from  taxation  granted  in  1857  to  one 
of  its  constituent  corporations. 

See  also  cases  cited  iu  notes  to  pre- 
ceding section. 


CHAP.   VII.]  RIGHTS   AND   POWERS.  §  72 

Where  the  constitution  contains  no  prohibition  of  such 
exemptions,  their  existence  depends  entirely  upon  the  pro- 
visions of  the  consolidation  act.  The  courts  view  such  ex- 
emptions with  disfavor  and,  in  construing  consolidation 
statutes,  hold  that,  in  the  absence  of  an  express  statutory 
direction  or  of  an  equivalent  implication  by  necessary  con- 
struction, exemptions  from  taxation  in  the  charters  of  con- 
solidating corporations  do  not  pass  to  the  new  corporation 
succeeding,  by  consolidation,  to  their  property  and  ordi- 
nary franchises.^ 

In  the  recent  case  of  Yazoo,  etc.  B.  Co.  y.  Adams^  Mr. 
Justice  Brown  said :  "  Exemptions  from  taxation  are  not 
favored  by  law,  and  will  not  be  sustained  unless  such  clearly 
appears  to  have  been  the  intent  of  the  legislature.  Public 
policy  in  the  United  States  has  almost  necessarily  exempted 
from  the  scope  of  the  taxing  power  large  amounts  of  prop- 
erty used  for  religious,  educational  and  municipal  purposes ; 
but  this  list  ought  not  to  be  extended  except  for  very  sub- 
stantial reasons ;  and  while,  as  we  have  held  in  many  cases, 
legislatures  may  in  the  interest  of  the  public,  contract  for  the 
exemption  of  other  property,  such  contracts  should  receive  a 
strict  interpretation,  and  every  reasonable  doubt  be  resolved 
in  favor  of  the  taxing  power.  Indeed,  it  is  not  too  much  to 
say  that  courts  are  astute  to  seize  upon  evidence  tending  to 
show  either  that  such  exemptions  were  not  originally  intended, 
or  that  they  have  become  inoperative  by  changes  in  the 
original  constitution  of  the  companies." 

Where,  however,  the  consolidation  act  provides  that  the 
consolidated  corporation  shall  be  "  vested  with  all  the 
immunities  "  of  the  old  companies,  or  uses  other  language 

1  Norfolk,  etc.  R.  Co.  v.  Pendleton,  solidation  or   by  purchase   under  fore- 

156  U.  S   673  (1895),  (15  Sup.  Ct.  Rep.  closure,  to  the  property  and  ordinary 

413):  "  We  have  frequently  held  that,  in  franchises  of  the  first  grantee." 
the  absence  of  express  statutory  direc-  See  also  Petersburgh  v.  Petersburgh. 

tion,  or  of  an  equivalent  implication  by  R.  Co.,  29  Gratt.  (Va.)  773  (1878). 
necessary   construction,   provisions,    in  ^  Yazoo,  etc.  R.  Co.  v.  Adams,  180 

restriction  of  the  right  of  the  State  to  U.  S.  22  (1901),  (21  Sup.  Ct.  Rep.  240). 

tax   the   property    or   to   regulate   the  See   also   Railroad    Co.  v.  Georgia,  98 

affairs  of  its  corporations,  do  not  pass  U.    S.   363     (1878);    Railroad    Co.    v. 

to  new  corporations  succeeding,  by  con-  Maine,  96  U.  S.  308  (1877). 

119 


5  72 


INTERCORPORATE   RELATIONS. 


[part  I. 


clearly  evidencing  a  legislative  intent  to  bestow  such  special 
privik'gos  upon  the  consolidated  corporation,  it  thereby  suc- 
ceeds to  an  exLinptiun  from  taxation  contained  in  the  charter 
of  a  constituent  corporation.^  Such  an  exemption,  however, 
applies  only  to  the  property  to  which  it  adhered  when  enjoyed 
by  the  original  company.  "  Whatever  property  was  subject 
to  taxation  would,  after  the  consolidation,  remain  so.'"'' 

Improvements,  betterments  and  repairs  made  upon  the 
properties  by  the  consolitlated  company  arc  subject  to  taxa- 
tion or  exem[)tion  according  to  the  rule  applied  to  the  resj)ec- 
tivo  properties  upon  which  they  were  made.' 


>  Atlantic,  etc.  R.  Co.  i-.  Allen,  15 
Fl.  637  ( 1«76).  In  tiiis  cajK-  the  act  j>ro- 
vidcd  that  "  all  the  rights,  fmnchi^cs 
and  privileges "  shouKl  pass,  and  the 
Court  said:  "A  riglit  t>(  exemption 
from  taxation  can  lie  pxssed  under  the 
general  language  'all  the  right.-*'  iho 
eame  as  any  other  right.  Wi-  ran  nee 
no  difference.  .  .  .  The  term 'all  right*' 
emhrace  each  right." 

Sec,  however,  /'o«f,  §  ICO:  "  Exemjy- 
tions  from  Tn rntinn." 

'  A  railroa<l  corporation,  formed 
nnder  an  act  of  the  !egi.«lature.  I)y  the 
consolidation  of  existing  companies  and 
"  ve.stcd  with  all  the  rights,  privileges, 
franchises,  and  property  which  may 
have  been  vested  in  cither  company 
prior  to  the  act  of  consolidation,"  ac- 
quires no  greater  immunity  from  taxa- 
tion than  they  severally  enjoyed  aa  to 
the  portions  of  the  road  which  belonged 
to  them  under  their  re'<pe-'tive  charters. 
Whatever  property  was  subject  to  tax- 
ation would,  after  the  con.solidation, 
remain  so.  Chesapeake,  etc.  R.  Co.  r. 
Virginia,  94  U.  S.  718  (1876). 

Sec  also  Central,  etc.  R.  Co.  v. 
Georgia.  92  U.  S.  66.)  (187.^);  Branch 
r.  Charleston,  92  U.  S.  677  (1875); 
Tomlinson  i-.  Branch,  15  Wall.  400 
(1872);  Charleston  v.  Branch,  15 
Wall.  (U.  S.)  470  (1872),  note;  Dela- 
ware R.  R.  Tax.,  18  Wall.  20G  (1873)  ; 
Philadelphia,  etc.  R.  Co.  v.  Maryland, 
10  How.  377  (1850);  State  v.  Wood- 
ruff, 36   N.  J.  L.  94    (1872);    State  v. 

120 


Philadelphia,    etc.  R.  Co.,  45  Md.  361 
(1876),  (i'4  Am.  Rep.  511). 

•  Branch  r.  Charleston,  92  U.  S.  682 
(1875):  "  It  does  nut  follow,  therefore, 
that  this  part  uf  the  ruail,  though  u.sed 
furtheaccomm'Hiation  of  both  bninches. 
Bhould  bo  regarded  a«  divisible  into 
pro[x)rtional  parts,  uuo  subject  to  taxa- 
tion and  the  other  not.  It  is  to  be 
regarded  as  simply  the  road  and  prop- 
erty of  the  old  company  ;  in  the  hands 
of  the  new  company  it  is  true,  but  sub- 
ject to  all  the  lialiilities  of  its  original 
charter.  Hence  we  hebl  that  the  entire 
lino  <»f  road  l»etween  IJranchville  and 
Charleston  is  suliject  to  taxation  ;  and 
that  jirimit  f'arie  the  railroad  terminus 
and  depot  in  Charlestou  and  the  prop- 
erty occessory  thereto  lielong  to  the 
older  portion  of  tho  joint  jiroperty. 
But  inasmuch  as  the  charter  right  of 
the  present  company  extended  to 
Charleston,  we  further  held,  that  if  it 
could  be  fairly  shown  that  any  of  tho 
company's  property  there  was  acquired 
by  the  present  company  for  tho  accom- 
modation of  the  business  belonging  to 
its  original  ro.ids,  or  for  the  joint  ac- 
commodation of  the  entire  system  of 
roails  under  its  control,  such  property 
would,  pro  tanto  an<l  in  fair  pn^portion, 
be  exempt  from  taxation.  This  was 
intended  to  meet  the  case  of  such  prop- 
erty as  the  present  company  might 
have  acquired  in  Charleston,  either 
separately  or  in  conjunction  with  the 
old    company,    had    no    consolidation 


CHAP.    Vir.]  RIGHTS   AND    POWERS.  §  74 

A  conditional  exemption  from  taxation  dependent  upon  cer- 
tain returns  being  made  and  certain  acts  performed,  which 
the  consolidated  corporation  is  neither  required  nor  able  to 
make  or  perform,  does  not  enure  to  its  benefit.^ 

§  73.  Special  Privileges  and  Immunities  other  than  Tax 
Exemptions.  —  Upon  a  consolidation  of  gas  light  companies 
the  consolidated  corporation  may  obtain  the  exclusive  privi- 
lege of  a  constituent  company  to  supply  a  city  with  gas.^  A 
consolidated  railroad  corporation  may  acquire  the  limited  lia- 
bility of  one  of  its  constituents  for  damages  for  killing  live 
stock. 

A  provision  in  the  cliarter  of  a  constituent  corporation 
exemptiug  its  officers,  agents  and  servants  from  military  and 
road  duty  and  from  serving  on  juries,  is  not  a  mere  personal 
privilege  conferred  upon  the  classes  of  persons  described  but 
constitutes  a  valuable  right  in  the  company,  and  passes,  upon 
consolidation,  to  the  consolidated  company.* 


II.    Powers. 

§  74.    Po-wera   of  Consolidated   Corpora.tion.       In   General.  — 
When  consolidation  is  effected  through  a  process  of  merger 

taken  place,  and  had  the  line  between  Nor  is  it  pretended  or  alleged  that  such 

Branchville   and    Charleston,  used    by  acts  have  been  done."    Ajfirmed  suhnom. 

both,  remained  the  property  of  the  old  Kaili-oad  Co.  v.  Maine,  96   U.    S.  508 

company.     Of  course,  in  carrying  out  (1877). 

this  principle,  any  repairs  or  improve-  ^  j^ew  Orleans  Gas  Co.  v.  Louisiana 

ments  made  on  the  old  line  or  the  prop-  Light,  etc.  Co.,  11,5  U.  S.  650  (1885), 

erty  of  the  old  company  would  become  (26  Sup.  Ct.  Rep.  52). 

a  part  thereof,  and  be  subject  to  taxa-  ^  Daniels  v.  St.  Louis,  etc.  R.  Co., 

tiou."  62  Mo.  43  (1876)  (sale). 

1  State  V.  Maine  Central  R.  Co.  66,  *  Zimmer    v.    State,   30    Ark.    677 

Me.    499     (1877):    "The    defendant's  (1875).     See   also   Hawkins   v.   Small, 

claim  to  immunity  from  taxation  or  for  7  Baxt.  (Tenn.)  193  (1874). 

a  limited  and  conditional  taxation  rests  Where  the  employees  of  a  Tennessee 

only  on  the  word  '  immunities '  in  sec-  corporation    were    exempt   from    road 

tion  4.    But  to  entitle  them  to  immunity  work  and  the  corporation  was  incorpo- 

they  must  first  of   all   be   enabled   or  rated  in  Alabama  with  the  same  privi- 

required  to  make  tiie  several  returns,  leges  it  was   held   that  the   employees 

and  do  and  perform   the  several  acts  were  likewise  exempt  from  sucli  duty 

upon  .which   such   limited   taxation  is  in  Alabama.     John.oon  r.  State  88  Ala. 

to  be  based.     But  that  they  are  not  so  176  (1889),  (7  So.  Rep.  253). 
enabled  or  required,  will  be  fully  seen. 

121 


§  74  INTERCORPORATE   RELATIONS.  [PART   I. 

the  absorbing  corporation  continues  in  existence  with  its  orig- 
inal powers  and  with  such  additional  powers,  derived  from 
the  corporations  al>rtorbed,  as  the  consolidation  statute  may 
confer. 

When,  however,  the  original  corporations  are  dissolved  and 
a  new  an<l  distinct  cor{)oration  is  created,  the  consolidation 
act  is  treated  as  a  grant  of  a  new  charter  to  the  consolidated 
corporation  '  wiiich  acquires  and  can  exercise  no  powers  not 
granted  expressly  or  by  necessary  ini|)lication  therein.^  It 
will  be  implied  that  the  consolidated  comjtany  takes  and  may 
exercise  the  powers  necessary  for  the  use  of  the  property  and 
franchises,  and  for  the  transaction  of  the  business  acipiired. 

The  consolidation  statute  need  not  specifically  enumerate 
the  corporate  powers  conferred,  but  may,  and  usually  does, 
designate  the  powers  and  |)rivilege8  granted  by  reference  to 
the  powers  of  the  constituent  companies.  "  I*owcrs  and 
j)rivileges  may  as  well  be  designated  l)y  reference  to  the  char- 
ters of  other  companies  as  by  s{)ecial  enumeration."  ^  The 
privileges  so  granted  by  reference,  liowever,  while  similar  to 
those  of  the  former  companies,  are  not  the  same.  They  are, 
essentially,  privileges  of  the  new  corporation,  to  be  exercised 
according  to  its  constitution  and  for  the  purposes  of  its 
creation.* 

'  In   ShieMs   r.   Ohio,   95  I'.  S.  323  wa«  made  operntiTe  hy  reference.     But 

(1877),     Mr.     Juatice     Swayno     naid :  thin  did  not  aifecl  the  lepal  result.     A 

"When    the    consolidation     was    com-  deed  ifi/fr/)ar<f  *  may  l>c  made  as  effectual 

ploted,   the    old   corporations    were  de-  by  referring  to  a  description  e].«»owhere 

stroyed,  a  new  one  wa.s  created,  and  its  a.-*  by  reoiiing  it  in  full  in  the  present 

powers    were    '  granted '    to    it,    in    all  instrument." 

respects,  in  view  of  the  law,  as  if  the  *  Where  a  new  corporation  is  formed 

old  companies  had  never  existed,   and  out  of  two  existing  corporations,  which, 

neither   of  them  had  ever  enjoyed  the  under  the  terms  of  the  consolidation, 

franchises  so  conferred."  cease   to   exist,    the   law  creating    the 

See   also    Charlotte,   etc.    R.    Co.    r.  new  corporation  controls  in  determining 

Gibbes,   27    S.  C.  385  (1887),  (4  S.  E.  what    are    its    corporate    powers    and 

Kep.  49).  franchises.     Crawfonl.sville,  etc.   Turn- 

a  Shields    v.    Ohio,    95    U.    S.    323  pike  Co.  r.  Fletcher,  104  Ind.  97  (1883), 

(1877) ;  Mead  v.  New  York,  etc.  li.  Co.,  (2  N.  E.  Hep.  243).      For  references  to 

45  Conn.  199  (1877).  consolidation    .statutes     providini^   gen- 

^  State    r.   Keokuk,  etc.   R.    Co.,  99  erally   that  the   consolidated   company 

Mo.  41   (1889),  (12  S.  W.  Rep.  290).  sliall    possess    all    the   potcvrs,    rights. 

Also  Shields  i'.  Ohio,    95  U.    S.  323  franchises,  etc.  of  the  consolidating  cor- 

(1877)  :  "The  language  was  brief  and  porations,  see  note  to  §  65,  ante. 

122 


CHAP.    VII.] 


RIGHTS   AND    POWERS. 


§75 


The  amount  of  capital  stock  which  the  consolidated  cor- 
poration is  authorized  to  issue  is  generally  fixed  by  the  con- 
solidation act  with  reference  to  the  amounts  issued  by  the 
companies  consolidating ;  and,  in  some  States,  it  is  provided 
that  the  capital  stock  of  the  consolidated  corporation  shall  not 
exceed  the  total  amount  of  the  capital  of  its  constituents.^ 

§  75.  Power  to  issue  Mortgage  Bonds.  —  General  consoli- 
dation statutes  often  provide  that  the  consolidated  company 
may,  under  prescribed  conditions,  issue  bonds  and  secure 
them  by  mortgage  of  its  property  and  franchises,^  and  may 
exchange  the  bonds  so  issued  for  the  bonds  of  its  constituent 
companies.^ 

Under  authority  to  issue  mortgage  bonds,  it  has  been  held 
that  a  consolidated  corporation  may  do  so  for  the  purpose  of 
taking  up  bonds  previously  issued  by  a  constituent  corpora- 
tion.* A  consolidated  company  may  also  purchase  and  retire 
the  bonds  of  its  constituents.^ 


1  Connecticut:  Gen'I.  Stat.  1888, 
§  3444. 

Idaho:  Session  Laws  1901,  p.  214, 
§  2. 

New  York:  Eailroad  Law,  §  71, 
Birdseye's  R.  S.  1901. 

North  Dakota:  Rev.  Code,  1899, 
§  2954. 

Oklahoma:  Stat.  1893,  par.  1016, 
Art.  9,  §  15. 

Washington :  Ballinger's  Anno.  Stat. 
1897,  §  4304. 

In  Neiv  Hampshire  the  capital  stock 
of  the  consolidated  company  may  not 
exceed  the  shares  of  the  constituent  cor- 
porations "  actually  issued  and  paid  for 
at  par."  (Pub.  Stat.  1901,  ch.  156,  §  26, 
p.  504.) 

In  Pennsylvania  the  amount  of  the 
capital  stock  is  not  limited  to  the 
amount  of  the  issues  of  the  consolidat- 
ing companies  and  is  fixed  in  tlie  con- 
solidation agreement.  (Bright.  Purd. 
Dig.  1894,  §  112,  p.  1802.)  See  also 
as  to  power  to  increase  stock,  Alabama 
Code,  §  1150.  New  Jersei/  Railroad  Law, 
par.  252-3   (G.    S.   1895,   p.  2698). 

2  Colorado:  Mills'  Anno.  Stat.  1891, 
ch.  30,  §  607. 


Connecticut:  Gen'I.  Stat.  1888,  §  3447. 

Georgia:  Code  1895,  §  2179. 

New  Jersey:  G.  S.  1895,  Vol.  II. 
R.  R.  Law,  §§  253,  255. 

New  York:  Railroad  Law,  §  72, 
Birdseye's  R.  S.  1901. 

Ohio:  Bates'  Anno.  Stat.  1902, 
§  3309  A. 

Pennsylvania:  Bright.  Purd.  Dig. 
1894,  §§  110,   111,  p.   1802. 

Tennessee:  Code  1896,  §  1528,  par.  5  ; 
Code  1884,  §  1269. 

3  New  Jersey:  G.  S.  1895,  Vol.  II., 
p.  2698  ;  R.  R.  Law,  §  253. 

New  York:  Railroad  Law,  §  72, 
Birdseye's  R.  S.  1901. 

Pennsylvania :  Bright.  Purd.  Dig. 
1894,  §§  110,  111,  p.   1802. 

Consolidation  statutes  also  sometimes 
limit  the  amount  of  bonds  and  their  rate 
of  interest  and  prescribe  tlie  method  to 
be  followed  in  issuing  them. 

*  Camden  Safe  Deposit,  etc.  Co.  v. 
Burlington  Carpet  Co.  (X.  J.  1895),  33 
Atl.  Rep.  479. 

5  Shaw  V.  Norfolk  County  R.  Co., 
16  Gray  (Mass),  411  (I860):  "Then 
[upon  consolidation]  the  Boston  and 
Kew  York  Railroad  Company,  having 

123 


§  76  INTERCORPORATE   RELATIONS.  [PART   I. 

Consolidation  acts  sometimes  stipulate  that  no  bonds  or 
other  evidences  of  indebtedness  shall  be  issncd  as  a  considera- 
tion for  or  in  connection  with  a  consolidation.* 

§  7G.  Right  of  Eminent  Domain.  —  A  Consolidated  corpora- 
tiuii  aciiuires,  anioni;  its  powers  and  priviletres,  the  ripht  to 
condemn  property  under  thepowerof  eminent  domain  granted 
to  a  constituent  corporation.^ 

It  has  been  questioned  wliether  it  takes  this  power  as  a 
quas isMcccssor  of  the  constituent  corporation  to  which  it  was 
originally  granted  or  whether  the  transfer  operates  as  a  new 
grant  of  the  power,  upon  tiie  same  terms,  to  the  consolidated 
company.  In  Ahhott  v.  New  York,  etc.  It.  Co.^  the  Supremo 
Judicial  Court  of  Massachusetts  said  :  "  It  seems  to  us  etiually 
clear  that  a  corporation,  by  consent  of  the  legislature,  may 
take  this  power  as  yi/'j-xi-successor  of  another  corporation  to 
which  it  was  originally  granted,  and  it  is  not  very  material 
whether  the  legislature  be  regarded  as  authorizing  a  transfer 
of  the  old  power,  or,  more  strictly,  as  delegating  a  new  power 
in  the  same  terms  as  the  old.  The  8ul)stancc  of  the  transac- 
tion is  seen  in  cases  of  consolidation."  Upon  the  principle, 
however,  that  a  consolidated  corporation  takes  everything  by 
creation  and  grant  it  seems  the  better  view  that  the  consoli- 

become   tho   owners   of  the  franchises  '  Abhott  r.  New  York,  etc.  H.  Co., 

and   pr()i)crty   of  the   Norfolk   County  14.')  Ma^s.  4.')0  (188S),   (l.-iN.  E.  Rep. 

l{ailro.-\.l  Comp.iny,  subject  to  the  right.s  91).     See  also  South  Carolina  K.  Co. 

of  their  creilicrs,  could  either  become  v.   Bl.ikc,  9  Hich.  (S.  C.)  *J28    (1856); 

pnrch;»!Jer-»  of  the   ont,'«t.in<lin;:    bonds,  Tre^tter  r.  Missouri,  etc.  H.  Co.,  33  Neb. 

and   boM   them  like  other  creditors,  or  171    (1891),    (49    N.    W.    Kep.    1110); 

could  pay  and  extinpui.>ih  them  for  the  Toledo,  etc.  R.  Co.  v.  Dunlap,  47  Mich, 

relief  and  discharEje  of  thoir  own  prop-  436  (1882),  (11  N.  W.  Rep.  271,  5  Am. 

erty,  a-;  they  should  deem  it  best    for  &    Eng.    R.    Cas.   378)  ;    Boston,    etc. 

their  interest  and  advantage   to  do."  R.    Co.    v.    Miilland    R.   Co.,    1     Gray 

^Connecticut:      Gen'l      Stat.     188S,  (.Mass.)  .359  (1854). 

§  3444.  The  right  to  condemn  lands  is  Bome- 

7(/(jAo  ;  Session  Laws  1901  p.  214,  §  2.  times   expressly   conferred    upon    the 

New  York:  R.  R.  Law,  §  71,  Birds-  consolidated    corporation    in   the    con- 
eye's  R.  S.  1901.  solidation  act. 
'  Xorth  Dakota:  Revised  Codes  1899,  Michigan:  P.  A.  1901,  p.  117. 
§2954.  New  Jersey:    R.   R.   Law,  par.  341, 

Oklnhoma:     Stat.     1893,   par.    1016,  §  2. 

p.  252.  '  Abbott  v.   New  York,  etc.   R.  Co , 

iras/j;»/7'on;  Ballinger's  Anno.  Stat.  145    Mass.    453     (1888),     (15    N.    E. 

1897,  §4304.  Rep.   91). 

124 


CHAP.    VII.]  RIGHTS   AND    POWERS.  §  77 

dation  statute  operates  as  a  new  grant  of  this  and  other 
powers. 

Inchoate  rights  of  a  constituent  corporation,  under  pending 
condemnation  proceedings,  pass  to  the  consolidated  company 
upon  consolidation.^ 

§  77.  Miscellaneous  Powers.  —  It  has  been  held  that  a  cor- 
poration which,  by  its  charter,  has  power  to  "  unite  with  any 
other  company "  by  consolidating  with  another  corporation 
exhausts  the  power,  and  it  does  not  pass,  with  other  powers 
and  privileges,  to  the  consolidated  corporation,^  The  right  of 
further  consolidation  is,  however,  sometimes  expressly  con- 
ferred in  consolidation  statutes.^ 

A  consolidated  corporation  may  apply  the  amount  received 
from  calls  upon  subscriptions  to  one  constituent  company  in 
payment  of  the  debts  of  another ;  ^  may  compromise  and 
settle  claims  against  any  constituent  company  and  maintain 
an  action  to  enforce  the  settlement ;  °  may  exercise  the  power 
of  a  constituent  corporation  to  charge  a  fixed  rate  for  trans- 
portation^ and,  generally,  may  enjoy  and  exercise  any  rights 
and  powers  conferred  by  the  consolidation  act.'^ 

^  Proceedings   instituted    by   a   rail-  ^  Idaho:  Laws  1901,  p.  214. 

road    company   to    acquire    lands,   by  North    Dakota:    Rev.     Codes     1899, 

condemnation,   for   its   road,  in  which  §  2954. 

commissioners  have  made  their  report  Washington :  Ballinger's  Anno.  Code 

and  award  of  damages,  from  wliich  the  &  Stat.  §  4304. 

land  owner  has  appealed,  do  not  become  Wisconsin:    Stat.    1898,  §    1833    (as 

void    ab  initio  nor  abate,  by  reason  of  amended  by  Laws  1899,  ch.  191). 

the   consolidation   and    merger  of   the  *  Cooper   v.    Shropshire    Union   Ji., 

condemning  company  with  another  rail-  etc.  Co.,   13   Jur.  443   (1849),  (6  Eug. 

road  company,  forming  a  new  corpo-  Railw.  Cases,  136). 

ration ;    but    the    rights    in    the    land  5  Paine   v.   Lake  Erie,  etc.   R.   Co., 

acquired  by  the  condemnation  proceed-  31  lud.  283  (1869). 

ings    survive    and    pass    to    the    new  '^  Fisher  v.    New  York  Central,  etc. 

corporation,  and  it  maybe  lawfully  sub-  R.  Co.,  46  N.  Y.  644  (1871). 

stituted   as   appellee   in    the    appellate  ^  Where  a  consolidation  act  provided 

court  and  the  case  then  proceed  to  trial,  that  the  new  company  should  have  the 

Day  v.  New  York,  etc.  R.  Co.,  58  N.  J.  L.  powers,  rights  and  franchises  conferred 

677  (1896),  (34  Atl.  Rep.  1081).  upon  two  or  more  railroad  corporations 

See  also  California  Central  R.  Co.  v.  in  case  they  should  bear  such  relation 

Hooper,  76  Cal.  404   (1888),  (18  Pac.  to  each  other  as  to  admit  the  passage  of 

Rep.  599).  cars  over   their  roads  continuously,  it 

■■^  Morrill  f.  Smith  County,  89  Tex.  529  was  held  that  such  corporations  having 

(1896),  (36  S.W.  Rep.  56).  See  however,  the   power    to   acquire   and  hold  land, 

Zimmer  v.  State,  30  Ark.  677  (1875).  might  confer  that  power  upon  the  con- 

125 


§  73  INTEKCOni'OIUTK    UJXATI0N8.  [TAitT    I. 

It  has  been  held  that  a  consolidated  corporation  has  no 
power  to  declare  dividends  upon  its  stock  out  of  tlie  earnings, 
before  consolidation,  of  a  corporation  iibsorbrd  by  it,  nor  to 
declare  dividends  upon  the  stock  of  the  merging  corporation 
out  of  its  own  earnings.^ 


CllAn'KR    VIII. 

OBLIGATIONS    OF   CONSOLIDATED    COUI'ORATIOS. 

I.    IHrtct  OUigtilimi. 

§  78.     CotiDtitDtioiiAl  IJmitAtiona. 

$  79.     An  a  (ioiinral  Uulo  C<>n«uliiJatc<l  Corpurstioo  dir«cUr  mmbm  all  ()blig»> 

tiotm  iif  CuitNtitueiiU. 
§  80.     OMif^tioii  to  jicTform  I'uMic  Dotie*  of  Coniititocnu. 
$  SL     Liability  of  (\)ti»<ili<lat«<l  Cuin|tan,v  to  Itomlholilpni  ai»l  rrvferrrd  Stock- 

holilent  of  CotiAtituonta.     ( Hhrr  Special  Cootrart*. 
5  82.     Liabilitr  for  Tort*  of  Coruitituentd. 
$  S3.     Hulc  uf  Liabilitr  inapplicable  to  Consolidation  after  Forocloaure  Sale. 

§  84.     Convoiitional  and  Statutory  Liens. 
§  85.     Kiiuitablo  Liens. 

in.    liemediet  of  Crtditori  of  Constituent  Corporations. 

§  86.  Ilomcdy  of  Troditorn  ni^ain.it  Consolidated  Corporation  —  At  I.m-»w. 

§  87.  Hrniedy  of  Croijitorn  —  In  K<|uity. 

§  88.  Krnii-dy  ai;niii.«t  ('nnntituont  (^lrp•^^ltion   if  not  dissolved. 

§  8'J.  Kff<'ct  of  Con.«olidaUi>n  upon  l'einlinj»  Saits. 

§  90.  I'pH-oduro  repnrdinjj  IVuding  Suit*. 

§  91.  Allegation  and  I'ro<if  <>f  (\)n«olidatiun. 

I.   IHrert  Ofilii/ationt. 

§  78.    Constitutional    Limitations.  —  Upon     principles    clsc- 
■where  considered,  the  obligations  of  a  consolidated  corpora- 

solidatcd  company  if  it  came  within  the  land  see  Matter  of  I*ro5pcct  Park,  etc. 

provi.to  st.itcd.     Georgia,  etc.  U.  Co.  r.  R.  Co.,  67  N.  V.  .371    (1876)  ;    Georgia 

Wilts,  86  Ala.  478  (1888),  (6  So.  Kep.  Pac     R.    Co.    i;.   (Jaines,   88    Ala.    377 

34).  (18M),  (7    So.  Rep.  .182). 

Generally  as  to  the  right  of  consoli-  MiscelLineons  st:\tntory  provisions  re- 
dated  corporations  to  acquire   title  to  lating  to  powers  and  privileges  of  cod- 


1  Chase  I'.  Vanderbilt,  37  N.  Y.  Super.  Ct.  334  (1874). 
126 


CHAP.  VIII.]    OBLIGATIONS   OP   CONSOLIDATED   CORPORATION.    §  79 

tion,  as  a  new  and  distinct  corporation,  are  determined  by  the 
constitutional  provisions  and  statutes  in  force  at  the  time  of 
its  creation  and  not  by  those  existing  at  the  time  of  the 
creation  of  its  constituent  companies.^  Thus  the  Supreme 
Court  of  the  United  States,  in  a  leading  case,  held  that  a  con- 
stitutional provision  that  "  no  special  privileges  shall  ever  be 
granted  that  may  not  be  altered,  revoked  or  repealed  by  the 
general  assembly,"  entered  into  an  act  under  which  railroad 
companies  had  consolidated  and  rendered  the  consolidated 
corporation  subject  to  the  obligation  —  imposed  by  a  later 
statute  —  of  carrying  passengers  at  a  reduced  rate  of  fare, 
which  would  not  have  been  binding  upon  its  constituent 
companies.^ 

§  79.  As  a  General  Rule  Consolidated  Corporation  directly 
assumes  all  Obligations  of  Constituents.  —  Consolidation  statutes 
generally  provide  that  all  rights  of  creditors  and  all  liens 
upon  the  property  of  constituent  corporations  shall  continue 
unimpaired  after  consolidation,  and  that  their  debts,  duties 
and  liabilities  shall  attach  to  the  consolidated  company  and  be 
enforceable  against  it,  to  the  same  extent  and  by  the  same 
process  as  if  they  had  been  contracted  by  it.^ 

solidated  corporations  are   as  follows  :  dated  company  limited   to   ninety-nine 

Consolidated  company  may  take,  hold  years    {Louisiana.   R.    S.  1897,  p.  758). 

and   dispose   of  stocks   and   bonds  ac-  In  addition  to  general  powers,  consoli- 

quired  by  consolidation  (Ohio.    Bates'  dated  company  enjoys   rights,   etc.   of 

Anno.  Stat.  1902,  §  3384  A).     Corpora-  each    of   its    constituents    (JVew    York. 

tion  formed  by  consolidation  of  domestic  Business  Corp.  Law  (amended  to  1900) 

and  foreign  railroads  may  hold  and  own  §  10). 

necessary  real  estate  in  adjoining  State  ^  See  ante,  §  71:  "  Constitutional  Limi- 

( Missouri.  R.   S.    1899,  §    1060).     Land  tations    upon    Grants   of  Privileges  and 

grants  pass   to    consolidated    company  Immunities." 

( Wisconsin.     Stat.     1888,     §    1833     as  ^  Shields    v.    Ohio,    95     U.   S.   319 

amended).      Consolidated  company  ac-  (1877).     See  also  Pick -y.  Northwestern 

quires  no  extraordinary  powers  not  en-  R.  Co.,  6  Biss.  (U.  S.)  177  (1874). 
joyed  by  each   of  constituents    (South  Restrictions   as  to    rate   of   fare  in 

Carolina.  R.  S.  1893,  §  1624).     Consoli-  charters   of    original    companies    bind 

dated  company  cannot  change  location  consolidated  corporation.     Campbell  v. 

of  road  which  has  received   municipal  Marietta,  etc.  R.  Co.,  23    Ohio  St.  168 

aid  (Illinois.  R.  S.  1901,  §  39).     Consoli-  (1872). 

dated  company  has  no  powers  and  privi-  ^  The  provision  in  the    New    York 

leges  which  could  not  be  possessed  by  railroad  consolidation  act  is  as  follows  : 

corporation  originally  organized  under  Railroad  Law  §   73   (Birdseye's  R.  S. 

the  act  (Michigan.  P.  A.   1899,  p.  451,  1896,  p.  2554)  :  "The  rights  of  all  the 

§  29).     Corporate  existence  of  consoli-  creditors  of,   and  all    liens    upon   the 

127 


§79 


INTERCORPORATE    RELATIONS. 


[part  I. 


In  the  absence  of  special  statutory  ])rovision,  nioreovrr, 
wlien  a  new  corporation  is  formed  l)y  tljc  consoli(lati(jn,  under 
authority  of  hiw,  of  several  distinct  corporations  and  acquires 
their  rights  and  faculties  it  must,  as  a  necessary  consecpience, 
be  subject  to  all  the  conditions  and  duties  imposed  by  the  law 
of  their  creation,^  and  is  answerable  for  the  debts  and  liabili- 
ties of  each  of  such  corporations,^  —  at  least  to  the  extent  of 
the  j)ropcrty  received  from  that  particular  corporation.^ 


property  t)f,  oithcr  of  such  corporations, 
parties  to  such  af^reemout  ami  act, 
shall  bo  preserved  uniinpaireii,  and  the 
respective  corporations  shall  he  deemed 
to  coiitiutio  in  existence  to  preserve  the 
same,  and  all  dchts  and  lialiilities  in- 
curred hy  either  of  such  corjiorations 
shall  thenceforth  attach  to  such  new 
corporation,  and  he  enforced  against  it 
and  its  projxrty  to  the  same  extent  xs 
if  incurred  or  contrai-tcd  hy  it." 

Otlicr  similar  hut  less  elaborate 
statutes,  relating  to  railroad  consolida- 
tions (excoj)t  as  noted)  are  as  follows: 

Al<ib,imii:  Code  1896,  §  1108  ;  §  1151 
(business  corporations). 

Arizona:   H.  S.  1901,  par.  864,  §  3. 

Arknnsax:  S.  &  II.  Dig.  1894,  §  0188, 

Cali/omia :  Tom.  Civ.  Code,  1901, 
§473. 

Colorado:  Mills'  Anno.  Stat.  1891, 
§  607.     §  628  (corporations  generally). 

Connecticut :  G.  S.  1888,  §  3446  ;  V.  A. 
1901,  ch.  151,  §  40  (business  corpora- 
tions). 

Delaware:  Laws  1901,  §  60;  Laws 
1899  §  S.S  (business  corporations). 

Illinois:  K.  S.  1901,  p.  1376,  §  41. 

M/Ao;  Laws  1901,  p.  214  ;  R.  S.  1887 
§  2673. 

Kansas:  G.  S.  1897,  ch.  70,  §  92. 

Kentiirki/ :  Stat.   1899,  ch.  32,  §  770; 

Stat.  1894,  §  550  (business  corporations). 

Louisiana:  Rev.  Laws  1897  (Act  39, 

1877,   p.    50);     Act   of  Dec.   12,    1874 

(business  corporations). 

Mart/land ;  §  39  a  (Act  of  April  7, 


1892)  supplementing  Gen.  Laws  1883, 
ch.  23  (business  corporations). 

Michiijan  :  Comp.  Laws  1897,  §  6255. 

Minnesota  :  G.  S.  1S94,  §§  2715,  2720. 

Missouri :  U.  S.  1889,  §  2786  (uiauu- 
facturing  companies). 

Montana  :  Code  &  Stat.  §  527  (mining 
companies). 

\elirasLa:  Comp.  Stat.  10OI,§  1767. 

Xeiada:  G.  S.  1885,  §  875;  §  1076 
(corporations  generally). 

yew  Jersey:  G.  S.  1895,  p.  2097.  §  3, 
par.  251;  p.  2703,  par.  283;  General 
Corporation  Act  1896,  §§  106,  107,  re- 
lates to  business  corporations. 

New  Mexico:  Comp.  Laws  1897, 
§  3896. 

New  York-:  Business  Corp.  Law 
(amended  to  1901).  §  12. 

Oliio:  Bates'  Anno.  Stat.  1902, 
§  3384. 

Pennsylvania :  Bright.  I'urd.  Dig. 
1894,  p.  1804,  §  117;  p.  1801.  §  109. 

South  Carolina:  R.  S.  1893,  §  1618. 

Tennessee:  Code  1896,  §  1526. 

Utah:  R.  S.  1898,  §  341  (corpora- 
tions generally). 

West  Virijinia:  Code  1899.  ch.  54, 
§  53  (a.s  amended  by  Acts  1901,  ch.  108). 

U'l/owinfj:  R.  S.  1899,  §  3204. 

1  Chicago,  etc.  R.  Co.  v.  Moffitt,  75 
111.  524  (1874). 

2  Langhorne  v.  Richmond,  etc.  R. 
Co..  91  Va.  374  (1895),  (22  S.  E.  Rep. 
159)  :  "The  corporation  which  is 
created  by  the  consolidation  of  other 
corporations,  or  the  surviving  corpora- 


8  Brum  V.  Merchants  Mut.  Ins.  Co.,  264   (1882);    Chicago,   etc.   R.    Co.    v. 

16  Fed.  140  (1883);  Harrison  v.  Ark-  Galey,  141   Ind.  3C0  (1895),  (39   N.   E. 

ansas  Vallev  R.  Co.,  4  McCrarv  (U.  S.)  Rep.  925). 
128 


CHAP.  VIII.]    OBLIGATIONS    OF   CONSOLIDATED    CORPORATION.    §  79 

In  Indianapolis,  etc.  R.  Co.  v.  Jones,^  the  Supreme  Court  of 
Indiana  said  :  "  For  the  purpose  of  answering  for  the  liabilities 
of  the  constituent  corporations,  the  consolidated  company 
should  be  deemed  to  be  merely  the  same  as  each  of  its  consti- 
tuents ;  their  existence  continued  in  it,  under  the  new  form 
and  name,  their  liabilities  still  existing  as  before  and  capable 
of  enforcement  against  the  new  company  in  the  same  way  as 
if  no  change  had  occurred  in  its  organization  or  name."  ^ 

The  statutory  liability  of  a  consolidated  corporation  for  the 
debts  and  liabilities  of  its  constituents  cannot  be  impaired,  as 
to  outside  creditors,  by  any  stipulations  in  the  consolidation 
agreement.     Parties  to  the  agreement,  however,  holding  claims 


tion  when  another  or  others  are  merged 
into  it,  is  ordinarily  deemed  the  same 
as  each  of  the  corporations  wliich 
formed  it  for  the  purpose  of  answering 
for  the  liabilities  of  the  old  corporation, 
and  may  be  sued  under  its  new  name, 
or  under  the  name  of  the  surviving 
company,  for  their  debts,  as  if  no 
change  had  been  made  in  the  name,  or 
in  the  organization  of  the  original  cor- 
porations." 

Louisville,  etc.  R.  Co.  v.  Boney,  1 1 7 
Ind.  501  (1888),  (20  N.  E.  Rep. '432)  : 
"  The  act  of  consolidation  involves  an 
implied  assumption  by  the  new  com- 
pany of  all  the  valid  debts  and  liabilities 
of  the  consolidating  companies." 

Berry  v.  Kansas  City,  etc.  R.  Co.,  52 
Kan.  774  (1894),  (36  Pac.  Rep.  724,  39 
Am.  St.  Rep.  381)  :  "  The  debts  of  the 
original  companies  follow  as  an  inci- 
dent of  the  consolidation  and  become,  by 
implication  (in  the  absence  of  express 
provision),  the  obligations  of  the  new 
corporation." 

See  also : 

United  States :  Pullman  Palace  Car 
Co.  V.  Missouri  Pac.  R.  Co.,  115  U.  S 
587  (1885),  (6  Sup.  Ct.  Rep.  194); 
Wabash,  etc.  R.  Co.  v.  Ham,  114  U.  S. 
587  (1885),  (5  Sup.  Ct.  Rep.  1081). 

Alabama :  Warren  v.  Mobile,  etc.  R. 
Co.,  49  Ala.  582,  (1873). 

Georgia :  Montgomery,  etc.  R.  Co. 
V.  Boring,  51  Ga.  582  (1874). 
9 


Illinois:  Columbus,  etc.  R.  Co.  v. 
Skidmore,  69  lU.  566  (1873);  Chicago, 
etc.  R.  Co.  V.  Moffitt,  75  111.  524  (1874) ; 
Western,  etc.  R.  Co.  i;.  Smith,  75  111. 
496  (1874). 

Indiana :  Indianapolis,  etc.  R.  Co.  v. 
Jones,  29  Ind.  465  (1868);  Columbus, 
etc.  R.  Co.  V.  Powell,  40  Ind.  37 
(1872). 

Missouri:  Thompson  v.  Abbott,  61 
Mo.  176  (1875). 

1  Indianapolis,  etc.  R.  Co.  v.  Jones, 
29  Ind.  467  (1868). 

2  In  Day  v.  Worcester,  etc.  R.  Co., 
151  Mass.  308  (1890),  (23  N.  E.  Rep. 
824),  the  Supreme  Judicial  Court  of 
Massachusetts  said  :  "  When  two  cor- 
porations are  consolidated,  no  doubt  for 
most  purposes  they  cease  to  exist,  and 
the  new  corporation  is  a  distinct  person 
in  the  eye  of  the  law,  although  it  their 
legal  successor.  But  no  fiction  is  nec- 
essary so  far  as  the  legislature  sees  fit 
to  say  that  the  new  corporation  shall 
be  regarded  as  the  same  with  one  of  the 
old  ones  or  even  alternately  as  the  same 
with  each ;  or,  more  explicitly,  that 
although  the  new  corporation  is  a  new 
person  for  the  acquisition  of  new 
rights  or  the  making  of  new  contracts, 
the  old  corporations  shall  not  be  alto- 
gether ended,  but  shall  continue  under 
the  new  name  so  far  as  to  preserve  all 
their  existing  obligations  unchanged." 

129 


§80 


INTERCOKPORATE    RELATIONS. 


[part  I. 


acrainst  the  consolidatiuf;  corporations  may  bar  tlicmselvcs 
fnjin  prcjceedint;  against  the  consulitlated  corporation  therefor.* 
§  80.  Obligation  to  perform  Public  Duties  of  Constitueuts. 
—  The  public  duties  of  corporations,  whethtr  imposed  l)y 
express  statutory  provisions  or  assumed  as  the  consideration 
of  the  grant  of  franchises,  devolve,  upon  consolidation,  uj)on 
the  consolidated  company.'  They  become,  essentially,  the 
obligations  of  that  company,  and  the  necessity  for  their  con- 
tinued performance  bears  no  relation  to  the  chartered  life  of 
the  corporation  to  which  they  were  originally  attached.  Thus 
it  was  held  that,  upon  the  consolidation  of  gas  light  com- 
panies, the  obligation  imposed  by  the  legislature  on  a  con- 
solidating company  to  furnish  gas,  free  of  charge,  to  a  charity 
hospital,  adhered  to  the  consolidated  company  without  refer- 
ence to  the  duration  of  the  charter  of  the  original  company.' 


>  MatU-r  of  I'tica  National  lircwinp 
Co.,  154  N.  V.  277  (1897),  (48  N.  E. 
Rep.  521):  '"In  the  roimolidatiDO  of 
forporatiori.i,  pursuant  to  the  provisions 
of  thi;  Btatute,  the  new  c-orjK)ration 
starts  ujMin  ita  existence  frei;;hte(l  with 
the  liabilities  of  the  old  rompanies  and 
Buliject  to  the  term.H  and  conditions  of 
the  con.'»olid.ation  agreement,  so  far  as 
they  arc  not  in  conflict  with  the  law. 
While  it  is  not  competent  to  do  any- 
thing which  would  impair  the  rights  of 
OQtside  creditors,  there  is  no  reason 
why  the  parties  to  the  consolidation 
agreement  may  not  hind  themselves  to 
something  deemed  for  the  henefit  of  the 
new  corporation,  and  that  is  what  seems 
to  have  been  done  in  this  ca.se.  The 
manifest  intention  of  the  stfKkholders 
of  the  old  companies,  who  united  in 
making  and  signing  the  consolida- 
tion agreement,  seems  to  have  been  to 
represent  that  their  corporate  proper- 
ties and  franchi.-<cs  vested  in  the  new 
company  freed  from  any  bunlen  of  in- 
debtedness. As  to  creditors  not  assent- 
ing to  any  such  arrangement,  this  was 
quite  unavailing  ;  but  as  to  themselves 
it  should,  and  would,  operate  to  bar 
their  claims,  while  the  other  creditors 
were  seeking  pavment  from  the  a.<8et8 

'  130 


of    the    corporation    since    become    in- 
solvent." 

*  Ti>mlinson  v.  Branch,  15  Wall. 
(U.  S.)  465  (1872):  "The  keeping 
alive  of  the  rightji  and  privileges  of  the 
old  company,  and  transferring  them  to 
the  new  comj)auy  iu  connection  with 
the  property,  indicates  the  legislative 
intent,  that  such  property  was  to  be 
holden  in  the  same  manner  and  subject 
to  the  same  rights  as  before.  The 
owners  of  the  proj>erty  were  to  lose 
no  rights  by  the  transfer,  nor  was  the 
public  to  lose  any  rights  thereby.  ( »f 
course,  these  remarks  do  not  apply  to 
those  corporate  rights  and  franchises 
of  the  old  company,  which  appertain 
to  its  existence  and  functions  as  a  cor- 
poration. The.se  became  merged  and 
extinct.  But  all  its  rights  and  duties, 
its  privileges  and  obligations,  as  re- 
lated to  the  public,  or  to  thinl  persons, 
remain,  and  devolve  upon,  the  new  com- 
pany." 

*  Charity  Hospital  r.  New  Orleans 
Gas  Light  Co.,  40  La.  Ann.  388  (1888). 
(2  So.  Rep.  433) :  "  Through  the  same 
channel  which  led  the  defendant  com- 
pany to  the  right  of  ownership  of  all  the 
property  and  rights  of  the  former  New 
(-•rleans  Gas  Light  Company,  it  must 


CHAP.  VIII. J    OBLIGATIONS    OF    CONSOLIDATED    CORPORATION.     §  81 

An  attempt  in  a  consolidation  agreement  between  quasi- 
public  corporations  to  prevent  the  devolution  of  public  duties 
upon  the  consolidated  company  and  any  attempt  by  the  con- 
solidated company  to  absolve  itself  from  its  obligations  to  the 
public,  are  against  public  policy.  In  Peoria,  etc.  R.  Co.  v. 
Coal  Valley  Mining  Co.,  the  Supreme  Court  of  Illinois  said :  ^ 
"  When  they  accept  their  charters,  it  is  with  the  implied 
understanding  that  they  will  fairly  perform  these  duties  to 
the  public,  as  common  carriers  of  both  persons  and  property, 
under  the  responsibility  which  that  relation  imposes.  And 
this  is  a  duty  they  cannot  escape  by  neglect,  refusal,  or  by 
agreement  with  other  persons  or  corporations  that  they  will 
disregard  or  refuse  to  perform  them.  These  are  duties  they 
owe  the  public,  and  it  was  in  consideration  that  they  would 
be  performed  that  their  charters  were  granted.  They  have  no 
power  to  absolve  themselves  from  performing  these  charter 
obligations,  and  any  effort  to  do  so  by  contract  or  otherwise  is 
void." 

§  81.  Liability  of  Consolidated  Company  to  Bondholders 
and  Preferred  Stockholders  of  Constituents.  Other  Special 
Contracts.  —  The  rule  that  a  consolidated  corporation  is  liable 
upon  the  obligations  of  its  constituents  applies  to  their  sealed 

be  led  and  coerced  to  the  discharge  of         As  to  liability  of  consolidated  com- 

the   obligations  which  have   been    im-  pany  in  South  Carolina  to  assessment 

posed  on  its  author  by  the  law  which  for  expenses  of  railroad  commissioners 

had  created  it  and  which  authorized  the  see  Charlotte,  etc,  R.  Co.  v.  Gibbes,  27 

organization  of  the  new  company."  S.  C.  385  (1887),  (4  S.  E.  Rep.  49). 

A  corporation    formed  by  the   con-  ^  Peoria,  etc.  R.  Co.  v.  Coal  Valley 

solidation  of  two  boom  companies  must  Min.  Co.,   68    111.  489  (1873).     In  this 

maintain  the   separate  booms  of  each  case  a  consolidation  agreement  between 

company  and  deliver  logs  at  each  as  several  railroad  corporations  contained 

required  in  the  original  charters.    Gould  a  reservation  to  one  of  the  companies 

V.  Langdon,  43  Pa.  St.  36.5,  (1862).  of  the  exclusive  right  to  carry  coal  over 

Under  the  federal  income  tax  law  a  the  united  railroads  until  the  annual 
consolidated  corporation  was  held  liable  interest  payment  due  said  company  had 
for  a  tax  upon  "  interest  certificates,"  been  discharged  from  the  tolls,  and  it 
in  the  nature  of  dividend  scrip  issued  was  held  that  such  agreement,  in  re- 
by  a  constituent  company  before  con-  straint  of  competition,  was  contrary  to 
solidation  where  the  consolidation  act  public  policy  and  not  enforceable  in 
preserved  all  rights  of  creditors  and  equity ;  that  the  consolidated  company 
made  the  new  corporation  liable  for  the  became  liable  for  the  performance  of 
debts  and  obligations  of  the  old  com-  the  duties  of  the  original  companies 
panics.  Bailey  v.  Railroad  Co.,  22  as  common  carriers  and  that  no  con- 
Wall.  (U.  S.)  604  (1874).  tract  could  absolve  it  therefrom. 

131 


§81 


INTERCORrOUATK    UKLAT10N3. 


[part  I. 


instruments  and  special  contracts  as  well  as  to  their  8im|)le 
debts.' 

Bonds  issued  by  a  constituent  corporation  convertible  into 
stock,  at  the  option  of  the  holder,  confer  upon  him  a  valuable 
j)rivil('^'e,  of  which  he  ciinnot  be  deprivrd  by  consoliduti(jn, 
A  holder  of  such  convertible  bonds  is  entitled  to  a  fair  op- 
portunity to  make  liis  election,  and  cannot  be  relegated  to  the 
rif^hts  conferred  by  the  consolidation  agreement  without  it.' 
lie  may  maintain  an  action  against  the  consolidated  company 
to  recover  damages  for  breach  of  the  contract  contained  in 
the  bond,*  or  if  consolidation  has  been  effected  on  a  basis  of 
e(|ualitv  l)etween  the  shares  of  the  consolidated  and  the  original 
conjpany,  he  has  the  right  to  exchange  his  bonds  for  stock  in 
the  consolidated  company.*  A  stockholder,  however,  by  par- 
ticipating, as  such,  in  a  consolidation  which  renders  inipos.si- 
blc  the  conversion  of  his  bond.s,  may  l)e  held  to  have  elected 
not  to  exchange.' 


1  CiciuTallv,  tli»l  a  conit<>li<latc«l 
companj  in  li;iltlo  Ofx-Mi  the  tuiilnutu  of 
itH  coiistiituentd  ;  Wosutii  Union  U.  Co. 
1-.  Smith.  75  III.  496  (1874)  ;  Katon.  etc. 
R  Co.  V.  Hunt.  20  Ind.  457  (18M); 
Coluin»>u»,  eU-.  U.  Co.  c.  Ski.lmore,  69 
III.  5f,6  (187.1);  SL  Loui;*.  etc.  U.  Co. 
1-.  Miller,  4.1  III.  199  (1867).  AU«.  ca»e» 
iu  note  to  §  79.  autr. 

2  UoRcnkranfl  v.  Lafayette,  etc.  R. 
Co..  IS  Fed.  51.1  (188.1). 

•  .lohii  llancoik  .Mnt.  Life  In.s.  Co. 
r.  Worce.fter.  etc.  R.  Co..  149  Ma»8. 
214  (18.sy),  (21  N.  E.  Rop.  364). 

*  A  .st.itiite  autlii>ri/.inj;  the  con- 
solidation of  two  rrtilro.id  companies 
provided  that  the  con.solidiited  corpt)ra- 
tion  should  "  be  suhject  to  all  the  duties, 
restrictions,  oblii^ations.  debts,  and 
liabilities  to  which,  at  the  time  of  the 
union,  either  of  said  corporations  is 
subject,"  and  that  *'  all  claims  and  con- 
tracts .  .  .  against  either  corjKjration 
mav  be  enforced  by  .suit  or  action  .  .  . 
apainst  the  "  consolid.ited  corporation. 
The  consolidation  w«»  made  on  the 
ba.sis  of  equality  between  the  shares  of 
the  two  corporations.  Hf!d,  that  the 
holders  of  bonds  of  a  constituent  com- 

132 


pany  convertible  into  stock  wi-re  en- 
titltHJ  to  deuiaiiil  stock  in  the  new 
corjM>ration,  a«,  for  the  pnrjiosrs  of  the 
contnu-t,  the  idd  coriM)ration  contiiiue<l 
under  the  new  name.  Day  v.  \Vorce»- 
tcr,  etc.  R.  Co.,  151  Ma.w.  .102  (1890). 
(23  N.  K.  Rcpi  824):  India  .Mut.  Iiw. 
Co.  V.  Worcester,  etc.  R.  Co.  (Mass. 
1890),  2S  N.  K.  Rep.  975.  See  also 
John  Hancock  Mut.  Lifo  Iun.  C<x  v. 
Worcester,  etc.  R.  Co..  149  Maw.  214 
(1889),  (21  N.  E.  Rep.  .164). 

As  to  the  right  of  holdeni  of  street 
railway  lx.>nds  U)  convert  them  into 
stock  of  con.solidateil  company  under 
Massachusetts  statute  of  1879,  ch.  151, 
see  I'arkinson  r.  West  End  St.  R.  (-'o., 
173  .Mass.  446  (S.^V  N.  E.  Rep.  891 ). 

*  A  person  owning  both  stock  ami 
convertible  bonds  in  a  corporation  diii 
not  exercise  his  option  to  have  his 
bonds  converted  into  stock  when  it  was 
practicable,  and  ac<piie.sce<i  and  partici- 
pated in  a  consolidati<jn  by  which  it 
i)ecame  impossible  to  secure  the  conver- 
sion, and  it  was  held  that  he  was  bound 
bv  an  election  not  to  make  the  con- 
version. Tagart  v.  Northern  Cent.  R. 
Co.,  29  Md.  557  (1868). 


CHAP.  VIII,]    OBLIGATIONS   OF   CONSOLIDATED   CORPORATION.    §  81 

A  statute  authorizing  the  consolidation  of  railroad  com- 
panies and  providing  that  all  the  liabilities  of  the  constituent 
companies  "  except  mortgages "  should  attach  to  the  con- 
solidated company,  does  not  prevent  an  action  by  a  mortgage 
bondholder  against  the  consolidated  company.  The  statute 
confines  the  lien  to  the  mortgaged  property,  but  does  not 
debar  the  bondholder  from  enforcing  his  demand  directly 
against  the  consolidated  company  without  availing  himself  of 
the  mortgage  security.^ 

A  consolidated  corporation  is  the  representative  of  all  its 
constituents  and  is  liable  to  the  stockholders  of  any  one  of 
them,  upon  a  contract  of  such  corporation  relating  to  the  pay- 
ment of  dividends  upon  its  preferred  stock.^ 

Contracts  of  carriage  embraced  in  mileage  or  trip  tickets, 
issued  by  a  constituent  corporation,  must  be  carried  out  by  the 
consolidated  company  as  if  made  by  itself.^  Covenants  run- 
ning with  the  land  acquired  from  its  constituents  bind  a  con- 
solidated company.* 

The  liability  of  a  consolidated  company  upon  the  contracts 
of  its  constituents  is  precisely  the  same  as  that  of  the  original 
company.  Consolidation  does  not  extend  it.  Thus  the 
operation  of  a  contract  to  haul  cars  on  all  lines  owned  or 
controlled  by  a  railroad  company  is  not  extended,  upon  its 
consolidation,  so  as  to  include  other  roads  which  the  con- 
solidated company  afterwards  acquires.^ 

1  Polhemus  v.  Fitchhurg  R.  Co.,  right  of  way  through  certain  lands, 
123  N.  Y.  502  (1890),  (26  N.  E  Rep.  to  build  its  roadbed  so  as  to  protect 
31),  affirminq  50  Hun  (N.  Y.),  397  the  land  from  overflow,  and  it  was  held 
(1888).  The  statute  referred  to  was  that  the  consolidated  company  was 
New  York  Laws  1869  ch.  917,  §  5.  liable  for  damages  caused  by  a  breach  of 

2  Boardnian  v.  Lake  Shore,  etc.  R.  the   agreement.      Sappington   v.   Little 
Co.,  84   N.    Y.    157    (1881).     See   also  Rock,  etc.  R.  Co.,  37  Ark.  23  (1881). 
Chase   v.   Vanderbilt,    62    N.    Y.   307  ^  Pwllman   Palace   Car   Co.  v.  Mis- 
(1875).     Compare  Prouty  v.  Lake  Shore  souri  Pacific  R.  Co.,  115  U.  S.  595  (1885), 
R.  Co.,  52  N.  Y.  363  (1873).  (6  Sup.  Ct.  Rep.  194) :  "  The  new  com- 

^  Tompkins    v.    Augusta    Southern  pany  assumed,  on  the  consolidation,  all 

R.  Co.,  102  Ga.  436  (i897),  (30  8.  E.  the   obligations    of    the    old    Missouri 

Rep.  992).  Pacific.     This  requires  it   to   haul  the 

*  Mobile,  etc.  R.  Co.  v.  Gilmer,  85  Pullman  cars,  under  the   contract,  on 

Ala.  422  (1888),  (5  So.  Rep.  138).  all  roads  owned  or  controlled  by  the  old 

A  constituent  company  had  agreed,  company  at  the  time  of  the  consolida- 

in   consideration    of    the    grant    of    a  tion,  but  it  does  not  extend  the  opera- 

133 


§82 


INTKllCOnroUATK    UKLAlIit.NS 


[I'AllT    I. 


§  82.  Liability  for  Torta  of  ConstltuenU.  —  The  usual  coli- 
Holidation  stututc  ileclares  that  the  cuusolidatcti  corporatiou 
Hhall  he  answeralile  for  tlie  ohligations  of  its  constituent 
companies  an<l  therehy  includes  ohligations  arising  ex  delicto 
as  well  as  ej-  lontrnrtu.  And,  without  such  statutory  i>rovisi(jn, 
the  rule  is  that,  unless  expressly  exempted,  the  consolidated 
corporation  is  directly  liable  for  the  torts  of  its  constituents. 

The  liability  is  broad  and  includes  both  wrongful  acts  and 
negligence.* 


tioii  of  the  contract  to  other  ro8<U  which 
the  ucw  c<ini|)aiiy  mny  aftcrwanla  ac- 
quire. The  power  of  the  old  coni|>anr 
tu  f^et  the  control  of  other  niaJa  cea«e<i 
when  ita  cor)H)rato  exi.tCcnco  came  to  an 
eiiii,  ami  the  new  cotn|iaiir  into  which 
ita  ca|iital  stock  waa  merged  )>y  the  con- 
aulidation  undertook  only  to  aaaunie  ita 
ohli^ationa  aa  they  then  ato«>d.  It  did 
not  liind  itaelf  tu  run  the  coni  of  tha 
I'ullni.in  Coni[>any  on  all  thi>  roada  it 
ini^ht  from  time  to  timx  itiwif  coutrd, 
hut  only  un  ituch  i\»  were  controlU<d  hy 
the  old  Miiwouri  I'mitic.  Cuntracta 
thereafter  mailo  to  jj**'  '!>■  control  «)f 
other  road.H  would  ho  the  contracta  of 
the  new  cuuHolidatod  company,  and  not 
of  thotteon  the  di.i.solution  of  which  that 
company  came  into  exiatence.  It  f<d- 
lows  that  the  present  Mi.<4S4>uri  I'acific 
Company  is  not  rctiuired,  hy  the  con- 
tract of  the  old  company,  to  haul  the 
rullmau  cars  on  the  road  of  the  St. 
I<onis,  Iron  Mountain  and  Southern 
Company  even  if  it  i1<k'<«  now  control 
that  road,  within  the  meaning  of  the 
contract." 

In  San  Francisco  r.  Spring  Valley 
Water  Works.  48  Cal.  493  (1874).  a 
corporation  furnisheil  water  to  a  city 
undera  contract  providinij  that,  if  more 
favorable  terms  were  grunted  to  any 
other  cor]H)ration,  they  should  be 
granted  to  it.  This  company  w.x'*  ab- 
sorbed by  anotlier  corporation,  to  which 
more  favorable  terms  had  been  granted. 
It  was  hold  that  tiie  latter  corp<iration 
was  not  bound  to  furnished  water  under 
the  coutract  of  the   former,  but    was 

134 


entitled  to  the  more   favorable   terms 
given  it  tiefore  the  absorption. 

That  the  consolidated  c<jr]toratioD 
takes  the  pro[>erty  ami  asaumM  the 
liabilities  of  lis  constituents  in  the  exact 
condition  in  which  they  exist  at  the 
time  of  the  cousoliitation,  s«^  Kmnklin 
Life  Ina.  Co.  r.  Adatus,  90  111.  App.  658 
(I90U). 

>  InCoggin  r.  Central  R.  Co..  62  Oa. 
6vH5  ( 1879).  (35  Am.  Kep.  132).  the  Sup- 
reme Court  tif  (ieorgia  said  ;  "  My  con- 
solidating with  or  absorbing  the  .Macoti 
&  Western  Railroad  ("onipany  under 
the  cons<didation  act  the  Central  Rail- 
roail  (^ompany  l>ccame  liable  to  answer 
for  a  brea<h  of  duty  by  the  former  com- 
}>any  towards  a  jwrson  who  was  right- 
fully upon  one  of  its  trains,  and  who, 
while  being  carried  thereon,  sustained 
a  |iersonal  injury  by  reason  of  sach 
breach  " 

In  State  r.  Baltimore,  etc.  R.  Co.,  77 
Md.  492  (1893).  (26  Atl.  Rep.  865).  the 
Court  said  :  "  The  new  corporation  thua 
created  was  in  reality  the  embt-Mliment 
under  another  name  of  the  two  formerly 
existing."  and  hrld  that  the  combining 
companies  could  not  by  any  contract 
between  themselves  conclude  the  rights 
of  third  {>er8ons  who  had  been  injured 
by  their  torts. 

A  consolidated  corporation  is  liable 
in  <lamagcs  to  a  riparian  owner  whose 
land  is  overriuwed  and  injured  in  con- 
sequence of  an  obstruction  of  the  stream 
cnn.«ed  by  the  wrongful  manner  in 
which  a  bridge  was  constructed  by  a 
coustitueut    company.      Chicago,    etc. 


CHAP.  YIII.]     OBLIGATIONS   OF   CONSOLIDATED    CORPORATION.    §  83 


§  83.  Rule  of  Liability  inapplicable  to  Consolidation  after  Fore- 
closure Sale.  —  The  rule  that  a  consolidated  corporation  is 
liable  for  the  debts  of  its  constituents  is  inapplicable,  with 
reference  to  the  debts  of  the  defunct  company,  in  the  case  of  a 
consolidation  effected  after  the  purchase  of  corporate  property 
and  franchises  at  a  foreclosure  sale.^  The  foreclosure  sale  has 
the  effect  of  extinguishing  the  claims  of  general  creditors. 
The  new  company  takes  the  property  subject  only  to  the  liens 
against  it.     A  statute  providing  that  a  consolidated  company 


R.  Co.  V.  Moffitt,  75  III.  524  (1874)  ; 
Penley  v.  Railroad  Co.,  92  Me.  59  (1898), 
(42  Atl.  Rep.  233). 

After  having  commenced  the  con- 
struction of  an  improvement  on  plain- 
tiff's land,  a  corporation  consolidated 
with  another,  which  completed  the  im- 
provement, all  title  thereto  being  trans- 
ferred to  the  new  company.  It  was 
held  that  the  consolidated  company  and 
not  the  original  company  was  liable  for 
damages  caused  by  the  completion  of 
the  improvement  by  the  consolidated 
company,  although  the  original  com- 
pany still  retained  a  corporate  existence. 
Day  V.  New  Orleans,  etc.  R.  Co.,  37 
La.  Ann.  131  (1885). 

See  also : 

Alabama :  Warren  v.  Mobile,  etc.  R. 
Co.,  49  Ala.  582  (1873). 

Arkansas :  St.  Louis,  etc.  R.  Co. 
V.  Marker,  41  Ark.  .542  (1883). 

Georgia :  Tompkins  v.  Augusta 
Southern  R.  Co.,  102  Ga.  436  (1897), 
(.30  S.  E.  Rep.  992). 

Indiana :  Indianapolis,  etc.  R.  Co. 
V.  Jones,  29  Ind.  465  (1868) ;  Cleveland, 
etc.  R.  Co.  V.  Prewitt,  134  Ind.  557 
(1893),  (33  N.  E.  Rep.  367)  ;  Jefferson- 
ville,  etc.  R.  Co.  v.  Hendricks,  41  Ind. 
48  (1872);  Louisville,  etc.  R.  Co. 
V.  Summers,  131  Ind.  241  (1892),  (30 
N.  E.  Rep.  873). 

Kansas :  Berry  v.  Kansas  City,  etc. 
R.  Co.,  52  Kan.  759  (1893),  (34  Pac. 
Rep.  805,  39  Am.  St.  Rep.  371). 

Virginia :  Langhorne  v.  Richmond 
R.  Co.^  91  Va.  369  (1895),  (22  S.  E.  Rep. 
159). 

1  United   States :    Hoard  v.  Chesa- 


peake, etc.  R.  Co.,  123  U.  S.  222  (1887), 
(8  Sup.  Ct.  Rep.  74) ;  Chesapeake,  etc. 
R.  Co.  V.  Miller,  114  U.  S.  184  (1885), 
(5  Sup.  Ct.  Rep.  813) ;  Hopkins  v.  St. 
Paul,  etc.  R.  Co.,  2  Dill.  (U.  S.)  396 
(1872). 

Arkansas :  Sappington  v.  Little 
Rock,  etc.  Co.,  37  Ark.  23  (1881). 

Illinois :  People  v.  Louisville,  etc. 
R.  Co.,  120  III.  48  (1889),  (10  N.  E. 
Rep.  657 ) ;  Brufett  v.  Great  Western 
R.  Co.,  25  111.  310  (1861). 

Michigan:  Cook  v.  Detroit,  etc. 
R.  Co.,  43  Mich.  349  (1880),  (5  N.  W. 
Rep.  390). 

Pennsglvania :  Pennsylvania  Transp. 
Co.'s  Appeal,  101  Pa.  St.  576  (1882); 
Stewart's  Appeal,  72  Pa.  St.  291  (1872). 

Texas:  Gulf,  etc.  R.  Co.  v.  Newell, 
73  Tex.  334  (1887),  (11  S.  W.  Rep. 
342,  15  Am.  St.  Rep.  788).  In  con- 
struing the  provisions  of  the  Texas 
statute  relating  to  the  sale  of  rail- 
roads and  franchises  in  foreclosure 
proceedings  the  Supreme  Court  of 
Texas,  in  Houston,  etc.  R.  Co.  v.  Shir- 
ley, 54  Tex.  139  (1880),  said:  "The 
plain  intent  of  the  statute  is  to  transfer 
the  roadbed,  track,  franchise  and  char- 
tered rights  entire  to  the  purchaser  and 
associates,  upon  their  adopting  tlie  form 
of  organization  prescribed  in  the  char- 
ter and  complying  with  its  other  require- 
ments ;  and  to  remit  creditors  unsecured 
by  lien,  to  their  remedy  against  such 
assets  as  pass  to  the  trustees  of  the  sold 
out  company." 

Wisconsin  :  Menasha  v.  Milwaukee, 
etc.  R.  Co.,  52  Wis.  414  (1881),  (9  N.  W. 
Rep.  396). 

135 


§84 


INTERCOUI'OIIATK    HELATIOSS. 


[I'AHT    I. 


ftliall  be  lial)le  for  the  debts  of  each  corporation  cnterint;  the 
cousolitiation  in  not  to  be  so  construed  as  to  revive  the  «lebt« 
of  a  constituent  company  which  have  been  shut  off  by  fore- 
chisure,  and  such  an  act  would  probably  be  unconstitutional, 
if  retroactive  in  terms.* 


II.   Lit'Tiit. 

§  84.  Conventional  and  Statutory  Lious.  —  The  consolida- 
tion of  corporations  does  not  affect,  or,  in  any  way,  impair 
lions  upon  their  property.'  The  consolidated  corporation 
takes  the  property  of  its  constituents  burdened  with  all  exist- 
ing charges.  Mortgages,*  maritime  liens,*  and  other  liens  — 
conventional  and  statutory  — remain  unaffected  by  consolida- 
tion proceedings,  and  the  rights  of  li-'n  holders  are  ni'ither 
increased  nor  diminished. 

A  consolidated  corporation  takes  as  a  purchaser  with  notice, 
and  cannot  aver  ignorance  of  a  mortgage  executed  by  one  of 
its  constituents,  although  unrecorded.'' 


>  Hatcher  v.  Toledo,  etc.  U.  Co.,  62 
111.477  (J872). 

'  Hamlin  r.  Jernird,  72  Mo.  80 
(1881):  "The  c<>n.Holi(latc<i  conipanj 
aHflume<l  the  dehtu  of  it«  Hovpral  j>art* 
and  recognized  tlie  prior  lit-na  ujH)n 
them.  .  .  .  Then^  can  l>e  no  lo.^  of  iden- 
tity of  the  original  companies  in  the 
con.xolidation,  to  the  prejudice  of  the 
right.f  of  prior  creditors  or  to  destruction 
of  prior  lien.s."  See  also  Katon,  etc.  K. 
Co.  V.  Hunt.  20  Ind.  457  (ISCT). 

•  A  railway  company  which  had 
mortgaged  it.s  road,  consolidated  with 
two  other  companies  forming  a  new 
corporation.  The  consolidatimi  act  pro- 
vided that  the  first  corporation  should 
not  be  relieved  from  any  liability  ;  that 
the  several  corporations  should  l)ocome 
one;  and  that  all  the  liabilities  of  the 
several  corporations  should  appertain  to 
the  united  corporations.  Held,  that 
mortgage  bonds  of  the  first  corpora- 
tion, bought  by  the  new  corporation 
and  afterwards  issued  for  its  benefit  for 
value,  had  not  been  extiuguisbed,  but 

136 


were  a  claim  against  the  property 
covered  by  the  mortgage.  Shaw  r.  Nor- 
folk County  U.  Co.,  16  (iray  (Maiw.) 
407  (I860).  As  to  right*  of  h<dder»  of 
income  tionds  see  Hotter  v.  Union  I'a- 
cific  R.  Co.  J 7  Ked.  480  (18S.3). 

*  Where  twt»  corpirations  united 
their  ve.sseN  and  other  property  used 
in  n.avigatioii,  and  formed  a  new  cor- 
poration, and  in  the  contract  of  cuu- 
soliilation  maile  arrangements  fur  the 
payment  of  the  delit-s  of  one  or  iKjth 
l>efore  any  dividends  should  be  declared 
on  the  new  stock,  it  waa  held  that  the 
new  corpjriitioii  conld  not  avail  itself 
of  the  doctrine  appdicable  to  a  pur- 
chaser without  notice,  and  that  a  lien, 
three  years  and  a  half  old,  would  l>e 
enfon-ed  against  one  of  the  vessels 
so  transferred  to  the  new  corporation. 
The  Key  City,  14  Wall.  (U.  S.)  654 
(1871 ).  Compare  The  Admiral,  18  Law 
Rep.  91. 

'  Where  by  the  consolidation  of  two 
railroad  comji-inies,  another  i.-s  created 
which,  by  the  terms  of  the  consolidation, 


CHAP.  VIII.]    OBLIGATIONS   OF   CONSOLIDATED   CORPORATION.     §  85 


Upon  the  principle  that  no  change  in  the  identity  of  corpor- 
ations through  consolidation  can  prejudice  the  rights  of  lien 
holders,  it  is  held  that  repairs  and  improvements,  made  by  a 
consolidated  company  upon  property — real  or  personal  — 
mortgaged  by  a  constituent  before  consolidation,  are  subject 
to  the  mortgage.^  The  necessity  for  this  rule  in  the  case  of 
mortgaged  chattels,  e.  g.  railway  rolling  stock,  is  apparent. 

§  85.  Equitable  Liens.  —  A  consolidated  Corporation  takes 
the  property  of  its  constituents  subject  to  equitable,  as  well 
as  other,  liens. 

A  vendor's  lien  upon  real  estate,  for  the  unpaid  purchase 
money,  is  not  affected  by  the  consolidation  of  the  purchasing 
corporation  with  another.^  An  obligation  to  convey  lands 
comes  w^ithin  the  terms  of  a  consolidation  agreement  trans- 
ferring property  subject  to  "  all  liens,  charges  and  equities  " 
and  is  binding  upon  the  consolidated  company.  Such  an  obli- 
gation might  have  been  equally  binding,  without  such  a  provi- 
sion, upon  the  principle  that  the  property  was  charged  with  a 
trust  to  fulfil  it  and  came  into  the  hands  of  the  consolidated 
company  with  notice.^ 


acquires  all  of  the  property  and  fran- 
chises and  assumes  all  the  debts  and 
liabilities  of  the  two  of  which  it  is 
formed,  and  which  become  extinct  by  its 
creation,  it  takes  such  property  subject  to 
the  debts  of  the  original  companies,  and 
burdened  with  all  liens  upon  it  which 
were  valid  against  those  companies,  and 
will  not  be  permitted  to  aver  ignorance 
of  an  unrecorded  mortgage  previously 
executed  by  one  of  the  original  com- 
panies. Mississippi  Valley  Co.  v. 
Chicago,  etc.  R.  Co.,  58  Miss.  846 
(1881). 

See  also  North  Carolina  R.  Co.  v. 
Drew,  3  Woods  (U.  S.),  691  (1874). 

1  Hamlin  v.  Jerrard,  72  Me.  80 
(1881). 

Improvements  of  a  permanent  nature 
and  repairs  made  by  a  consolidatd  cor- 
poration upon  property  acquired  from 
a  constituent  corporation  and  subject  to 
a  mortgage  executed  by  that  company 
are  covered  by  the  mo/tgage  and  the 
mortgagee  may  be  entitled  to  specific 


performance  of  a  covenant  for  further 
assurance  therein.  Williamson  v.  New 
Jersey  Southern  R.  Co.,  25  N.  J.  Eq.  13 
(1874). 

'■'  North  Carolina  R.  Co.  v.  Drew, 
3  Woods  (U.  S.)  691  (1879).  In  this 
case,  where  a  railroad  subject  to  a 
vendor's  lien  was  acquired  by  a  consoli- 
dating company,  the  Court  said  :  "  This 
consolidation,  by  which  the  two  com- 
panies joined  their  properties  together, 
did  not  discharge  the  lien.  The  property 
of  the  Tallahassee  Company  was  brought 
into  the  common  concern  with  all  pre- 
existing equities  attaching  thereto.  The 
consolidated  company  having,  as  one  of 
its  component  parties  the  Tallahassee 
company  which  held  subject  to  the  lien, 
cannot  be  regarded  as  a  bona  fide  pur- 
chaser without  notice."  See  also  Branch 
V.  Atlantic,  etc.  R.  Co.,  3  Woods  (U.  S.) 
481  (1879). 

3  Union  Pacific  R.  Co.  v.  Me  Alpine, 
129  U.  S.  314  (1889),  (9  Sup.  Ct.  Rep. 
286)  :  "  The  obligation  of  the  Kansas 

137 


§8i 


INTERCOIIFORATE   UELaTIuNS. 


[part  I. 


While  creditors  of  consolidating  corporations  may  follow 
the  aiisots  of  their  dchtors  into  the  haml:*  of  the  consolidated 
corporation  the}'  have,  in  the  absence  of  express  |)rovision,  no 
lien  thereon  as  against  subsequent  mortgagees  or  purchasers. 
Such  a  lien  may,  however,  be  created,  and  whether  it  ex- 
ists, in  a  particular  case,  will  depend  upon  the  terms  of  the 
agreement  of  consolidation  and  of  the  statute  under  which 
consolidation  takes  place.'  Where  several  railroad  companies 
were  cons(jlidated  and  the  consolidated  company  agreed  to 
^^  protect"  certain  unsecured  e(iui{»ment  bonds  of  a  constituent 
company,  it  was  held  by  Judge  Gresham,  in  the  Circuit  Court 
of  the  United  Stutes,'  that  the  hohlers  of  the  equipment  bonds 
acquired  an  e<|uitable  lien  upon  the  property  acquired  by  the 
consolidated  company  from  such  constituent  which  took 
precedence  of  a  mortgage  thereof,  executed  by  the  consoli- 
datetl  comj)any.  This  decision  was,  however,  reversed  by  tiic 
Sujireme  Court  of  the   United   States,^  which   held   that   the 


rarific  lUilwftj  Company  to  execute 
the  c«)ntra<'t  hy  a  couvpvance  of  the 
2b\  acre  trart  to  the  Mr  Alpine;*  pawHHl 
with  the  pr>>{)orly  of  the  di-fi-ndant,  the 
Union  I'arilic  Kailway  Company,  upon 
the  coD.<*olitlati<>n  of  the  two  companien 
under  the  latter  name.  Whenever  prop- 
erty charged  with  a  truat  is  conveyed 
to  a  third  party  with  notice,  he  will 
hold  it  suhjoct  to  that  trust,  which  he 
may  l>o  ci>m polled  to  perform  equallj 
with  the  former  owner.  The  venjleo  in 
that  cafic  xtands  in  the  pLice  of  ouch 
owner.  Without  reference,  therefore, 
to  the  articles  of  union  and  con.solida- 
tion,  the  Union  Pacific  Hailway  Com- 
pany would,  on  peneral  principles,  be 
held  to  complete  the  contract  made  with 
the  Kansas  Pacific  Company  ;  and  the 
articles  in  specific  terms  recognize  thi« 
obligation." 

See  al.^o  Vilas  v.  Page.  106  N.  T. 
439    (1887).    (13  N.    E.  Rep.  74.1). 

1  Wabash,  etc.  R.  Co.  i<.  Ham.  lU 
U.S.  595  (1885).  (5  Sup.  Ct.  Rep.  1081); 
"  But  upon  the  consolidation,  under 
express  authority  of  statute,  of  two  or 
more  solveut  corporations,  the  business 

138 


of  the  old  corporations  is  not  wonnd  up, 
nor  their  property  sr<]uofltrated  or  dis- 
turbed, but  the  very  object  of  the  con- 
solidation, and  of  tlio  statutes  which 
permit  it,  is  to  continue  the  busine.M  of 
the  old  corporations.  Whether  the  old 
corporations  are  diiwdved  into  the  new 
comfKiny,  or  are  continued  in  exii«tence 
under  a  new  name  and  with  new  jMwers, 
and  whether,  in  either  case,  the  con- 
S'jlidatod  company  takes  the  pr«)perty 
of  each  of  the  old  coqM)ration*  chartjed 
with  a  lien  for  the  payment  of  the  debts 
of  that  corporation,  de()end  upon  the 
terms  of  the  agreement  of  consoli<lation, 
and  of  the  statute  under  whose  authority 
that  consoliilation  is  effected. " 

«  Tysen  v.  Wabash,  etc.  R.  Co.,  15 
Fed.   7V..1  (188.1),  11    Diss.  (U.  S.)  510. 

«  Wabash,  etc.  R.  Co.  v.  Ham.  114 
US  .596  (1885),  (5  Sup.  Ct.  Rep.  lOSl): 
"  It  was  next  contended  that  the  stipu- 
lation in  the  agreement  of  con.soliij.ation 
that  the  bonds  and  debts  therein  ."poci- 
fied  of  the  former  companies  should  '  be 
protected  by  the  said  consolidated  com- 
pany '  created  a  lien  in  their  favor. 
But   it   is    only   'as   to    the   principal 


CHAP.    VIII.]    OBLIGATIONS    OF    CONSOLIDATED    CORPORATION.    §  86 

agreement  to  "protect"  was  merely  a  promise  to  pay  the 
bonds  as  they  matured,  and  that  the  equipment  bondholders 
had  no  lien,  equitable  or  otherwise,  upon  the  property  of  the 
consolidated  company.  In  a  later  decision,  in  a  case  brought 
by  another  holder  of  these  equipment  bonds  against  the  same 
consolidated  company,  the  Supreme  Court  of  Ohio  ^  declined 
to  follow  the  Supreme  Court  of  the  United  States  but  agreed 
with  Judge  Gresham,  and  held  that  the  agreement  to  "  pro- 
tect "  created  an  equitable  lien,  upon  the  principle  that "  where 
property  is  transferred  upon  condition  that  the  grantee  should 
pay  some  third  person  a  debt,  or  sum  of  money,  the  latter 
acquires  an  equitable  lien  upon  the  property  to  the  extent  of 
the  debt  or  sum  which  is  to  be  paid  to  him." 

III.    Remedies  of  Creditors  of  Constituent  Corporations. 

§  86.  Remedy  of  Creditors  against  Consolidated  Corporation 
—  At  law.  —  A  question  has  been  raised  whether  a  consoli- 
dated corporation  can  be  sued  in  an  action  at  law  upon  liabili- 
ties of  its  constituent  companies  or  whether  resort  must  be 
had  to  equity.  It  is,  however,  now  well  settled  that  consolida- 
tion confers  all  the  rights,  property  and  franchises  of  the  old 
companies  upon  the  consolidated  company  and  subjects  it  to 
all  their  liabilities,  and  that  an  action  at  law  may  be  brought 
against  it  and  a  personal  judgment  obtained  for  the  debts  and 
torts  of  its  constituent  companies.^     The  right  to  bring  such 

and  interest  as  they  shall  respectively  they  ordinarily  have  in  promises  of  men 

fall  due,'  and    'according  to   the   true  of  business, '  to  protect'  drafts  or  other 

meaning  and  effect '  of  the  instruments  debts,  not  made  or  contracted  by  them- 

or  bonds  which  are  the  evidence  of  the  selves,  that  is  to  say,  a  personal  obli- 

debts,  that  it  is  stipulated  that  the  debts  gation  to   see    that  they   are   paid    at 

shall  '  be  protected  by  the  said  consoli-  maturity." 

dated  company ; '   and   the   stipulation  ^  Compton  v.  Wabash,  etc.  R.  Co., 

covers   debts   secured  by  mortgage    as  45  Ohio  St.  592  (1887),  (16  N.  E.  Rep. 

well   as   unsecured  debts.     The  agree-  110). 

ment  'to  protect'  referring  to  the  time  '^  Langhorne  v.  Richmond  R.  Co,  91 

of  payment,  and 'the  true  meaning  and  Va.  369    (1895),  (22  S.   E.  Rep.    159), 

effect'  of  the  equipment  bonds  having  where  the  Court  also  said  :  "  The  ques- 

been  to  create  only  a  personal  and  un-  tion  is   not   whether  the    consolidation 

secured  debt  of  one  of  the  former  com-  compels  a  creditor  to  accept  the  defend- 

panies,  the  words  'shall  be  protected  '  ant  corporation  as  a  new  debtor  against 

must  have   the   same    meaning  which  his  will,   or  a  person   who    has    been 

139 


§86 


INTERCORPORATE    RELATIONS. 


[part  I. 


action  is  placed  upon  the  ground  that,  for  tlie  purpose  of 
answering  to  tlieir  liabilities,  the  existence  of  the  old  companies 
is  continued  in  the  consolidated  company;*  and  it  is  also  held 
that  the  statute  fixing  the  liability  and  the  proceedings  there- 
under, creatr  the  privity  betweon  the  new  company  and  the 
creditors  of  the  old,  necessary  to  support  the  action. ^ 


injured  to  reiif>rt  to  a  stranger  for  satia- 
fartion,  hm  whether  it  ein|>owfni  tbe 
rreilitor  of  the  |K;rsou  injuro'l  to  renort, 
if  ho  (ienireii  to  do  no,  in  th<>  fimt  inntanre, 
to  the  cor|M»rati(JM  which  \>y  the  Icrriui  of 
the  ronftolidiition  in  inn4le  lia)il(>  to  him. 
The  priritv,  some  raae.i  tay.  nccwwarr 
to  Hupport  thi<i  action  ii  creati'd  hy  the 
utattito  autliorizin^  the  ri>ii.s<<litiation 
and  thf  purchn.se  and  conveyance  under 
it.  Other  authoritiei  pinre  the  riirht  to 
hrine  Kuch  an  action  on  the  f^ronnd  that 
tlie  effect  of  the  connolidation  i*,  ma  to 
the  liabilities  of  the  oUi  company,  not  to 
diM<dvo  the  corporation  which  is  t\v9 
immediate  liehtor,  hot  to  continue  itii 
existence  in  the  coDv>)idate<t  eorpf>ra- 
tioo.  .  .  .  Since  by  antliority  of  law 
and  the  act  of  the  parties  the  consoli- 
dated corporation*  are  moulded  into 
one  with  none  of  their  ri;;ht.^  impaired, 
and  none  of  their  res|)onsil)iliiio<i  les- 
sened, there  is  no  goo<l  rea.v)n  why  the 
same  proceedings  mny  not  )>e  hail 
against  the  new  cor|K>rntion  as  might 
have  been  had  n;;iiinst  the  i»ld  to  com- 
pel pnyment  of  lialiilitics.  It  avoids 
circuity  of  action.  It  allows  the  party 
with  whom  the  contract  was  ma<le  or  to 
whom  the  injury  was  done  to  proceed 
directly  apainst  the  corporation,  which, 
by  virtue  of  the  con.solidatioii  proceed- 
iugs,  is  made  liable  to  it." 

See  also : 

Alabama :  Warren  v.  Mobile,  etc. 
R.  Co.,  49  Ala.  582  (1873). 

Georgia :  Co^gin  v.  Central  R.  Co., 
62  Ga.  685  (1879). 

Illinois  :  Arhuckle  r.  Illinois  Mid- 
laud  K.  Co.,  81  111.  429  (1876)  ;  Colum- 
bus, etc.  R.  Co.  r.  Skidmore.  69  111. 
566  (1873);  St.  Ix)uis,  etc.  R.  Co.  v. 
Miller,  43  111.  199  (1867). 

Indiana :    Lonisvillc,    etc.  R.  Co.   r. 

140 


Boney,  117  Ind.  .^01  (IS88).  (20  N.  E. 
Rfp.  4-')'.') ;  Indianapolis,  etc.  U.  Co.  v. 
Jones.  29  Ind.  465  (1868). 

Kantai:  Berry  v.  Kansas  City,  etc. 
R.  Co..  52  Kan.  774  (1893),  (36  I'ac. 
Rep   724.  39  Am   St.  Rep  371). 

Maryland :  State  r.  Baltimore,  etc. 
R.  Co.,  77  Md.  489  (1893),  (26  Atl.  Rep. 
865). 

TeznM  :  Indianola  R.  Co.  v.  Frjer, 
5«  Tex  609  (1882) ;  Hou.Hton, cU-.  R.  Co. 
r.  Shirley.  54  Tex.  125  (1884));  Mil- 
soori  I'ac.  R.  Co.  r.  ( )wena,  I  Tex.  Civ. 
Caa.  |>ar.  .384  (1883). 

f'nnifMtre,  however,  Whipple  r.  I'nion 
Pncific  Co..  28  Kan.  474  (1882).  where 
it  wa.s  held  that  n  consolidated  corfnira- 
tion  "  is  not  liable  for  the  debt  of  either 
constituent  company  unless  it  has  in 
terms  contnu-tecl  to  Income  so." 

>  Indianapolis,  etc.  R  Co  r.  Jonca, 
21  Ind.  465  (1868);  Lanchorne  r.  Rich- 
mon<l  R.  Co..  91  Va  369  (1895).  (22 
S.  K.  Rep.  159);  Honston,  etc.  R.  Co. 
V  Shirley.  54  Tex  125  (18S0).  See 
al.so  cases  riti-il  in  preceding  note. 

"  New  IWlford  R.  Co.  r.  ()I<1  Colony 
R.  Co.,  120  Mass.  400  (1876)  (.s.-ile): 
"  In  the  absence  of  express  provision,  it 
cannot  be  inferred  that  it  was  the  in- 
tention of  the  act  to  inip.-iir  claims  of 
third  partie<t  for  existing  liabilities,  or 
to  shorten  the  tinie  within  which  the 
remedy  nin«t  be  pursued.  The  question 
is  not  whetlier  the  statute  compels  the 
creditor  to  accept  the  defendant  corpora- 
tion as  a  new  debtor  apainst  his  will,  or 
an  injured  person  to  resort  to  a  stranger 
for  satisfaction,  bat  whether  it  empowers 
the  creditors  or  an  injured  per-on  to 
resort,  if  he  chooses,  in  the  first  instance, 
to  the  corporation  which,  by  the  terms 
of  the  statute,  is  made  liable  to  him. 
And  we  are  of  opinion  that  it  does,  and 


CHAP.  VIII.]    OBLIGATIONS    OF    CONSOLIDATED    CORPORATION.    §  87 


The  consolidated  company  is  bound  by  the  admissions  of  a 
constituent  corporation  regarding  its  obligations,  made  before 
consolidation,  and  evidence  of  the  same  is  admissible  iu  an 
action  brought  thereon  against  the  new  company. ^ 

§  87.  Remedy  of  Creditors  —  In  Equity.  —  A  corporation 
holds  its  property  as  a  trustee,  first,  to  meet  its  obligations, 
and,  afterwards,  for  the  benefit  of  its  stockholders.  It  cannot 
give  away  its  property  or  enter  a  consolidation,  the  effect  of 
which  is  to  transfer  its  assets  and  terminate  its  existence,  to 
the  prejudice  of  its  creditors.^  A  consolidated  corporation  is 
not  a  purchaser  for  value  without  notice,  and  a  court  of  equity 
will  treat  the  assets  of  a  consolidating  corporation  as  a  trust 
fund  for  the  benefit  of  its  creditors  and,  upon  its  consolidation 
with  unpaid  debts,  will  pursue  its  assets  and  lay  hold  of  them 
in  the  hands  of  the  consolidated  corporation  and  apply  them 
for  the  payment  of  such  debts.^ 


that  the  privity  necessary  to  support 
this  action  is  created  by  the  statute  and 
the  purchase  and  conveyance  under  it." 
1  Philadelphia,  etc.  R.  Co.  v.  Howard, 
13  How.  (U.  S.)  333  (1851):  "It  is 
farther  objected  that  the  admission  was 
no<:  mside  by  the  defendants  in  this 
action  but  by  the  Wilmington  and  Sus- 
qnehannah  corporation.  It  is  true  the 
action  in  the  trial  of  which  the  admis- 
sion was  made,  being  brought  before 
the  union  of  the  corporations,  was  neces- 
sarily in  the  name  of  the  orijii'ial  corpo- 
ration ;  but  as,  by  virtue  of  the  act  of 
union,  the  Wilmington  and  Snsque- 
hannah  Company,  the  Baltimore  and 
Port  Deposit  Company,  and  the  Phila- 
delphia, Wilmington  and  Baltimore 
Company  were  merged  in  and  consti- 
tuted one  body,  under  the  name  of  the 
Philadelphia,  Wilmington  and  Balti- 
more Kailroad  Company,  it  is  very  clear 
that  at  the  time  the  trial  took  place  in 
Cecil  County  Court,  all  acts  and  admis- 
sions of  the  defendant  in  that  case, 
though  necessarily  in  the  name  of  the 
Wilmington  and  Susquehannah  Com- 
pany, were  done  and  made  by  the  same 
corporation  which  now  defends  this 
action." 


2  Montgomery,  etc.  R.  Co.  r.  Branch, 
59  Ala.  153  (1877)  :  "A  private  corpo- 
ration chartered  to  transact  business  is 
a  trustee  of  its  capital,  property  and 
effects  —  first  for  the  payment  of  its 
creditors  and  afterwards  for  the  benefit 
of  its  stockholders.  ...  If  leaving  its 
debts  unpaid,  its  capital,  property  and 
effects  are  distributed  among  its  stock- 
holders, or  transferred  for  their  benefit 
to  third  persons  who  are  not  bona  Jide 
purchasers,  without  notice,  —  and  gfill 
more  if  the  corporation  be  dissolved  or 
become  so  disorganized  that  it  cannot  be 
made  answerable  at  law,  then  a  court  of 
equity  will  pursue  and  lay  hold  of  such 
property  and  effects,  and  apply  them  for 
the  payment  of  what  it  owes  to  its 
creditors." 

•*  In  Harrison  v.  Arkansas  Valley  R. 
Co.,  4  McCrary  (U.  S.)  264  (1882),  it 
was  held  that  where  several  corporations 
are  united  in  one,  and  the  property  of  the 
old  companies  is  vested  in  the  new,  the 
latter  is  liable  in  equity  for  the  debts  of 
the  former,  at  least  to  the  extent  of  the 
property  received  from  them,  and  that  if 
it  is  also  liable  at  law,  the  latter  remedy  is 
not  exclusive.  The  Court  said  (p.  267) : 
"  If  a  creditor  of  the  original  corporatioa 

141 


§88 


INTFRCORPORATF    UKLATIONS. 


[part  I. 


Wliilo  a  creditor  has  an  action  at  law  atjainst  the  conKoli- 
dutnl  cor[)orationuj)on  the  ohligationsof  constituent  companies, 
such  remedy,  as  already  noted,  is  not  exclusive,  and  he  may, 
when  he  deems  it  to  his  advantaj:^e,  resort  to  equity,  and  sub- 
ject the  property  ac(juired  from  his  debtor  to  the  payment  of 
the  debt.  Where,  however,  the  consolidated  corporation  has 
sold  the  property  so  acquired  to  a  bona  fide  purchaser,  for 
value,  a  creditor  cannot  follow  if.' 

§  ^S.  Remedy  against  Constituent  Corporation  if  not  dis- 
solved. —  Consolidation  statutes  sometimes  provide  that  the 
consolidatini;  corporations  shall  not  be  dissolved  but  that  their 
existence  shall  be  continued  for  the  purjtose  of  winding  up 
thfir  alTairs.'  The  purpose  of  these  statutes  is  to  preserve 
the  rights  of  creditors,  unchang«'d  and  unimpaired.  Under 
such  a  statute  '  it  is  open  to  a  creditor  to  enforce  his  demand 
either  against  the  corporation  whose  debt  it  was  or  against 
the  new  corporation  whose  debt  it  becomes  by  virtue  of  the  con- 
solidation.*    Ilis  remedies  are  concurrent    and  the   recovery 


Bocii  fit  to  proroctl  in  c<iriity  to  »»bjprt  tho 
proptTty  of  tli;it  ciriKjnitioii  in  th(>  liamiH 
uf  tlio  ronHoliiiatcd  company,  he  hai*  n 
cle.ir  riglit  to  do  so.  .  .  .  We  arc  of 
the  opinion  th.it,  nniler  «uch  rirrnm- 
flt.iiico.x,  the  roiisolidatcfi  corporation  is 
liaMo  in  etpiity  for  the  dehts  of  the 
orijxin.il  cor|>oration,  at  least  to  the 
extent  of  tl»o  valae  of  the  property 
receiveil  from  it." 

See  .-xl-Ho  Curran  v.  Arkansas,  15  How. 
(U.  S.)  .304  (1S5.3);  Montgomery,  etc. 
U.  Co.  V.  Ilranch.  59  Ala.  I.J9  (1877). 

ComfHire,  however,  Arhnckle  v.  Illi- 
nois Midland  U.  Co.,  81  111.  429  (IS7G), 
Mrhere  it  wa-s  hold  that  when  a  consoli- 
dated company  hccomes,  hy  virtue  of  the 
consolidation,  liable  for  the  debt.s  of  the 
companies  roniposing  it,  the  creditor's 
ronjcdy  is  complete  and  adoqnate  at 
law,  and  that  a  court  of  equity  will  not 
assume  juri.<diction  to  enforce  it. 

In  United  New  Jersey  K.,  etc.  Co.  v. 
Ilappock.  28  N.  J.  Eq.'261  (1877),  it 
was  held  that  corporations  which  h.ave 
become  consi>lidated  into  a  new  corpo- 
ration assuming  all  their  liabilities,  are 

142 


suable  at  law  through  the  con.solidated 
cor[Hjration  ;  and  tliat  tlie  fart  that  ser- 
vice of  process  cannot  be  had  on  them 
will  not  justify  the  resort  to  equity  to 
enfon'e  a  strictly  legal  demand. 

•  .Mc.Mahon  v.  Morrison,  16  Ind.  172 
(18r>l). 

'  In  Whipple  v.  Union  Pacific  R. 
Co,  2S  Kan.  474  (1882),  where  a  con- 
Bolidntion  statute  provided  that  the 
consoliil.ited  corporatiorj  should  not  be 
liable  for  the  debts  of  the  cous'didating 
corporations,  which  should  continue  in 
existence  for  the  purpose  of  adjusting 
all  demamls  again.st  them,  but  that  the 
cons4did.ation  should  not  prevent  the 
enforcement  of  valid  obligations  against 
the  property  of  each  con.stituent  in  the 
hands  of  the  con.solidatcd  company,  it 
was  held  that  a  creditor  of  a  constituent 
corporation  could  not  maintain  an  action 
against  the  consolidated  corporation 
until  he  had  sued  the  constituent  cor- 
poration and  recovered  judgment. 

'  }iew  York:  Laws,  1892,  ch.  691, 
§12. 

*  Matter  of  Utica  Nat.  Brewing  Co., 


CHAP.  VIII.]    OBLIGATIONS    OP    CONSOLIDATED    CORPORATION.    §  89 

of  a  judgment  against  the  old  company  does  not  affect  his 
rights  against  the  consolidated  company.  It  merely  changes 
the  form  of  liability. 

When  consolidating  corporations  are  continued  in  existence 
a  creditor  may  institute  insolvency  proceedings  against  such  a 
corporation,  if  such  a  remedy  is  available  against  corporations 
generally.^ 

§  89.  Effect  of  Consolidation  upon  pending  Suits. — While 
the  effect  of  consolidation  may  be  the  dissolution  of  the  con- 
stituent corporations  and  the  creation  of  a  new  company  in 
their  stead,  it  does  not  destroy  them  in  such  a  sense  as  to 
abate  actions  brought  by  or  against  them  and  pending  at  the 
time  of  the  consolidation,  and  compel  the  plaintiff  to  begin 
anew.2  In  Shackleford  v.  3Iississippi  Central  R.  Co.^  the 
Supreme  Court  of  Mississippi  said  :  "  The  new  company  is  the 
old  company  ;  it  is  each  of  the  old  companies.     It  is  simply 


154  N.  Y.  268  (1897),  (48  N.  E.  Rep.  521). 
See  also  Gale  v.  Troy,  etc.  R.  Co.,  51 
Hun  (N.  Y.),  470  (1889),  (4  N.  Y.  Supp. 
295). 

1  Piatt  V.  New  York,  etc.  R.  Co.,  26 
Conn.  514  (1857).  Whether  State  in- 
solvency courts  would  have  jurisdiction 
over  interstate  consolidated  corporation, 
quaere.     lb. 

As  to  construction  of  Ohio  statute 
(R.  S.  §  3384),  providing  that  consoli- 
dating corporations  shall  be  deemed  to 
continue  in  existence  for  the  preserva- 
tion of  the  rights  of  creditors,  see  Bull 
r.  Baltimore,  etc.  R.  Co.,  39  App.  Div. 
(N.  Y.)  236  (1899),  (57  N.  Y.  Supp.  HI.) 

2  United  States :  Edison  El.  Light 
Co.  V.  U.  S.  El.  Lighting  Co.,  52  Fed. 
300  (1892)  ;  Edison  El.  Light  Co.  v. 
Westinghouse,  34  Fed.  232  (1888). 

Illinois :  Chicago,  etc.  R.  Co.  v.  Ash- 
ling, 160  111.  373  (1896),  (43  N.  E.  Rep. 
373). 

Indiana  ;  Hanna  v.  Cincinnati,  etc. 
R.  Co.,  20  Ind.  30  (1863). 

Michigan  :  Swartwout  v.  Mich.  Air 
Line  R.  Co.,  24  Mich.  389  (1872). 

Mississippi :  Shackleford  v.  Miss. 
Cent.  R.  Co.,  52  Miss.  159  (1876). 


Missouri :  In  Evans  v.  Interstate 
Rapid  Transit  Co.,  106  Mo.  601  (1891), 
(17  S.  W.  Rep.  489),  the  Court  said: 
"  Ordinarily  the  effect  of  a  consolida- 
tion of  two  or  more  corporations  into 
one  is  a  dissolution  of  ail  of  them  and 
the  creation  of  a  new  company.  But 
legal  proceedings  properly  commenced 
against  a  corporation  are  not  effected 
by  the  expiration  of  the  charter  before 
the  determination  of  such  proceeding. 
So  where  one  corporation  is  consoli- 
dated with  another  while  a  suit  is  pend- 
ing against  it,  the  suit  does  not  abate." 

Kinion  v.  Kan.sas  City,  etc.  R.  Co., 
39  Mo.  App.  382  (1889).' 

Tennessee :  Railroad  Co.  v.  Evans, 
6  Heisk.  607  (1871). 

Compare  Prouty  v.  Lake  Shore,  etc. 
R.  Co.,  52  N.  Y.  366  (1873). 

That  consolidation  does  not  abate 
condemnation  proceedings,  see  Cali- 
fornia Cent.  R.  Co.  v.  Hooper,  76  Cal. 
404  (1888),  (18  Pac.  Rep.  599) ;  Dav  v. 
New  York,  etc.  R.  Co.,  58  N.  J."  L. 
677  (1896),  (34  Atl.  Rep.  1081.) 

^  Shackleford  v.  Miss.  Cent.  R.  Co., 
52  Miss.  159  (1876). 

143 


§90 


IXTERCORPOKATK  UELATIUNS. 


[part  I. 


the  onward  flow  of  a  stream  which  id  formed  by  the  uniting 
of  two  j»recedent  streams." 

As  aflecting  the  rights  of  creditors  of  the  constituent  cor- 
porations, the  consolidated  corporation  should  bo  regarded  as 
continuing  the  existence  of  the  old  companies  under  a  new 
name.'  Consolidation  statutes  generally  provide  that  con- 
solidation shall  not  affect  pending  suits;'  but,  without  such 
provision,  a  voluntary  consolidation  would  not  be  considered 
as  equivalent  to  the  death  of  either  of  the  constituent  corpora- 
tions so  as  to  abate  pending  actions.^ 

§  00.  Procedure  regarding  Pending  SaiU  —  It  seems  tllO 
better  view  that,  in  a  j)ending  action,  upon  proof  of  the  fact  of 
consolidation  being  made,  the  action  may  be  proceeded  with 
against  the  new  company  by  amendment  and  that  new  process 
is  not  necessary  to  bring  the  consolidated  company  before  the 


'  Kiiii'n  I'.  Kan.ios  City,  etc.  R.  Co., 
39  M...  A{.{..  .l-^a  (Is.S'j). 

•  yeirYurk.  Kailrood  Law,  9  73, 
(Birdscvest.  K.  S.  1K9C,  p.  2554):  "  No 
sctioii  or  jirix"ee«lingti  in  which  either 
of  such  c>>r{><irati<)iiii  is  a  party  shall 
abate  ur  ho  <liscuntiiiue<i  hy  such  agree- 
ment ur  act  of  consoliilation,  hat  may 
be  comlurteil  to  final  jinlgnicnc  in  the 
names  uf  such  ctir|>umtions,  ur  such 
now  corporation  may  l>e,  hy  onlcr  of 
the  court,  on  motion,  suhstituted  as  a 
party."  For  other  similar  pruvisioM, 
see  statutes  referred  in  note  to  §  79  ante. 

'  H.aUimore,  etc.  11.  Co.  r.  Mns«cl- 
man.  2  (Irant's  Cas.  (Pa.)  .l.'>2  (1837): 
"  But  without  any  sach  provision  as  the 
abore,  in  tlie  law  authorizing  the  con- 
•olid.ition.  a  court  of  jn.^tice  would  not 
consider  tlie  mere  rolniitary  union  of 
several  corporations  into  one  as  equiva- 
lent to  the  de.ith  of  either  of  them;  or 
attribute  to  the  law-making  power  an 
intention  of  enabling  them  to  di.«rhnrge 
their  liabilities  in  such  a  summary  way." 
In  Kansus,  however,  the  exceptional 
yiew  is  taken  that,  since  upon  con- 
solidation a  constituent  corporation  is 
dissolved  and  ceases  to  exist  a.i  a  cor- 
poration, an  action  brought  hy  or  against 
it   before    consolidation  cannot    after- 

144 


wards  be  pruMcuted  by  or  against  it  in 
it«  original  name. 

Thus  in  Kansas,  etc.  U.  Co.  v.  .*<mith, 
40  Kan.  192  ( l«MM).  (19  Pac.  Rep.  63f.), 
the  Court  said:  "On  .May  31,  IHH6, 
wlien  the  Kan^tas,  <  )kIahoma  an>l  'I'oxax 
Railway  Con)pany  consulidate<l  with 
the  other  companies,  it  ceased  to  exist 
as  a  corporation.  And  everything  which 
has  since  tran.«pired  upon  the  l>asis  uf 
the  aforesaid  railway  company's  )>eing  a 
corj)oration — imleed  everything  which 
has  transpired  in  this  case  since  M.iy 
31,  1886,  is  void.  .  .  .  This  case  is 
where  the  original  party  has  ceased 
to  exist,  has  become  defunct,  is  deatl, 
and  therefore  not  able  either  to  pro**- 
cnte  or  dcfeml." 

Also  Cnnkle  r.  Interstate  R.  Co., 
U  Kan  194  (I«94).  (40  Pac.  Rep.  1«4) ; 
Chicago,  etc.  R.  Co.  r.  Bntts.  55  Kan. 
660  (1S95),  (41  Pac.  Rep  94")  ;  Conn- 
cil  Grove,  etc.  R.  Co.  r.  I^awrenf-e, 
3  Kan.  App.  274  (1895),  (45  Pac.  Rep. 
125). 

See  also  Indianola  R.  Co.  »•.  Frver. 
56  Tex.  609  (1««S2).  where  the  Court 
said  that  a  judgment  rendered  against 
a  constituent  corporation  after  consoli- 
dation was  a  Dollity. 


CHAP.  VITI.]     OBLIGATIONS   OF   CONSOLIDATED    CORPORATION.    §  91 

court.  Technically  speaking  and  for  general  purposes  the  con- 
solidated company  is  a  new  corporation,  but  touching  the 
business  of  the  old  companies  and  the  rights  of  their  creditors, 
it  ought  properly  to  be  regarded  as  the  successor  of  the  old 
companies  under  a  new  name ;  and  to  that  extent  it  ought 
not  to  be  regarded  as  a  new  corporation.  If  it  is  the  same 
corporation,  under  a  different  name,  an  additional  summons  is 
unnecessary.! 

On  the  other  hand,  however,  it  was  held  by  the  Supreme 
Court  of  Georgia  that  it  was  error  to  permit  the  plaintiff 
to  take  judgment  against  a  consolidated  company,  without 
taking  proper  steps  to  bring  the  new  corporation,  as  such, 
before  the  court  —  including  the  issue  of  new  process.^ 

§  91.  Allegation  and  Proof  of  Consolidation.  —  In  order  to 
charge  a  consolidated  company  or  to  enable  it  to  recover  in 
an  action  pending  at  the  time  of  consolidation  by  or  against  a 
constituent  company,  the  plaintiff  must  regularly  allege  the 
fact  of  consolidation  and  the  successorship  of  the  new  com- 
pany to  the  rights  or  liabilities  of  such  constituent  company 
and  must  prove  the  same,  unless  duly  admitted.  The  court 
cannot  take  judicial  notice  of  consolidation.^ 

1  Kiniou  v.  Kansas  City,  etc.  R.  Co.,  2  gelma,  etc.  R.  Co.  v.  Harbin,   40 

39  Mo.  App.  386  (1889)  :  "  Under  this  Ga.  706  (1870). 

view  it  was  not  necessary  to  bring  the  It  has  been  held  that  the  consolidated 
defendant  into  court  by  a  new  summons,  company  should  not  be  substituted  in 
and  tlie  simple  and  direct  act  of  subati-  place  of  the  old  company  when  the  re- 
tution  was  right.  If  John  Smith  is  sued,  port  of  the  referee  has  been  made  before 
and  during  the  pendency  of  the  suit  he  consolidation.  It  was  also  held  in  the 
has  his  name  changed  to  John  Jones,  a  same  case  that  the  holder  of  preferred 
claim  that  he,  as  John  Jones,  must  be  stock  in  a  constituent  company,  in  en- 
brought  into  court  bv  additional  sum-  forcing  his  claims  thereon,  stands  in  a 
mons  would  be  somewhat  novel.  Prac-  different  position  from  a  creditor  of  such 
ticallv  that  is  this  case."  company.     Prouty  v.  Lake  Shore,  etc. 

In  Louisville,  etc.  R.  Co.  v.  Summers,  R.  Co.,  52  N.  Y.  363  (1873). 
131  Ind.  241    (1892),    (30   N.   E.    Rep.  The  substitution  of  the  consolidated 

873),  an  action   against  a  railroad  com-  company    in    pending    proceedings    is 

panv  for  negligence,  it  was  shown,  after  often  provided  for  in  consolidation  stat- 

a  verdict  for  plaintiff,  that  the  defendant  utes.^   See  statutes  referred  to  in  note 

and   certain   other   railroad  companies  to  §  79,  ante. 

had   consolidated   and   formed   a    new  ^  Southgate  v.  Atlantic,  etc.  K.  Co., 

companv,  which  had  succeeded  to  all  61  Mo.  90  (187.5).     In  Browni;^I),bble, 

the  rights  and  liabilities  of  the  consoli-  65  Mich.  520    (1887),  (32  N.  W.  Rep. 

dating  companies.     It  u-as  held  that  the  656)  it  was  held  that  it  would  not  be 

trial  court  properlv  substituted  the  con-  presumed   that   a   foreign    constituent 

solidated  company  as  defendant.  corporation  had  power  to  consolidate. 
10  ^^^ 


S91 


INTERCOnrORATE    RELATIONS. 


[part  I. 


Statutes  providing  that  an  allegation  of  corpoiate  capacity 
shall  be  taken  as  true  unless  specifically  denied  do  not  apply 
to  an  allegation  in  a  coniphiint  that  the  defendant  corporation 
consolidated  with  another  company  before  the  commencement 
of  the  suit.^  An  allegation  in  a  comjdaint  that  certain  railroad 
companies,  authorized  by  law  to  consolidate,  did  consolidate 
and  become  one  corporation  under  a  certain  name,  is  a  suffi- 
cient averment  of  consolidation  with<Mit  setting  forth,  in  detail, 
the  steps  taken  by  the  constituent  companies  to  bring  about 
such  result.'  The  facts  concerning  the  consolidation  should, 
however,  be  set  forth  with  reasonable  certainty,'  although 
their  absence  from  a  petition  would  not  occasion  a  reversal 
of  judgment.* 

Consolidation  statutes  sometimes  provide  that  a  copy  of  the 
articles  of  consolidation  on  hi*!  in  the  office  of  the  Secretary 
of  State,  duly  certified  and  authenticated,  shall  be  prima  facie 
evidence  of  consolidation.^     In  the  absence  of  such  a  statutory 


1  Koons  V.  Chicago,  etc.  U.  Co.,  2.3 
Iowa,  49.1  (I8G"). 

'^  Collin.-f  V.  Chicago,  etc.  R.  Co.,  U 
\Vi«.  4'J5  (1861) :  "  Now  although  these 
allegations  in  re.spect  to  the  coii.MoliiJa- 
tion  of  the  variou.s  compaiiie.s  are  quite 
general  we  do  not  see  how  they  could 
be  ni.ide  more  specific,  without  setting 
forth  ill  dotail  all  the  stops  taken  l>_v  the 
different  companies  to  effect  their  con- 
solidation and  make  it  com|>lete.  .  .  . 
We  therefore  think  the  averments  of  the 
complaint  should  he  deemed  sufficiently 
explicit,  on  demurrer.  They  must  he 
con.sidoreil  as  eijuivalent  to  alleging 
that  everything  was  done,  and  every  step 
taken  by  the  various  companies  to  ren- 
der tht'ir  acts  of  consolidation  complete 
and  effectual."  As  to  ple.adings  con- 
cerning consolidation  in  171/0  warranto 
proceedings  see  Commonwealth  r.  At- 
lantic, etc.  II.  Co.,  53  Pa.  St.  9  (1966). 

s  Hnhhard  v.  Chappell.  14  Ind.  601 
(1860);  Wright  r.  Bundy,  11  Ind  398 
(1858) ;  Marquette,  etc.  R.  Co.  ;•.  Lang- 
ton,  32  Mich.  251  (1875)  ;  Langhorne  v. 
Richmond  R.  Co.,  91  Va.  369  (1892), 
(22  S.  E.  Rep.  159).     In  the  last  case 

146 


the  Court  .said  (p  37.'>)  :  "  In  this  caae, 
as  the  plaintiff  had  instituted  his  action 
to  recover  damages  from  the  consoli- 
dated corporation  for  the  injury  alleged 
to  have  l>een  done  him  by  the  corjwjra- 
tiou  consolidated  with  it,  it  w.is  neces- 
sary for  him  to  allege  generally  the 
authority  of  the  old  companies  to  con- 
solidate, and  the  fact  that  they  had  con- 
stdidated,  and  nndcr  what  name,  in 
order  to  show  the  liability  of  the  new 
or  con.solidated  company  for  the  iujarj 
sued  for." 

*  ludinnap^dis,  etc.  R.  Co.  v.  Jones, 
29  Ind.  465  (1868). 

'  "  A  copy  of  said  agreement  and 
act  of  consolidation,  duly  certifieil  by 
the  Secretary  of  the  State  under  his 
official  seal,  sh.all  be  evidence  in  all 
courts  and  j)laces  of  the  existence  of 
said  new  company  an<l  that  the  provi- 
sions of  this  act  have  been  fully  observed 
and  complied  with."  Connfcticut,  Rev. 
Stat.  1888,  §3445.  Other  States  have 
somewhat  similar  statutory  provisions. 

A  copy  of  articles  of  consolidation, 
duly  certified  under  the  seal  of  the  Sec- 
retary of  State,  is  prima  facit  evidence 


CHAP.   IX.]      IRREGULAR   AND   INVALID   CONSOLIDATIONS.  §  92 

provision  the  existence  of  a  consolidated  corporation  could, 
undoubtedly,  be  proved  in  the  same  manner  as  the  existence 
of  any  other  corporation  —  by  showing  the  due  execution  and 
record  of  the  consolidation  agreement  in  pursuance  of  statu- 
tory authority,  and  acts  of  user  thereunder. 


CHAPTER   IX. 

IRREGULAR   AND   INVALID   CONSOLIDATIONS. 

§  92.  Attempted  Consolidation  —  Status  of  Resulting  Organization. 

§  93.  Effect  of  Unlawful  Consolidation. 

§  94.  Effect  of  Irregular  Consolidation. 

§  95.  Who  may  attack  Irregular  Consolidation. 

§  96.  Estoppel  to  deny  Regularity  of  Consolidation. 

§  97.  Accounting  after  Attempted  Consolidation. 

§  98.  Fraud  in  Consolidation  Agreement. 

§  92.  Attempted  Consolidation  —  Status  of  Resulting  Organiza- 
tion. —  When  a  consolidation  of  corporations  has  been  at- 
tempted but  the  result  of  the  proceedings,  through  some 
defect  or  want  of  power,  has  not  been  a  corporation  de  jure^ 
the  rights  and  obligations  accruing  will  be  determined  by 
ascertaining  whether  a  de  facto  corporation  has  been  formed. 
Unless  a  consolidation  statute,  in  force  at  the  time  of  the  pro- 
ceedings,^ authorized  the  proposed  consolidation,  the  result 
was  a  nullity  even  if  there  was  an  attempt  in  good  faith  to  con- 
solidate followed  by  an  assumption  of  corporate  powers.^     An 

of  the  existence  of  the  consolidated  cor-  sota,  etc.   R.  Co.,  157   111.   641    (1895), 

poration.     East  St.  Louis,  etc.  R.  Co.  v.  (42  N.  E.    Rep.  153)  :  "  In  order   that 

Wabash,  etc.  R.  Co.,  24  111.  App.  279  there  should  he  a  de  facto  corporation 

(1887).    See  also  Columbus,  etc.  R.  Co.  two  things  are  essential:  First,   there 

V.  Skidmore,  69  111.  566  (1873).  must  be  a  law  under  which  the  corpo- 

1  The  subsequent  passage  of  a  con-  ration  might  lawfully  be  created ;  and 
solidation  statute,  not  retroactive  in  second,  a  user.  When  the  law  autho- 
terms,  does  not  validate  an  illegal  con-  rizes  a  corporation,  and  there  is  an  at- 
solidation  nor  create  a  de  facto  cor-  tempt,  in  good  faith,  to  organize,  and 
poration.  American  Loan,  etc.  Co  v.  corporate  functions  are  thereupon  exer- 
Minnesota,  etc.  R.  Co.,  157  111.  641  cised,  there  is  a  corporation  rfeyac^o,  the 
(1895),  (42  N.  E.  Rep.  153).  legal  existence  of  which  cannot   ordi- 

2  American  Loan,  etc.  Co.  v.  Minne-  narily  be  questioned   collaterally.  .  .  . 

147 


S  93 


INTERCORPORATE    RELATIONS. 


[part  I. 


attempt  to  do  that  which  the  law  docs  not  permit  can  produce 
no  result  that  the  law  will  recognize.  A  body  which  cannot 
become  a  corporation  de  jure  cannot  become  a  corporation  de 
facto.  Moreover,  the  mere  user  of  corporate  powers  which 
might  have  been  lawfully  acquired,  without  a  bona  fide  at- 
tempt to  acquire  them  by  forming  a  consolidation,  does  not 
create  a  consolidated  corporation  de  facto  nor  does  an  attempt 
to  organize  without  user  have  that  cfTect.  All  of  these  ele- 
ments must  unite  to  form  a  de  facto  corporation, —  {n^  a 
statute  under  which  the  proposed  consolidation  might  have 
been  eflected,  (h)  a  bona  fide  attempt  to  consolidate,  and  (f)  a 
user  of  the  corporate  j)0W('rs  claimed.' 

§  93.  Effect  of  Unlawful  Consolidation.  —  As  already  noticed, 
the  result  of  an  attempted  consolidation,  when  no  statute 
authorizes  consolidation,  is  a  nullity,  and  the  same  result  fol- 
lows when  the  other  elements  of  a  de  facto  corporation  are 
lacking.     Accordingly,  the  corporate  existence  of  a  nominally 


Our  attention  is  railed  to  no  ta.Ho  in 
which  it  iit  held  that,  iu  the  absence  uf 
any  general  law  or  sjiecial  charter  or 
other  law  authorizing  incorpfjratiou  or 
consolidation,  an  the  case  may  be,  and 
also  in  tiie  absence  of  subsequent  legis- 
lative ratification,  the  juristic  person- 
ality of  a  corporation  or  consolidated 
corporation  is  complete  and  conclusive 
against  all  the  world  except  the  sover- 
eign power.  For  the  reasons  we  have 
stated  the  supposed  consolidated  corpo- 
ration of  the  States  of  Wisconsin,  Min- 
nesota aud  Illinois  c.illed  the  Chicago 
Freeport  and  St.  Paul  Railroad  Com- 
pany, is  not,  aiid  never  was,  a  corfKjra- 
tion  eitiier  de  J'arto  or  cle  jure.  The 
right  of  w.iy  contracts  aud  the  trust 
deed  made  to  the  appelbmt  were  and 
are  invalid,  and  this  because  there  was 
no  corporation  iu  existence  with  capac- 
ity to  either  obtain  a  riglit  of  way,  or 
contract,  or  act  or  be  hound." 

1  In  Methodist,  etc.  Church  v.  Pickett, 
19  N.  Y.  482  (1859),  it  was  said  that 
the  following  elements  were  e.sscntial 
to  the  existence  of  a  de  facto  corpora- 
tion :  "(1)  The  existence  of  a  charter 
or  some  law  under  which  a  corporation, 

148 


with  the  powers  assumeil, might  lawfully 
be  created  ;  and  (2)  a  usir  by  the  party 
to  the  suit  of  the  riglits  claimed  to  be 
conferre<l  by  such  charter  or  law."  This 
statement  has,  however,  l>een  criticized 
as  omitting  the  element  of  (in  attempt 
to  orr/anize.  Finnegan  r.  Norrenberg,  52 
Minn.  2.39  (189.J),  (5.3  N.  \V.  Hep.  1 150). 
In  Continental  Trust  Co.  v.  Toledo, 
etc.  It  Co.,  82  Fed.  65.3  (1897),  Judge 
Taft  in  con.xidering  what  attempts  at 
con.Holidation  created  a  corp<jration  de 
J'arto,  stated  the  following  conclusion, 
which  seems  subject  to  the  same  objec- 
tion as  that  iu  Methodist,  etc.  Church,  r. 
Pickett,  SM/)ra  :  "It  may  be  safely  stated 
as  the  rule,  that  when  persons  assume 
to  act  as  a  body,  and  are  permitted  by 
acquiescence  of  the  public  and  of  the 
State  to  act  as  if  they  were  legally  a 
particular  kind  of  corporation,  for  the 
organization,  existence  and  continuance 
of  which  there  is  express  recognition 
by  general  law,  such  body  of  pcr.xons  is 
a  corporation  de  facto,  although  the 
particular  persons  thus  exercising  the 
franchise  of  being  a  corporation  may 
have  been  inelij:ible  and  incapacitated 
bv  the  law  to  do  so." 


CHAP.    IX.]      IRREGULAR   AND   INVALID    CONSOLIDATIONS.  §  93 

consolidated  corporation,  formed  in  the  absence  of  legisla- 
tive authority  for  sucli  a  consolidation,  may  be  collaterally 
attacked,  its  acts  and  contracts  are  void,^  and  it  cannot  be 
held  liable  for  the  debts  of  one  of  the  corporations  attempting 
to  consolidate.^  So  it  was  held,  where  two  corporations 
were  consolidated,  without  legislative  authority,  that  promis- 
sory notes  executed  by  the  consolidated  organization  for  pur- 
poses beyond  the  powers  of  the  constituent  companies  were 
not  binding  upon  them  after  such  organization  had  been  dis- 
solved.^ Wliere,  however,  after  a  valid  consolidation  of  two 
corporations  had  been  effected,  the  consolidated  corporation 
thus  created  attempted  to  further  absorb,  without  authority, 
a  third  corporation  and,  thereafter,  executed  a  mortgage  upon 
all  its  property,  it  was  held  that  the  illegality  of  the  latter 
consolidation  did  not  affect  the  mortgage  lien  upon  the  prop- 
erty of  the  first  two  corporations.* 

A  judgment,  obtained  against  a  consolidated  corporation 
which  is  thereafter  declared  illegal,  may  be  enforced  against 
the  constituent  companies,  upon  the  tlieory  that  they  were  the 
real  defendants  under  the  assumed  name.^  A  constituent 
railroad  corporation,  after  an  illegal  consolidation,  is  liable 
for  injuries,  received  by  a  passenger  while  upon  its  railroad, 
caused  by  the  negligent  operation  of  the  railroad  by  the  em- 
ployees of  the  consolidated  company.^ 

^  American  Loan,  etc.  Co.  v.  Min-  ^  Latham  v.  Boston,  etc.  R.  Co.,  38 

nesota,  etc.  R.  Co.,  157  111.  641  (1895),  Hun(N.  Y.),  267  (1885):  "Thedefend- 

(42  N.  E.  Rep.  153).  ant  was  one   of  the   constituent   com- 

^  Kavanaugh  v.  Omaha  Life  Assn.,  pauies  out  of- which  the  association  was 

84  Fed.  295  (1897).  formed  which  was  entitled  to  be  a  new 

3  Where  two  separate  corporations  company.     As  this  association  has  been 

were  created  to  build  railroads,  they  had  adjudged  to  have  had  no  legal  capacity 

no  right  to  unite  and  conduct  their  bus-  to  exist  as  a  corporation,  it  follows,  as 

iness  under  one  management ;  nor  had  was  also  adjudged,  that  the  individual 

they  a  right  to  establish  a  steamboat  line  entity  of  the  defendant  was  not  merged 

to  run  in  connection  with  the  railroads,  in  it.  Therefore,  the  defendant  remained 

Notes   given  for  the  purchase  of    the  as  an  actor  and  participator  in  the  asso- 

steamboat  cannot   be   recovered   upon,  ciation  which  did  operate  the  railway, 

So  held  in  Pearce  v.  Madison,  etc.  R.  and  thus  one  of  the  parties  by  whose 

Co.,  21  How.  (U.  S.)  441  (1858).  negligence    the    plaintiff   was   injured. 

*  Racine,  etc.    R.    Co^  v.    Farmers  As  such  it  was  severally  liable  as  one 

Loan,  etc.  Co.,  49  111.  331  (1868).  of  the  wrongdoers." 

^  Ketcham  v.  Madison,  etc.  R.  Co., 
20  Ind.  260  (1863). 

149 


§  95  INTERCORPORATE   RELATIONS.  [PAFIT   I. 

An  attempted  consolidation,  without  authority,  does  not 
terminate  the  existence  of  a  corporation,  and  non-user  of  its 
franchises,  durinj^  the  existence  of  the  illegal  organization, 
does  not  forfeit  them.^ 

§  04.  Effect  of  Irregular  Consolidation.  —  If,  upon  the  prin- 
ciples indicated,  the  result  of  an  attempted  consolidation  is  a 
corporation  de  facto,  the  general  rule  that  the  existence  of 
such  a  corporation  cannot  be  made  the  subject  of  collateral 
attack  is  applicable.^  As  said  by  the  Supreme  Court  of  the 
United  States  in  the  Pacific  Railroad  Removal  Cases  :  ^  "  The 
organization  of  the  company  under  the  consolidation  proceed- 
ings makes  it,  at  least,  a  corporation  de  facto  and  the  legality 
of  its  constitution  will  not  be  inquired  into  collaterally." 

Thus,  after  consolidation  has  taken  place,  it  is  no  defence  to 
an  action  brought  upon  an  obligation  given  to  the  consolidated 
company  that  prescribed  formalities  were  omitted  in  the  con- 
solidation proceedings.*  Upon  similar  principles,  it  has  been 
held  that  the  existence  of  a  de  facto  consolidated  corporation 
cannot  be  attacked  in  an  action  of  ejectment  in  order  to  dis- 
prove title  in  a  plaintiff  who  claims  through  such  corporation.^ 

§  95.    Who  may  attack  Irregular    Consolidation.  —  The  State 

1  State  t>.  Crawfordsville,  etc.  Tarn-  thecorporation,  thereby  admitted  its  cor- 
pike  Co.,  102  Ind.  283  (188.5),  (1  N.  E.  porate  existence,  and,  in  order  to  avoid 
Rep.  395).  a  payment   for   want  of  a   party  with 

2  Pacific  Railroad  Removal  Ca-ses,  whom  to  contract,  he  must  prove  that 
ll.'j  U.  S.  15  (1885),  (5  Sup.  Ct.  Rep.  no  such  body  existed  iu  fact;  and  that 
1113)  ;  Continental  Tru.-^t  Co  i;.  Toledo,  under  a  plea  of  nul  tiel  corporation 
etc.  R.  Co.,  82  Fed.  642  (1897);  Farm-  where  an  organization  in  fact,  and  a 
ers  Loan,  etc.  Co.  v.  Toledo,  etc.  R.  user  is  shown,  the  existence  of  the  cor- 
Cc,  67  Fed.  49  (1895).  Also,  Wash-  porate  body  is  proved.  Mitchell  v. 
burn    r.  Cass   County,  3    Dill.    (U.S.)  Deeds,  49  111.  416  (1867). 

251    (1875);    Leavenworth   County   v.  See  also    Continental    Trust   Co.  v. 

Chicago,    etc.    R.    Co.,   25    Fed.    219  Toledo,  etc.  R.  Co.,  82  Fed.  642  (1897)  ; 

(1885).  Branch  v.  Jesup,  106  U.  S.  468  (1882), 

3  Pacific  Railroad    Removal  Cases,  (1  Sup.  Ct.  Rep.  495). 

115  U.  S.  15  (1885),  (5  Sup.  Ct.  Rep.  *  Where   title   is   traced  through  a 

1113).  consolidated  corporation  which  is  not  a 

*  Where     a     party     executed     and  party  to  the  record  and  with  which  the 

delivered    his     promissory   note    to    a  defendant  has  no  privity,  proof  of   its 

consolidated   organization    which    was  existence  as  a  corporation  de  facto  by 

afterwards  assigned  by  it,  it  was  held  the  articles  of  incorporation  duly  made 

in  an   action   upon   such    note   by  the  is  sufficient  prima /ao'e.    Tarpey  d.  Des- 

assignee  against   the   maker,   that   the  eret  Salt  Co.,  5  Utah  494  (1888),  (17 

defendant,   by   executing   his   note    to  Pac.  Rep.  631). 

150 


CHAP.    IX.]       IRREGULAR   AND    INVALID    CONSOLIDATIONS.  §  96 

may  directly  attack  the  regularity  of  the  organization  of  a 
de  facto  consolidated  corporation  in  quo  warranto  proceed- 
ings.i 

A  subscriber  to  the  stock  of  a  constituent  corporation,  when 
sued  by  the  consolidated  corporation  upon  his  subscription 
contract,  may  show  the  omission  of  some  statutory  condition 
precedent  in  the  consolidation  proceedings.^  This  is  an  excep- 
tion to  the  rule  against  the  collateral  attack  of  de  facto  cor- 
porate existence  and  is  justified  by  the  relation  of  the  parties. 

The  decision  of  the  Supreme  Court  of  Michigan,  in  Broum 
V.  Dibble,^  which,  if  well  founded,  practically  nullifies  the  rule, 
cannot,  however,  be  sustained  upon  the  same  ground.  In  that 
case  it  was  held  that  when  a  consolidated  corporation  seeks 
to  enforce  rights  against  third  persons,  as  the  successor  of  its 
constituents,  the  question  can  be  raised  whether  it  has,  in  fact, 
been  duly  organized  and  has  succeeded  to  the  rights  claimed. 

§  96.  Estoppel  to  deny  Regularity  of  Consolidation.  —  While 
subscribers  to  the  stock  of  constituent  corporations  may 
question  the  regularity  of  the  consolidation,  when  sued  by  the 
consolidated  company  upon  their  subscriptions,  a  different 
principle  may  be  applicable  when  creditors  of  that  company 

1  State    V.  Vanderbilt,  37  Ohio  St.  Brown,  26   Ohio  St.  223   (1875).     The 

590(1882);  Commonwealth  r.  Atlantic,  contrary  is,  however,  held   in    Kansas, 

etc.  R.  Co.,  53  Pa.  St.  9  (1866).  See   Chicago,   etc.   R.  Co.   v.  Stafford 

^  Thus,  where  the  consolidation  act  County,  36  Kan.  128  (1887),  (12  Pac. 
provided  for  the  consolidation  of  corpo-  Rep.  593),  (mandamus  to  enforce  sub- 
rations  upon  the  approval  of  the  as^ree-  scription),  where  the  Court  said  :  "  As 
ment  of  consolidation  by  the  constituent  the  plaintiff  is  a  de  facto  corporation, 
corporations,  and  required  the  election  under  the  decisions  of  this  court  its 
of  a  board  of  directors  of  the  consoli-  existence  as  such  corporation  can  only 
dated  corporation  as  a  condition  to  its  be  attacked  in  a  direct  proceeding 
succession  to  the  rights  and  privileges  brought  for  that  purpose.  Such  mat- 
of  the  constituent  corporations,  it  was  ter  cannot  be  inquired  into  collater- 
held  that  it  might  be  shown  by  a  sub-  ally." 

scriber,  in  action  to  enforce  his  subscrip-  ^  Brown   v.    Dibble,    65    Mich.    523 

tion,  that  the  consolidated  corporation  (1887),    (32  N.  W.  Rep.  656) :  "Unless 

had   not   succeeded   to  such   rights  on  the   consolidation  is  shown   to   be  the 

account   of   its  failure  to  comply  with  legally    created    successor   of   the    old 

such  condition.     Mansfield,  etc.  R.  Co.  Michigan   Company  it  has  no  concern 

V.  Drinker,  30  Mich.  124  (1874).  with  its  individual  contracts  with  third 

See   also   Mansfield,    etc.    R.  Co.  v.  persons;  and  if  so  identified  it  can  only 

Stout,  26  Ohio  St.  241   (1875)  ;  Tuttle  have  ...  a  right  to  recover   by  proof 

V.  Michigan  Air  Line,  etc.  Co.,  35  Mich,  that   all   conditions   of    recovery   have 

249  (1877);   Mansfield,   etc.   R.  Co.  v.  been  complied  with." 

151 


§96 


INTERCORPORATE    RELATIONS. 


[part  I. 


seek  to  reach  such  subscriptions  for  the  payment  of  its  debts. 
In  such  a  case  subscribers  who  have  acquiesced  in  the  con- 
solidation are  estopped  to  question  its  validity.* 

A  lie  facto  consolidated  corporation  is  estoj)pcd  from  deny- 
ing its  corporate  existence  in  order  to  avoid  its  obligations.^ 
In  Farmers  Loan^  etc.  Co.  v.  Toledo^  etc.  R.  Co.^  Judge  Taft 
said  :  "  It  is  too  well  established  to  need  discu.ssion  that  both 
a  de  facto  corporation  and  the  ])ersons  exercising  the  riglits 
of  stockholders  in  such  a  corporation  arc  estopped  to  assert 
its  unauthorized  existence  as  a  corporation  to  avoid  a  debt 
incurred  by  it  in  the  actual  exercise  of  corporate  franchises 
and  the  doing  of  corporate  business." 

Creditors  of  a  de  facto  consolidated  corporation  who  have 
dealt  with  it  as  a  corporation  and  whose  claims  have  arisen 
after  the  issuance  of  mortgage  bonds,  are  estopped  from  at- 
tacking the  regularity  of  its  organization  for  the  purpose  of 
invalidating  the  bonds.*  As  creditors  they  have  no  better 
standing  than  the  bondholders. 

Upon  similar  principles  it  would  seem  that  creditors  of  an 


^  Hamilton  i-.  Clarion,  etc.  R  Co., 
144  Ta.  St.  34  (18'JI),  (23  Atl.  Kep. 
53). 

2  United  States :  Farmers  Loan,  etc. 
Co.  V.  Toledo,  etc.  K.  Co.,  67  Fed.  49 
(1895). 

Illinois  :  Racine,  etc.  R.  Co.  r.  Farm- 
ers Loan,  etc.  Co.,  49  111.347  (1868): 
"  Where  a  company  has  issued  its 
bonds  and  mortgage  under  the  circum- 
stances above  detailed,  the  courts  of 
every  civilized  country  must  hold  an 
estoppel  from  denying  its  corporate  ex- 
istence, for  such  a  defence  is  repugnant 
to  every  sentiment  of  justice  and  good 
faith.  That  this  doctrine  of  equitable 
estoppel,  or  estoppel  /n  jxiis,  by  which  a 
person  who  has  represented  to  another 
the  existence  of  a  certain  state  of  facts, 
and  thereby  induced  him  to  act  on  the 
faith  of  their  existence,  is  concluded 
from  averring  against  such  person  and 
to  his  injury  that  such  representations 
were  false,  is  as  applicable  to  corpo- 
rations as  to  natural  persons,  will  hardly 
be  denied." 

152 


A  corporation  which  has,  in  effect, 
consolidated  with  another,  is  ostoj)ped 
to  assert  that  the  proceedings  for  con- 
solidation were  irregular,  in  an  action 
against  it  to  recover  the  amount  of  a 
judgment  against  the  other  corporation 
binding  upon  it  if  there  was  a  consoli- 
dation. Chicago,  etc.  R.  Co.  i'.  Ash- 
ling, ICO  111.  373  (1896),  (43  N.  E.  Rep. 
373). 

Xew  .Tersey :  Williamson  v.  New 
Jersey  Southern  R.  Co.,  26  N.  J.  Eq. 
398  ("l875). 

Ohio :  Adelbert  University  i-.  Toledo, 
etc.  R.  Co.,  3  Ohio  N.  P.  15  (1894). 

*  Farmers  Loan,  etc.  Co.  v.  Toledo, 
etc.  R.  Co.,  67  Fed.  49  (1895). 

*  Louisville  Trust  Co.  v.  Lonisville, 
etc.  R.  Co.,  84  Fed.  539  (1898),  (re- 
versed on  other  grounds,  174  U.  S.  674 
(1899),  (19  Sup.  Ct.  Rep.  827),  di.^tin- 
guishing  American  Loan,  etc.  Co.  v.  Min- 
nesota, etc.  R.  Co.,  157  111.  641  (1895), 
(42  N.  E.  Rep.  153). 

Also  Continental  Trust  Co.  i;.  Toledo, 
etc.  R.  Co.,  82  Fed.  648  (1897). 


CHAP.    IX.]       IRREGULAR   AND   INVALID    CONSOLIDATIONS. 


96 


illegal  consolidated  corporation  could  not  attack  its  validity  in 
order  to  defeat  the  holders  of  prior  securities.  If  the  corpo- 
ration is  a  nullity  its  bonds  and  unsecured  debts  are  equally 
invalid.^ 

Principles  of  estoppel  may  also  prevent  the  stockholders  ^ 
and  bondholders  3  of  the  consolidated  corporation,  and  the 
constituent  corporations*  and  their  stockholders^  from  rais- 
ing any  questions  as  to  the  regularity  of  the  consolidation. 


1  Continental  Trust  Co.  v.  Toledo, 
etc.  R.  Co.,  82  Fed.  648  (1897)  (per 
Taft  J.):  "Let  us  consider  first  the 
averment  that  the  Toledo,  St.  Louis  & 
Kansas  City  Railroad  Company  is 
neither  a  corporation  de  jure  nor  a  cor- 
poration de  facto.  Can  such  a  defence 
be  urged  by  one  purporting  to  be  cred- 
itor of  the  pretended  corporation  ?  If 
the  bonds  are  null  and  void  because  the 
corporation  issuing  them  was  a  nullity, 
clearly  the  debts  of  the  petitioners  and 
the  complainant  are  in  no  better  condi- 
tion and  the  court  has  nothing  upon 
which  to  exercise  its  jurisdiction."  See 
also  Louisville  Trust  Co.  v.  Louisville, 
etc.  R.  Co.,  84  Fed.  539  (1898). 

2  It  has  been  held  that  a  subscriber 
for  stock  in  a  consolidated  company 
cannot  attack  the  validity  of  its  organ- 
ization on  the  ground  that  it  embraces 
parallel  roads.  Leavenworth  County  v. 
Barnes,  94  U.  S.  70  (1876);  Lewis  v. 
City  of  Clarendon,  5  Dill.  (U.  S.)  329 
(1878),  (6  Rep.  609). 

Subscribers  for  stock  in  consolidating 
companies,  can,  however,  enjoin  a  con- 
solidation of  parallel  roads  when  pro- 
hibited by  statute  or  constitutional 
provision.  See  ante,  §  40 :  "  Remedies  for 
Enforcement  of  Provisions  against  Con- 
solidation." 

3  Wallace  v.  Loomis,  97  U.  S.  155 
(1877)  :  "  In  view  of  these  facts,  we  think 
that  the  appellant  is  estopped  from  deny- 
ing the  corporate  existence  of  the  com- 


pany whose  bonds  he  thus  holds,  and 
by  virtue  of  which  he  ac(iuire3  a  locus' 
standi  in  the  suit.  Irregularities  and 
even  fraud  committed  in  making  the 
purchase  autliorized  by  the  act,  and 
failure  to  perform  strictly  all  the  req- 
uisites for  changing  the  company's 
name,,  cannot  avail  the  appellant,  oc- 
cupying the  position  he  does  in  this 
suit,  to  deny  the  corporate  existence  of 
the  Alabama  and  Chattanooga  Railroad 
Company.  He  waived  all  such  objec- 
tions when  he  took  the  bonds,  and  came 
into  court  only  as  a  holder  and  owner 
thereof.  The  irregularities  on  which 
he  relies  might,  perhaps,  have  been 
sufBcient  cause  for  a  proceeding  on  the 
part  of  the  State  to  deprive  the  com- 
pany of  its  franchises,  or  on  the  part  of 
third  persons  who  may  have  been  in- 
juriously affected  by  the  transactions. 
But  neither  the  State  nor  any  other 
persons  have  complained  ;  and  it  is  not 
competent  for  the  appellant  to  raise  the 
question  in  this  collateral  way,  for  the 
purpose  of  gaining  some  supposed  ad- 
vantage over  other  creditors  of  the  same 
company,  who  have  relied  on  its  cor- 
porate existence  in  the  same  manner 
that  he  has  done." 

*  A  corporation  which  has  voluntarily 
become  consolidated  with  another,  has 
participated  in  all  the  necessary  pro- 
ceedings in  such  consolidation,  and  has 
permitted  the  de  facto  corporation  so 
formed    to    control    its    business    and 


^  Bell  V.  Pennsylvania,  etc.  R.  Co. 
(N.J.  1887),  10  Atl.  Rep.  741  ;  Lewis  u. 
City  of  Clarendon,  5  Dill.  (U.  S.)  329 
(1878),  (6  Rep.  609). 


In  the  latter   case   the   Court   said : 
"  By  subscribing  for  stock  and  issuing 
its  bonds   under   the   circumstances  to. 
the    consolidated    company  the  city  is 

153 


§  98  INTERCORPORATE    RELATIONS.  [PART    I. 

§  97.  Accounting  after  Attempted  Consolidation.  —  While  ail 
attempted  consolidation,  without  statutory  authority,  is  ultra 
vires  and  no  action  will  lie  upon  the  agreement  of  consolida- 
tion, one  corporation  which  has  received,  under  the  agreement, 
property  of  another  can  be  compelled  to  make  restitution 
thereof  or  to  account  for  its  value. ^  Thus,  where  a  bill  in 
equity,  brought  to  restrain  an  ultra  vires  consolidation,  was 
dismissed  because  of  the  voluntary  rescission  of  the  articles 
of  consolidation,  a  cross  bill  praying  for  an  accounting  was 
permitted  to  stand  and  the  suit  remained  for  the  purpose  of 
such  accounting.  In  this  case  the  Supreme  Court  of  Missis- 
sippi said :  "  The  decided  weight  of  authority  in  England  and 
America  is  that  no  action  lies  upon  the  invalid  contract,  that 
no  decree  can  be  made  by  a  court  of  equity  for  its  specific 
performance,  nor  can  a  recovery  be  had  at  law  for  its  breach  ; 
but  that,  by  proceeding  in  the  proper  court,  the  plaintiff  may 
recover  to  the  extent  of  the  benefit  received  by  the  defendant 
from  the  execution  of  the  agreement  l)y  the  plaintiff." ^ 

§  98.  Fraud  in  Consolidation  Agreement.  —  Courts  of  equity 
will  annul  any  scheme  by  which  the  stockholders  of  one  cor- 
poration, after  agreeing  to  consolidate  their  corporation  with 
another,  fraudulently  seek  to  gain   an  advantage    over  the 

property  and  third    parties  to   acquire  Ohio,  etc.   R.  Co.,  9   Biss.  (U.  S.)  127 

rights   and    interests  based  on  the  ex-  (1879). 

istence  of    such   de  facto  corporation,  ^  For  full  consideration  of  the  snb- 

cannot  sue  to  have  such  consolidation  ject  of  ultra  vires  contracts  and  of  the 

declared    invalid    by  reason  of   irregu-  rights  and  duties  of  the  parties  thereto, 

larities  in  its  formation.     Bradford  v.  see  post,  ch.  22. 

Frankfort,  etc.  R.   Co.,    142   lud.   383  2  Greenville  Compress  Co.  v.  Plan- 

(1895),  (40  N.  E.  Rep.  471).  ters   Compress,  etc.   Co.,  70  Miss.  676 

See    also    Carey  f.   Cincinnati,    etc.  (1893),  (13  So.  Rep.  879). 
R.  Co.,  5  Iowa,  357  (1857) ;  Dimpfel  v. 


estopped  in  a  suit  upon  such  bonds  from  It  has  been   held,  however,  that  the 

showing  that  the  latter  company  is  not  holder  of  bonds  issued  by  a  county   to 

a  corporation  de  jure."  a  railroad  company,  two  days  after  an 

Where  the  validity  of  a  consolidation  attempted   consolidation   with   another 

has  not  been  attacked  by  the  State  or  a  company,  was  not  estopped,  as  against 

dissenting  stockholder,  a  municipal  cor-  the  county,  from  asserting  the  invalid- 

poration  cannot  question  it  by  way  of  a  ity  of  such  consolidation.      Morrill    v. 

defence  to  an  action  on  bonds  issued  to  Smith  County,  89  Tex.  529  (189G),  (36 

a  constituent  corporation.    Washburn  v.  S.  W.  Rep.  56). 
Cass  County,  3  Dill.  (U.  S.)  251  (1875). 

154 


CHAP.    X.]  INTERSTATE    CONSOLIDATIONS.  §  99 

shareholders  of  the  latter  company.  Thus,  where  one  corpo- 
ration, after  agreeing  to  a  consolidation,  declared  a  scrip 
dividend  and  issued  certificates  of  indebtedness  therefor  with- 
out the  knowledge  of  the  other  corporation  which  then  went 
into  the  consolidation,  it  was  held,  in  a  suit  in  equity  brought 
by  the  stockholders  of  the  latter  company,  that  the  scrip  was 
fraudulent  and  void  and  should  be  delivered  up  to  be  cancelled. ^ 

A  secret  agreement  between  the  promoters  of  a  consolida- 
tion that  the  money  advanced  for  the  purchase  of  certain 
stock,  necessary  to  effect  the  consolidation,  should  be  a  debt  of 
the  consolidated  company,  and  be  repaid  by  an  issue  of  its 
bonds,  is  not  binding  upon  the  consolidated  company  and  the 
proceeds  of  bonds  so  applied  may  be  recovered.^ 

Upon  grounds  of  public  policy,  it  has  been  held  that  arrange- 
ments for  consolidation  between  two  corporations  may  be  set 
aside  in  equity  where  one  person  is  director  in  both  com- 
panies.^ 


CHAPTER   X. 

INTERSTATE    CONSOLIDATIONS. 


§    99.  Consolidation  of  Corporations  of  Different  States  —  How  authorized. 

§  100.  Construction  of  Interstate  Consolidation  Statutes. 

§  101.  Status  of  Interstate  Consolidated  Corporation. 

§  102.  Effect  of  Interstate  Consolidation  upon  Status  of  Constituent  Corpora- 
tions. 

§  103.  Management  of  Interstate  Consolidated  Corporation. 

§  104.  Rights  and  Powers  of  Interstate  Consolidated  Corporation. 

§  105.  Duties  of  Inter.state  Consolidated  Corporation  —  Taxation. 

§  106.  Citizenship  of  Interstate  Consolidated  Corporation. 

§  107.  Foreclosure  of  Mortgages  after  Interstate  Consolidation.     Jurisdiction. 

§  99.    Consolidation  of  Corporations  of  Different  States  —  How- 
authorized.  —  Consolidation  statutes  generally  provide  for  the 

1  Bailey  i;.  Citizens  Gas  Light  Co.,  Midland    R.    Co.,    38    N.    J.    Eq.    423 

27  N.  J.  Eq.  196  (1876).  (1884). 

Equity,  however,  cannot   dissolve   a  ^  Trenton  Pass.  R.  Co.  v.  Wilson,  55 

consolidated  corporation  upon  the  N.  J.  Eq.  273  (1897),  (37  Atl.  Rep.  476). 
ground,  alleged  by  a  stockholder  in   a  3  Munson  v.  Syracuse,  etc.  R.   Co., 

constituent  corporation,  that  the  consol-  103  N.  Y.  73  (1886),  (8  N.  E.  Rep.  355). 

idation  was  for  a   fraudulent  purpose.  Compare,  however.  Hill  v.  Nisbet,  100 

and   not  legally  effected.     Terhune   v.  Ind.  341  (1884). 

155 


§  100  INTERCORPORATE  RELATIONS.  [PAni   I. 

consolidation  of  domestic  railroad  and  other  carrier  corpora- 
tions with  those  of  an  adjoining  State  where  the  works  of  the 
several  corporations,  when  united,  will  form  a  continuous  or 
connected  line.  The  connection  hetween  the  railroads  may 
in  some  States  be  by  a  bridge,  in  others  by  a  ferry  and  in 
another  by  a  tunnel.^  One  State,  at  least,  has  no  generul  act 
permitting  the  consolidation  of  domestic  railroad  comjianics 
but  authorizes  the  consolidation  of  any  railroad  company  in- 
corporated under  its  laws  with  any  other  corporation  whose 
line  of  railroad  "  is  situated  wholly  outside  this  State."  -  As 
already  shown.  State  legislation  authorizing  the  consolidation 
of  such  corporations  is  not  a  regulation  of  interstate  com- 
merce.^ 

The  consolidation  of  domestic  and  foreign  business  corpora- 
tions is  not,  as  a  rule,  permitted  by  consolidation  statutes 
applicable  to  that  class  of  corporations. 

S  100.  Construction  of  Interstate  Consolidation  Statutes.  — 
Express  legislative  authority,  from  each  of  the  States  creating 
the  several  corporations  proposing  to  consolidate,  must  be 
granted  before  a  valid  consolidation  can  take  place.  Any 
ambiguity  in  the  terms  of  the  grant  will  operate  against  the 
corporation  and  in  favor  of  the  public. 

A  legislative  grant  of  authority  to  consolidate  does  not 
authorize  consolidation  with  a  foreign  corporation  unless  such 
power  is  clearly  expressed.*  It  has,  however,  been  held  that 
an  act  authorizing  a  domestic  railroad  corporation  to  consoli- 
date with  corporations  operating  roads  in  an  adjoining  State, 
authorizes  a  consolidation  with  a  company  operating,  in  an 
adjoining   State,  a  road  which  extends   into  a  third   State.^ 

1  See  ante,  §  22 :  "  What  Railroads  Delaware,  etc.  Canal  Co.,  24  N.  J.  Eq. 

may  consolidate  —  Statutory  Provisions."  456  (1873),  it  was  held,  in  the  analogous 

■■^   Connecticut :      Gen.     Stat.     188S,  case  of  a  lease,  that  power  to  lease  to 

§  3443.  "  any  other  corporation  or  otherwise  " 

3  See  ante,  §  19 :  "  Power  of  Legisla-  did  not  authorize  a  lease  to  a  foreign 

ture  to  authorize  Consolidation."  corporation. 

*  American  Loan,  etc.  Co.  v.  Minne-         ^  Adelbert   College   v.   Toledo,   etc. 

sota,   etc.  R.  Co.,  157   111.  641    (1895),  R.  Co.,  3  Ohio  N.  P.  15   (1894).     See 

(42  N.  E.  Rep.  153).     See  also  Conti-  also  Racine,   etc.   R.   Co.    v.   Farmers 

neutal  Trust.Co.  v.  Toledo,  etc.  R.  Co.,  Loan,  etc.  Co.,  49  HI.  331  (1868). 
82    Fed.    642    (1897).      In    Black     v. 

156 


CHAP.    X.] 


INTERSTATE    CONSOLIDATIONS. 


101 


Power  to  purchase  slock  in  "any  other  connecting  railroad" 
authorizes  the  purchase  of  the  stock  of  a  foreign  connecting 
raih'oad,^  and  legislative  consent  to  a  purchase  by  "  any  rail- 
road company  "  includes  foreign  as  well  as  domestic  railroad 
corporations.^ 

§  101.  status  of  Interstate  Consolidated  Corporation.  —  A 
State  may  grant  to  a  corporation  of  another  State  power  to 
lease  or  purchase  a  railroad  within  its  territory,  and  to  main- 
tain and  operate  it,  without  making  such  corporation  a 
domestic  corporation   or  a    citizen  of  such  State.^ 


1  Pittsburgh,  etc.  R.  Co.  v.  Keokuk, 
etc.  Bridge  Co.,  131  U.  S.  371  (1889), 
(9  Sup.  Ct.  Rep.  770) ;  Day  v.  Ogdens- 
burgli,  etc.  R.  Co.,  107  N.  Y.  129 
(1887),  (13  N.  E.  Rep.  765). 

2  Boston,  etc.  R.  Co.  i;.  Boston,  etc. 
R.  Co.,  65  N.  H.  393  (1888),  (23  Atl. 
Rep.  529) :  "  Express  con  scut  is  given 
to  a  purchase  by  "any  railroad  com- 
pany." Taken  without  qualification, 
this  clause  includes  foreign  as  well  as 
domestic  railroad  corporations.  The 
words  "  any  railroad  "  might  be  used  in 
a  connection  and  for  a  purpose  which 
would  show  a  restricted  sense  not  in- 
cluding foreign  companies.  Here  is 
no  evidence  of  a  purpose  to  exclude 
them." 

3  I,  It  is  competent  for  a  railroad  com- 
pany, when  authorized  by  the  State 
creating  it,  to  accept  a  grant  of  author- 
ity from  another  State  to  extend  its 
railroad  into  such  State,  and  to  receive 
a  grant  of  powers  to  own  or  control,  by 
lease  or  purchase,  railroads  of  other 
corporations  therein,  and  it  may  subject 
itself  to  such  rules  and  regulations  as 
may  be  prescribed  by  the  second  State. 
Such  legislation  is  not  regarded  as  within 
the  constitutional  inhibition  against 
compacts  between  States.  St.  Louis, 
etc.  R.  Co.  V.  James,  161  U.  S.  562  (1896), 
(16  Sup.  Ct.  Rep.  621 ) ;  Railroad  Co.  v. 
Harris,  12  Wall.  (U.  S.)  82  (1870); 
Copeland  v.  Memphis,  etc.  R.  Co., 
3  Woods  (U.  S.)   651    (1878). 

II.  The  conclusive  presumption  for 
jurisdictional  purposes,  applicable  to  all 
corporations,  that  a  corporation  is  com- 


posed of  citizens  of  the  State  which 
created  it,  accompanies  the  corporation 
when  transacting  business  in  another 
State,  and  it  may  sue  and  be  sued  in  the 
federal  courts  of  such  other  State  as  a 
citizen  of  the  State  of  its  original  crea- 
tion. St.  Louis,  etc.  R.  Co.  v.  James, 
161  U.  S.  562  (1896),  (16  Sup.  Ct.  Rep. 
621) ;  Shaw  v.  Quincy  Mining  Co.,  145 
U.  S.  444  (1892),  (12  Sup.  Ct.  Rep. 
935) ;  Interstate  Commerce  Com.  v. 
Texas,  etc.  R.  Co.,  57  Fed.  948  (1893)  ; 
Myers  v.  Murray,  etc.  Co.,  43  Fed.  695 
(1890)  ;  Miller  v.  Wheeler,  etc.  Co.,  46 
Fed.  882  (1891)  ;  Copeland  v.  Memphis, 
etc.  R.  Co.,  3  Woods  (U.  S.)  657 
(1878).  This  doctrine  of  indisputable 
citizenship  does  not,  however,  extend  so 
far  as  to  make  such  a  corporation  a 
citizen  of  the  second  State  even  though 
it  be  there  endowed  with  all  the  powers 
and  privileges  usually  granted  to  do- 
mestic corporations.  St.  Louis,  etc.  R. 
Co.  V.  James,  161  U.  S.  562  (1896),  (16 
Sup.  Ct.  Rep.  621). 

III.  The  second  State  may  create  a 
corporation  of  the  same  name  as  the 
corporation  of  the  other  State,  and  may 
declare  that  the  same  legal  entit}'  shall 
be  a  corporation  of  that  State  and  shall 
be  entitled  to  exercise  within  its  borders, 
by  the  same  officers,  all  its  corporate 
functions.  The  decided  weight  of  au- 
thority supports  the  view  that  the  result 
of  such  legislation  is  not  the  creation 
of  a  single  corporation,  but  two  cor- 
porations of  the  same  name  having  a 
different  paternity  and  being  citizens, 
respectively,  of  the  States  creating  them. 

157 


§101 


INTERCORPORATE    RELATIONS. 


[part  I. 


When  corporations  of  different  States  desire  to  consolidate, 
and  to  acfiuire  the  rights  and  privileges  of  that  relation,  the 
consolidated  corporation,  created  hy  the  necessary  co-opera- 
tive legislation,  is  essentially  different  from  a  corporation 
created  hy  the  consolidation  of  domestic  corporations.  A 
corporation  formed  by  the  consolidation  of  corporations  of 
di&erent  States,  although  it  has  the  same  shareholders,  is 
designed  to  accomplish  the  same  purpose,  and  has  the  same 
powers,  in  each  State,  is  a  separate  and  distinct  corporation 
in  each  State  and  exists  in  each  State  as  a  domestic  corpora- 
tion.^    In  Quincy  Railroad  Bridge  Co.  v.  Adams  County^  the 


Ohio,  etc.  R.  Co.  i'.  Wheeler,  1  Black 
(U.  S.)  286  (1861).  See  also  Muller  v. 
Dews,  94  U.  S.  444  (1876);  Pennsyl- 
vania R.  Co.  V.  St.  Louis,  etc.  R.  Co., 
118  U.  S  290  (1885),  (6  Sup.  Ct.  Rep. 
1094);  Na.«hua,  etc.  R.  Corp.  i-.  Boston, 
etc.  R.  Corp.,  136  U.  S.  S.^e  (1889),  (10 
Sup.  Ct.  Rep.  1004) ;  Racine  i\  Fanners 
Loan,  etc.  Co.,  49  111.  348  (1868); 
Missouri  Pac.  R.  Co.  v.  Mech,  69  Fed. 
755  (1895). 

Contra,  Railroad  Co.  v.  Harris,  12 
Wall.  (U.  S.)  82  (1870);  Copehuid  v. 
Memphis,  etc.  R.  Co.,  3  Woods  (U.  S.) 
651  (1878);  Bishop  v.  Brainerd,  28 
Conn.  289   (1859). 

1  United  S'ufex  :  In  Muller  r.  Dows, 
94  U.  S.  447  (1876),  where  a  Missouri 
and  an  Iowa  corporation  had  consoli- 
dated, the  Supreme  Court  of  the  United 
States  said :  "  The  two  companies  be- 
came one.  But  in  the  State  of  Iowa  it 
was  an  Iowa  corporation,  existing  under 
the  laws  of  that  State  alone.  The  laws 
of  Missouri  had  no  operation  in  Iowa." 

Also  Nashua,  etc.  R.  Corp.  v.  Boston 
etc.  R.  Corp.,  136  U.  S.  381  (1890),  (10 
Sup.  Ct.  Rep.  1004);  Peik  u.  Chicago, 
etc.  R.  Co.,  94  U.  S.  177  (1876)  ;  Dela- 
ware R.  R.  Tax  Cases,  18  Wall.  (U.  S) 
206  (1873);  Railroad  Co.  v.  Whitton, 
13  Wall.  (U.  S.)  271  (1871);  Missouri 
Pacific  R.  Co.  v.  Meeh,  69  Fed.  755 
(1895);  Fitzgerald  v.  Missouri  Pacific 
R.  Co.,  45  Fed.  812  (1891)  ;  Burger  r. 
Grand  Rapids,  etc.  R.  Co.,  22  Fed.  561 
(1884). 

158 


Illinois  :  Ohio,  etc.  R.  Co.  v.  People, 
123  111.  467  (1888),  (14  N.  E.  Rep.  874)  ; 
Quincy  Railroad  Bridge  Co.  v.  Adams 
County,  88  111.  615  (1878)  ;  Racine,  etc. 
R.  Co.  V.  Farmers  Loan,  etc.  Co.,  49 
111.  331  (1868). 

Michi(]an :  Chicago,  etc.  R.  Co.  v. 
Auditor  General,  53  Mich.  91  (1884), 
(18  N.  W.  Rep.  586),  {per  Coolcy, 
C.  J. ) :  "It  is  impossible  to  conceive  of 
one  joint  act  performed  simultaneously 
by  two  sovereign  States  which  shall 
bring  a  single  corporation  into  being 
except  it  be  by  compact  or  treaty. 
There  may  be  separate  consent  given 
for  the  consolidation  of  corporations 
separately  created  ;  but  where  the  two 
unite,  they  severally  bring  to  the  new 
entity  tlie  powers  and  privileges  already 
possessed,  and  the  consolidated  company 
simply  exercises  in  each  jurisdiction  the 
powers  the  company  there  chartered  had 
possessed." 

Minnesota  :  In  re  St.  Paul,  etc.  R. 
Co.,  36  Minn.  85  (1886),  (30  N.  W. 
Rep.  432). 

Nebraska  :  Trester  v  Missouri  Pac. 
R.  Co.,  33  Neb.  171  (1891),  (49  X.  W. 
Rep.  1110). 

New  York :  People  v.  New  York,  etc. 
R.  Co.,  129  N.  Y.474  (1892),  (29  N.  E. 
Rep.  361)  ;  Sage  v.  Lake  Shore,  etc.  R. 
Co.,  70  N.  Y.  220  (1877). 

Pennsylvania :  Appeal  of  Pittsburgh, 
etc.  R.  Co.,  4  Atl.  Rep.  385  (1886). 

2  Quincy  Railroad  Bridge  Co.  v. 
Adams  County,  88   IlL  615   (1878). 


CHAP.   X.]  INTERSTATE   CONSOLIDATIONS.  §  101 

Supreme  Court  of  Illinois  said  :  "  The  only  possible  status  of 
a  company  acting  under  charters  from  two  States  is  that  it  is 
an  association  incorporated  in  and  by  each  of  the  States,  and 
when  acting  as  a  corporation  in  either  of  the  States,  it  acts 
under  the  authority  of  the  charter  of  the  State  in  which  it  is 
then  acting  and  that  only,  the  legislation  of  the  other  State 
having  no  operation  beyond  its  territorial  limits."  And  in 
Fitzgerald  v.  Missouri  Pacific  R.  Co.  ^  Judge  Caldwell  said  : 
"  By  the  consolidation  the  corporation  of  one  State  did  not 
become  a  corporation  of  another,  nor  was  either  merged  in  the 
other.  The  corporation  of  each  State  had  a  distinct  legisla- 
tive paternity,  and  the  separate  identity  of  each  as  a  corpora- 
tion of  the  State  by  which  it  was  created,  and  as  a  citizen  of 
that  State,  was  not  lost  by  the  consolidation.  Nor  could  the 
consolidated  company  become  a  corporation  of  three  States 
without  being  a  corporation  of  each,  or  of  either.  While  the 
consolidated  corporation  is  a  unit,  and  acts  as  a  whole  in  the 
transaction  of  its  corporate  business,  it  is  not  a  corporation 
at  large,  nor  is  it  a  joint  corporation  of  the  three  States. 
Like  all  corporations,  it  must  have  a  legal  dwelling-place. 
Every  corporation,  not  created  by  act  of  Congress,  dwells  in 
a  State.  This  consolidated  corporation  dwells  in  three  States, 
and  is  a  separate  and  single  entity  in  each." 

This  principle  that  an  interstate  consolidated  corporation 
is  a  separate  and  distinct  entity  in  each  State  is  clearly  es- 
tablished, and  is,  perhaps,  necessary  in  order  to  give  each 
State  its  legitimate  control  over  the  charters  which  it  grants. 
It  is,  however,  founded,  in  a  measure,  upon  a  legal  fiction  for 
it  makes  several  corporations  out  of  that  which  is,  in  fact, 
one,  and  ignores  the  essential  element  of  union? 

That  the  consolidated  corporation,  itself,  has  an  existence 
apart  from  its  constituents  may  be  recognized  without  affect- 
ing the  principles  already  considered.  Thus  in  Ashley  v. 
Ryan^  the  Supreme  Court  of  Ohio  said  :  "  There  has  been 

1  Fitzsrerald  v.   Missouri   Pacific  R.  ^  Ashley  v.  Ryan,  49   Ohio  St.  529 

Co.,  45  Fed.  615  (1891).  (1892),  affirmed  153  U.   S.  436   (1894), 

^  Ilorne   v.   Boston    etc.  R.  Co.,  18  (14  Sup.  Ct.  Rep.  865). 
Fed.  50  (1883). 

159 


§101 


INTERCORPORATE   RELATIONS. 


[part  I. 


some  diversity  of  opinion  as  to  the  status  of  a  corporation 
formed  by  the  consolidation  of  companies  under  the  laws  oi 
different  States.  But  it  seems  pretty  well  settled,  upon  prin- 
ciple at  least,  that  when  formed  under  co-operative  legisla- 
tion of  the  different  States,  it  becomes  a  corporation  in  each 
State  where  its  road  is  located.  It  is  a  legal  entity  residing 
and  doing  business  in  different  States,  with  a  status  in  each, 
derived  from  and  determined  by  the  laws  of  that  State." 

It  has  also  been  held  that  a  consolidated  railroad  corpora- 
tion, chartered  and  operated  in  two  States  and  made  sul)ject 
to  the  laws  of  one  State  as  if  wholly  located  therein,  is  a 
single  entity  so  far  as  the  ])ower  of  the  courts  of  that  State 
to  fix  rates  is  concerned.^  It  is  also  held  that  the  acts  and 
neglects  of  an  interstate  consolidated  corporation  are  its  acts 
and  neglects  as  a  whole.^ 

Constitutional  provisions  in  several  States  define  the  status 
of  interstate  consolidated  corporations.^ 


1  Providence  Coal  Co.  »•.  Providence, 
etc.  R.  Co.,  15  R.  I.  303  (188G),  (4  Atl. 
Rep.  394). 

2  Home  V.  Boston,  etc.  R.  Co.,  18 
Fed.  50  (1883).  See  also  Burjrer  v. 
Grand  Rapids,  etc.  R.  Co.,  22  Fed.  561 
(1884)  ;  Fitz^rorald  v.  Missouri  Pac.  R. 
Co.,  45   Fed.  812  (1891). 

An  interstate  consolidated  corpora- 
tion is  a  "  new "  corporation  whose 
charter,  under  Mich.  Const.  Art.  15,  §  1, 
is  subject  to  amendment,  alteration  or 
repeal.  Smith  v.  Lake  Shore,  etc.  R. 
Co.,  114  Mich.  460  (1897),  72  N.  W. 
Rep.  32S. 

3  Idaho.  Const.  Art  XI.  §  14  :  "If 
any  railroad,  telegraph,  express,  or 
other  corporation,  organized  under  any 
of  the  laws  of  this  State,  shall  consoli- 
date, by  sale  or  otherwise,  with  any 
railroad,  telegraph,  express,  or  other 
corporation  organized  under  any  of  the 
laws  of  any  other  State  or  Territory,  or 
of  the  United  States,  the  same  shall  not 
thereby  become  a  foreign  corporation ; 
but  the  courts  of  this  State  shall  retain 
jurisdiction  over  that  part  of  the  corpo- 
rate property  within  the  limits  of  the 
State   in   all   matters  that    mav   arise, 

160 


OS  if  said  consolidation  had  not  taken 
place." 

Kentucky.  Const.  §  200 :  "  If  any 
railroad,  telegraph,  express,  or  other 
corporation,  organize<l  under  tlio  laws 
of  this  Commonwealth,  shall  consoli- 
date, by  sale  or  otlicrwise,  with  any 
railroad,  telegrapli,  express,  or  other 
corporation  organizeil  under  the  laws 
of  any  other  State,  the  same  shall  not 
thereby  become  a  foreign  corporaticm, 
but  the  courts  of  this  Commonwealth 
shall  retain  jurisdiction  over  that  part 
of  the  corporate  property  within  the 
limits  of  this  State  in  all  matters  which 
may  ari.se,  as  if  said  consolidation  had 
not  taken  place." 

Louisiana.  Const.  Art.  CCXLVI.  : 
"  If  any  railroad  company,  organized  un- 
der the  laws  of  this  State,  shall  consoli- 
date, by  sale  or  otherwise,  with  any 
railroad  company  organized  under  the 
laws  of  any  otlier  State  or  of  the  United 
St.ates,  the  same  shall  not  thereby  be- 
come a  foreign  corporation,  but  the 
courts  of  thi.s  State  shall  retain  juris- 
diction in  all  matters  which  may  arise, 
as  if  said  consolidation  had  not  taken 
place.     In  no  case  shall  any  consolida- 


CHAP.    X.] 


INTERSTATE   CONSOLIDATIONS. 


§  102,  Effect  of  Interstate  Consolidation  upon  Status  of  Con- 
stituent Corporations.  —  Upon  tlie  Creation  of  an  interstate 
consolidated  corporation  the  constituent  corporations  of  the 
different  States  do  not  cease  to  exist,  although  they  may  lie 
dormant  and  their  property,  rights,  powers  and  franchises 
be  vested  in  and  exercised  by  the  consolidated  corporation.^ 
In  Racine^  etc.  JR.  Co.  v.  Farmers  Loan  etc.  Co?  the  Supreme 
Court  of  Illinois  said  :  "  Our  view  of  the  effect  of  the  consoli- 
dation between  the  [corporations  of  different  States]  which 
we  hold  to  have  been  legally  made,  is  briefly  this :  While  it 
created  a  community  of  stock  and  of  interest  between  the  two 
companies,  it  did  not  convert  them  into  one  company,  in  the 
same  way,  and  to  the  same  degree,  that  might  follow  a  con- 
solidation of  two  companies  within  the  same  State.  Neither 
Illinois  nor  Wisconsin,  in  authorizing  the  consolidation,  can 
have  intended  to  abandon  all  jurisdiction  over  its  own  corpo- 


tion  take  place  except  upon  public 
notice  of  at  least  sixty  days  to  all  stock- 
holders, iu  such  manuer  as  may  be  pro- 
vided by  law." 

Missouri.  Const.  Art.  XII.  §  18. 
Same  as  Louisiana,  supra. 

Montana.  Const.  Art.  XV.  §  15: 
"  If  any  railroad,  telegraph,  telephone, 
express,  or  other  corporation  or  com- 
pany organized  under  any  of  the  laws 
of  this  State  shall  consolidate,  by  sale 
or  otherwise,  Avith  any  railroad,  tele- 
graph, telephone,  express,  or  other  cor- 
poration organized  under  any  of  the 
laws  of  any  other  State  or  Territory, 
or  of  the  United  States,  the  same  shall 
not  thereby  become  a  foreign  corpora- 
tion ;  but  the  courts  of  this  State  shall 
retain  jurisdiction  over  that  part  of  the 
corporate  property  within  tlie  limits  of 
the  State,  in  all  matters  that  may  arise, 
as  if  said  consolidation  had  not  taken 
place." 

1  Ohio,  etc.  R.  Co.  v.  Teople,  123  111. 
467  (1888),  (14  N.  E.  Rep.  874);  Tag- 
art  V.  Northern  Central  R.  Co.,  29  Md. 
557  (1868)  ;  Bishop  v.  Brainard,  28 
Conn.  289  (1859).  Where  two  corpora- 
tions are  created  by  adjacent  States, 
with  the  same  name,  to  construct  a 
11 


canal  in  each  of  the  States  and  after- 
wards their  interests  are  united  by 
legislative  acts  of  the  States  respec- 
tively, this  does  not  merge  the  separate 
corporate  existence  of  such  corpora- 
tions. Farnum  v.  Blackstone  Canal 
Co.,  1  Snmn.  (U.  S.)  62  (1830).  In 
Nashua,  etc.  R.  Co.  v.  Boston,  etc.  R. 
Co.,  136  U.  S.  382  (1890),  (10  Sup.  Ct. 
Rep.  1004),  the  Supreme  Court  of  the 
United  States  said:  "  It  is  evident  that, 
by  the  general  law,  railroad  corporations 
created  by  two  or  more  States,  though 
joined  in  their  interests,  in  the  opera- 
tion of  their  roads,  in  the  issue  of  their 
stock,  and  in  the  division  of  their  prof- 
its, so  as  practically  to  be  a  single  cor- 
poration, do  not  lose  their  identity  ;  and 
that  each  one  has  its  existence  and  its 
standing  in  the  courts  of  the  country, 
only  by  virtue  of  the  legislation  of  the 
State  by  which  it  is  created.  The  union 
of  name,  of  officers,  of  business  and  of 
property,  does  not  change  their  distinc- 
tive character  as  separate  corporations." 

See  also  Paul  v.  Baltimore,  etc.  R. 
Co.,  44  Fed.  513  (1890). 

2  Racine,  etc.  R.  Co.  v.  Farmers 
Loan,  etc.  Co.,  49  111.  348  (1868),  (95 
Am.  Dec.  595). 

161 


§  103  INTERCORPORATE   RELATIONS.  [PART   I. 

ration  created  bv  itself.  Indeed,  neither  State  could  take 
jurisdiction  over  the  property  or  proceedinjj^s  of  the  corpora- 
tion beyond  its  own  limits  and  a  corporation  can  have  no 
existence  beyond  the  limits  of  the  State  sovereignty  which 
brings  it  into  life  and  endows  it  with  its  faculties  and 
powers."  ^ 

§  103.  Management  of  Interstate  Consolidated  Corporation.  — 
While  a  corporation  created  by  the  consolidation  of  corpora- 
tions of  different  States  is  a  domestic  corporation  of  each 
State  and  derives  its  powers,  in  each  State,  from  local  laws,  yet, 
in  the  conduct  of  its  business,  it  acts  as  a  unit,  —  as  one  cor- 
poration and  not  as  several,  —  "and,  in  the  absence  of  a  stat- 
utory provision  to  the  contrary,  it  may  transact  its  corporate 
business  in  one  State  for  all,  and  the  contracts  it  enters  into 
and  the  liabilities  it  incurs  in  one  State  are  binding  upon  it 
in  all  the  States  and  may  be  enforced  against  it  in  any  one 
of  them  when  the  action  is  transitory."  ^ 

A  meeting  in  one  of  several  States  of  the  stockholders  of  a 
corporation  created  by  the  consolidation  of  corporations  of 
those  States  is  valid  with  rcs()cct  to  the  property  of  the  cor- 
poration in  all  of  them,  without  the  necessity  of  a  repetition 
of  such  meeting  in  the  other  States.^ 

The  affairs  of  an  interstate  consolidated  corporation  may 
be  —  and  uniformly  are  —  administered  by  a  single  board  of 
directors  which  may  control,  manage  and  dispose  of  its  prop- 
erty situated  in  the  difTerent  States.  In  the  case  quoted  from 
in  the  last  section  — Racine,  etc.  R.  Co.  v.  Farmers  Loan,  etc. 
Co.^  —  the  Supreme  Court  of  Illinois  also  said:  "When  con- 
tinuous lines  of  road,  passing  through  different  States,  are 

1  See  Ohio,  etc.  R.  Co.  v.  "Wheeler,  (1884);  Home   v.    Boston,   etc.  R.  Co. 

1  Black  (U.  S.)  297  (1861).  18  Fed.  50  (1883). 

*  Fitzgerald  v.   Missouri  Pacific  R.  '  Graham  v.  Boston,    etc.    R.    Co., 

Co.,  45  Fed.  816   (1891)  (;)er   Caldwell,  118    U.    S.    161    (1886),     (6    Sup.    Ct. 

J).    Also  Graham  r.  Boston,  etc.  R.  Co.,  Rep.    1009).      Compare     Aspimvall    v. 

118  U.  S.  169  (1886),  (6  Sup.  Ct.  Rep.  Ohio,  etc.  R.  Co.,  20  Ind.  492  (1863), 

1009) ;  Home  v.  Railroad  Co.,  62  N.  H.  (83  Am.  Dec.  329). 

454    (1883);    Providence    Coal   Co.   v.  *  Racine,   etc.    R.    Co.    v.   Farmers 

Providence,  etc.  R.  Co.,  15   R.  I.  303  Loan,  etc   Co,  49  III.  331    (1868),  (95 

(1886),    (4  Atl.  Rep.   394);  Burger   v.  Am.  Dec.  595). 
Grand  Rapids,  etc.  R.  Co.,  22  Fed.  561 

162 


CHAP.    X.]  INTERSTATE    CONSOLIDATIONS.  §  104 

consolidated  by  legislative  authority  .  .  .  although  the  con- 
solidated company  must,  from  the  very  nature  of  a  corpora- 
tion, be  regarded  as  a  distinct  entity  in  each  State,  yet  the 
objects  of  consolidation  would  be  very  liable  to  be  defeated, 
unless  the  entire  line  should  be  placed  under  one  board  of 
directors.  .  .  .  When  the  consolidated  lines  are  placed  under 
a  common  board,  with  a  common  name  and  seal,  such 
board  will,  naturally,  act  as  if  the  consolidated  lines  made 
but  one  company,  and  when  their  contracts  assume  that  form, 
the  courts  must,  for  the  protection  of  the  public,  and  to 
enforce  good  faith,  hold,  as  we  have  done  in  this  case,  that 
the  contract  is  to  be  construed  as  made  by  the  corporation  of 
each  State  in  which  the  subject  matter  of  the  contract  lies* 
ut  res  magis  valeat  quani  pereat." 

§  104.  Rights  and  Po-wers  of  Interstate  Consolidated  Corpo- 
ration. —  An  interstate  consolidated  corporation  may  exercise 
all  the  powers  and  privileges  conferred  upon  it  —  expressly 
or  by  reference  —  in  the  acts  authorizing  the  consolidation 
and,  as  a  general  rule,  stands,  in  each  State,  in  the  position 
of  its  constituent  corporation  in  that  State.^ 

An  interstate  consolidated  corporation  is  a  domestic  corpo- 
ration within  a  State  and  entitled  to  exercise  the  power  of 
eminent  domain  granted  by  a  State  to  its  corporations.^  It 
has  been  held,  however,  that  an  act  authorizing  the  consolida- 
tion of  a  domestic  railroad  company  with  corporations  of 
other  States  and  granting  the  consolidated  company  "  all  the 
faculties,  powers,  authorities,  privileges  and  franchises  con- 
ferred upon  it  by  any  of  said  States,"  relates  simply  to  the 
faculties  necessary  for  the  general  objects  of  its  business  and 
does  not  affect  the  local  law  in  regard  to  the  method  of 
obtaining  title  to  the  right  of  way.^ 

1  DeLaware  R.  R.  Tax  Cas.,  18  Wall,  railroad  company  into  a  new  organiza- 
(U.  S.)  206  (1873).  tion,  so  as  to  constitute  a  corporation 

2  Trester  v.  Missouri  Pacific  R.  Co.,  subject  to  the  laws  of  the  same  State  as 
33  Neb.  171  (1891),  (49  N.  W.  Rep.  the  original  company.  Toledo,  etc.  R. 
1110).  Co.   V.   Dunlap,   47  Mich.   456    (1S82), 

The  power  of  a  railroad  company  to  (1 1  N.  W.  Rep.  271 ). 
begin   proceedings  for   the  condemna-  ^  Pittsburgh,  etc.  R.   Co.  v.  Reich, 
tion   of  lands  within  the   State  is  not  101   III.   174    (1887):  "It   [the  act]  re- 
lost  by  its   consolidation  with  another  lates  to  the  corporation  itself,   and  is 

163 


§105 


INTERCORPORATE   RELATIONS. 


[part 


An  interstate  consolidated  corporation  acquires  in  each 
State,  among  other  riglits  and  powers,  the  right  therein  of  its 
constituent  corpoi-ation  to  issue  bonds  secured  by  mortgage ;  ^ 
and  may  issue  them  to  take  up  bonds  previously  issued  by 
such  constituent.^ 

S  105.  Duties  of  Interstate  Consolidated  Corporation  —  Tax- 
ation.—  A  corporation  formed  by  the  consolidation  of  corpo- 
rations of  different  States  stands,  in  relation  to  each  State, 
as  a  separate  domestic  corporation,  governed  by  the  laws  of 
that  State  with  resi)ect  to  its  proj)erty  and  franchises  tliorcin 
and  subject  to  taxation  in  conformity  with  the  laws,  and  to 
the  exercise  of  the  police  power,  of  such  State.^  The  property 
of  each  constituent  corporation  remains  subject  to  taxation 
in  the  same  manner  as  before  the  consolidation.*     Each  State, 


designed  to  make  it  a  unit  in  each  and 
all  of  the  States  in  which  its  line  is 
located,  but  it  does  not  assume  to  affect 
the  local  law  in  regard  to  acquiring 
title  to  riglit  of  way. " 

1  Mead  v.  New  York,  etc.  Tl.  Co.,  45 
Conn.  221  (1877):  "That  these  laws 
gave  to  the  original  New  York,  llousa- 
tonic  and  Northern  Kailroad  Company 
full  power  and  authority  to  mortgnge 
its  property  and  fraiu'hi.scs  in  this  State 
as  well  as  in  the  State  of  New  York,  to 
secure  the  payment  of  such  sum  or 
sums  of  money  borrowed  as  might  be 
necessary  for  completing  and  finishing 
and  operating  its  railroad,  counsel  for 
the  plaintiffs  in  error  admit.  But  they 
deny  that  the  consolidated  company 
had  any  such  power.  It  has,  however, 
been  shown  that  the  effect  of  the  con- 
solidation was  to  confer  upon,  and  give 
to,  the  consolidated  company  in  this 
State,  all  the  rights,  powers,  privi- 
leges, exemptions,  franchises  and  prop- 
erty possessed  by  the  original  New 
York,  Housatonic  and  Northern  Kail- 
road  Company  in  this  State  ...  and 
this,  of  course,  included  the  power  of 
borrowing  money  and  mortgaging  the 
property  and  franchises  of  a  corpora- 
tion in  this  State  to  secure  its  payment. 
The  mortgage  was,  therefore,  a  valid 
security  for  the  purposes   for  which  it 

164 


was  executed,  and  operutcd  .as  a  lien 
upon  the  franchises  a.s  well  as  upon  the 
re.il  and  personal  property  which  be- 
came vested  in  the  consolidated  corpo- 
ration by  the  agreement  and  act  of 
consolidation." 

See  also  Kaciue  v.  Farmers  Loan, 
etc.  Co.,  49  111.  331  (1868),  (95  Am. 
Dec.  595). 

2  Mead  i>.  New  York,  etc.  II.  Co., 
45  Conn.  221    (1877). 

»  Ohio,  etc.  R.  Co.  v.  People,  123  El. 
467  (1888),  (14  N.  E.  Rep.  874). 

A  corporation  formed  by  the  consoli- 
dation of  various  foreign  and  domestic 
railroad  companies  is  a  domestic,  not 
a  foreign  corporation,  and,  therefore, 
the  provisions  of  a  New  York  statute 
com])oning  transfer  agents  of  foreign 
corporations  to  exhibit  lists  of  their 
stockholders,  have  no  application  to  it. 
Sage  V.  Lake  Shore,  etc.  R.  Co.,  70  N.  Y. 
220  (1877). 

4  Delaware  R.  R.  Tax.  Cas.,  18  Wall. 
(U.  S.)  206  (1873);  Philadelphia,  etc.  R. 
Co.  V.  Maryland,  10  How.  (U.  S.)  377 
(1850) ;  Ohio,  etc.  R.  Co.  v.  Weber,  96 
111.  443  (1880)  ;  Quincy  R.,  etc.  Co.  v. 
Adams  County,  88  IlL  615  (1878). 

The  general  jMichigan  railroad  law 
in  permitting  the  consolidation  of  rail- 
road companies  within  the  State  with 
others  bevond  its  boundaries,  coutem- 


CHAP.    X.]  INTERSTATE    CONSOLIDATIONS.  §  106 

participating  in  the  creation  of  an  interstate  consolidated  cor- 
poration, may  legislate  for  such  corporation  just  as  it  would 
for  its  original  companies,  if  no  consolidation  had  taken  place. 
Corporations  and  stockholders  from  other  States  having 
availed  themselves  of  the  advantages  of  an  interstate  consoli- 
dation cannot  repudiate  the  corresponding  obligations.^ 

An  interstate  consolidated  corporation  is  "  incorporated 
under  the  laws  of  this  State  "  within  the  meaning  of  a  statute 
taxing  corporations  so  incorporated.^ 

A  provision  in  an  act  authorizing  the  consolidation  of 
corporations  of  different  States,  that  the  new  consolidated 
company  shall  be  entitled  to  all  the  rights,  privileges  and 
immunities  which  each  and  all  of  its  constituents  enjoyed 
under  their  respective  charters  in  no  respect  changes  the 
position  of  the  consolidated  company  in  any  State,  with  refer- 
ence to  taxation,  from  that  of  the  original  corporation  in 
such  State.^ 

§  106.  Citizenship  of  Interstate  Consolidated  Corporation.  — 
Upon  principles  already  indicated,  an  interstate  consolidated 
corporation  is,  for  the  purpose  of  determining  the  jurisdiction 
of  the  federal  courts  and  for  securing  to  the  judicial  tribunals 
of  each  State  due  control  over  corporations  and  corporate 
property  therein,  conclusively  presumed  to  be  a  citizen  of 
each  State  concurring  in  its  creation.  "It  enjoys  in  each 
State  all  the  powers  and  privileges  the  corporations  there 
chartered  had  and  must  answer  in  the  courts  and  is  amenable 


plates  leaving  the  domestic  company  in  persons.     The  Illinois  companies  might 

its   original   position   as  to   stock   and  have  stayed  out.      But   they  chose  to 

loans  and  annexing  to  its  capital  and  come  in  and  must  now  abide  the  conse- 

loans   (for   purposes  of  taxation)  addi-  quences.   Thus,  Wisconsin  is  permitted 

tions   which  are  made  proportional  to  to  legislate  for  the  consolidated  company 

the  original  amounts.     Lake  Shore,  etc.  in   that  State  precisely  the  same  as  it 

R.  Co.  V.  People,  46    Mich.  193  (1881),  would  for  its  own  original  companies, 

(9  N.  W.  Rep.  249).  if  no  consolidation  had  taken  place." 

1  Peik  V.   Chicago,  etc.   R.  Co.,  94  2  Ohio,  etc.  R.  Co.  v.  Weber,  96  111. 

U.  S.  177  (1876):     "  Upon  these  terms  443    (1880).     Compare  People   v.   New 

the  consolidation  was  finally  perfected,  York,  etc.  R.  Co.,  129  N.  Y.  474  (1892), 

and  the  consolidated  company  now  ex-  (29  N.  E.  Rep.  959). 

ists  under  the  two  jurisdictions,  but  sub-  *  Delaware  R.  R.  Tax.  Cas.,  18  Wall, 

ject   to  the  same  legislative  control  as  (U.    S  )    228    (1873).     See  ante,  §   72: 

to  its  business  in  Wisconsin  as  private  "  Exemptions  from  Taxation." 

165 


§106 


INTERCORPORATE   RELATIONS. 


[part  I. 


to  the  laws  of  each  State,  respectively,  as  a  corporation  of 
that  State."  ^  • 

An  interstate  consolidated  corporation,  therefore,  heing 
a  citizen  of  each  of  the  States  of  its  constituent  companies, 
cannot,  when  sued  in  one  of  those  States,  claim  the  right  of 
removal  to  the  federal  courts  upon  the  ground  that  it  is  a 
citizen  of  another  Statc.^ 

The  true  underlying  principle  seems  to  be  that  the  cons(;li- 
dated  corporation,  by  the  concurrent  legislation,  is,  itself, 
created  a  citizen  of  each  State.  In  many  decisions  of  unques- 
tioned authority,  however,  it  is  reasoned  that  each  constituent 
corporation  retains  its  identity  and  citizenship  and  that  it, 
in  reality,  is  the  corporation  sued."'  The  distinction  is  that 
between  an  association  of  different  citizens  and  one  person 
possessing  different  attril)utcs  of  citizenship. 

An  interstate  consolidated  corporation,  upon  similar  prin- 
ciples, may  institute  a  suit  in  a  federal  court  as  a  citizen  of  a 


1  Fitzgerald  r.  Missouri  Pacific  R. 
C0..45  Fed.  812  (1891).  In  Railroad  Co. 
V.  Harris,  12  Wall.  (U.  S.)  82  (1870), 
the  Supreme  Court  said.  "The  juris- 
dictional effect  of  the  existence  of  such 
a  [consolidated]  corporation  as  regards 
the  federal  courts,  is  the  same  as  that  of 
a  co-partnership  of  individual  citizens 
residing  in  different  States." 

2  United  States:  Nashua,  etc.  R. 
Corp.  V.  Boston,  etc.  R.  Corp.,  136  U.  S. 
382  (1890),  (10  Sup.  Ct.  Rep  1004); 
Pennsylvania  R.  Co.  v.  St.  Louis,  etc. 
R.  Co'.,  118  U.  S.  290  (1886),  (6  Sup. 
Ct.  Rep.  1094),  affirming  S.  C.  suh  nom. 
St.  Louis,  etc.  R.  Co.  v.  Indianapolis, 
etc  R.  Co.,  9  Diss.  (U.  S)  144  (1879); 
Muller  V.  Dows,  94  U.  S.  444  (1876); 
Railway  Co.  c.  Whitton,  13  Wall.  (U.  S.) 
270  (1871);  Fitzgerald  v.  Missouri  Pa- 
cific R.  Co..  4.5  Fed.  812  (1891);  Paul 
I'.  Baltimore,  etc.  R.  Co.,  44  Fed.  513 
(1890);  Central  Trust  Co.  v.  Rochester, 
etc.  R.  Co.,  29  Fed.  609  (1886). 

Georgia  :  Angier  v.  East  Tennessee 
etc.  R.  Co.,  74  Ga.  634  (1885). 

Illinois :  Racine,  etc.  R.  Co.  v.  Far- 
mers Loan,  etc.  Co.,  49  111.  331  (1868). 

166 


Michigan:  Chicago,  etc.  R.  Co.  v. 
Auditor  General,  53  Mich.  92  (1884), 
(18  N.   W.   Hep.  586). 

New  Hampshire :  Ilorne  v.  Boston, 
etc    R.  Co.,  62  N.  H.  4.54  (1883). 

'  Nashua,  etc.  U.  Corp.  v.  Boston,  etc. 
R.  Corp.,  136  U.  S.  356  (1890).  (10  Sup. 
Ct.  Rep.  1004)  ;  Pennsylvania  R.  Co.  ?'. 
St.  Louis,  etc.  R.  Co.,  118  U.  S.  297 
(1886).  (6  Sup.  Ct.  Rep.  1094) ;  s.  c.  sub 
nom.  St.  Louis,  etc.  R.  Co.  v.  Indian- 
apolis, etc.  R.  Co.,  9  Biss.  (U.  S.)  144 
(1879). 

Notwithstanding  the  consolidation  of 
two  railroad  corporations  of  different 
States,  each  retains  its  identity  as  a 
corporation  of  the  State  in  which  it  was 
originally  created  ;  and  in  a  suit  against 
the  consolidated  corporation  brought  in 
one  of  such  States  it  cannot  obtain  a 
removal  to  the  federal  courts  on  the 
ground  that  it  is  a  citizen  of  the  other 
State,  though  the  consolidation  was  had 
tinder  the  laws  of  the  latter  State. 
Paul  V.  Baltimore,  etc.  R.  Co.,  44  Fed. 
514  (1890). 


CHAP.    X.]  INTERSTATE   CONSOLIDATIONS.  §  107 

State  concurring  in  its  creation.^  Upon  principle  it  would 
seem,  however,  that  it  could  not  maintain  such  a  suit  in  a 
State  also  concurring  in  its  creation. 

§  107.  Foreclosure  of  Mortgages  after  Interstate  Consolida- 
tion. Jurisdiction.  —  A  State  is  not  presumed  to  waive  its 
jurisdiction.  Such  waiver  must  be  clearly  expressed.  Upon 
these  principles  it  has  been  held  that  an  action  cannot  be 
maintained  in  one  State  to  foreclose  a  mortgage,  existing  at 
the  time  of  the  consolidation,  upon  property  of  a  constituent 
corporation  situated  in  another  State,  which  has  never  granted 
permission  to  maintain  such  action.^ 

A  court  of  equity  of  one  State,  however,  acting  in  personam, 
may  entertain  jurisdiction  of  a  suit  to  foreclose  a  mortgage 
executed  by  an  interstate  consolidated  corporation  covering, 
as  an  entirety,  property  situated  in  several  States  ;  and  may 
require  the  defendant  to  convey  to  a  receiver  the  property 
outside  its  jurisdiction."^  In  Midler  v.  Dows^  Mr,  Justice 
Strong  said :  "  A  vast  number  of  railroads  partly  in  one  State 
and  partly  in  an  adjoining  State,  forming  continuous  lines, 
have  been  constructed  by  consolidated  companies,  and  mort- 
gaged as  entireties.  It  would  be  safe  to  say  that  more  than 
one  hundred  millions  of  dollars  have  been  invested  on  the 

1  In  St.  Louis,  etc.  K.  Co.  v.  Indian-  with  approval  by  Mr.  Justice  Field  in 

apolis,  etc.  11.   Co.,  9  Biss.  (U.  S.)  144  Nashua,  etc.  R.  Corp.  v.  Boston,  etc.  R. 

(1879),  («/^7-merfsM6  nom.  Pennsylvania  Corp.,   136   U.   S.  378   (1890),  (10  Sup. 

R.  Co.  V.  St.   Louis,   etc.    R.  Co.,  118  Ct.   Rep.   1004).     The   conclusion  was 

U.  S.  297  (1886),  (6  Sup.  Ct.  Rep.  1094),  reached  in  this  case  that  one  consolidat- 

Judge  Drummond  said  :  "  If  the  defend-  ing    corporation,    as   a    citizen  of  one 

ant   corporation,    though    consolidated  State,  might  sue  another  consolidating 

with  another  of  a  different  State,  can  corporation  in    a   federal   court,   as   a 

be  sued  in  the  federal  court  in  the  State  citizen   of  another  State.      Manifestly 

of  its  creation  as  a  citizen  thereof,  why  however,  an  interstate  consolidated  cor- 

can  it  not  sue  as  a  citizen  of  the  State  poration — as   an    entitii  —  cannot    sue 

which  created  it  ?     I  can  see  no  differ-  itself,   although   it    possesses   different 

ence  in  the  principle.     It  seems  to  me  attributes  in  different  States, 

that  when  the  plaintiff  comes  into  the  ^  Eaton,  etc.  R.  Co.  v.  Hunt,  20  Ind. 

federal  court,  if  a  corporation  of  another  464    (1863);    Pittsburgh,  etc.    R.    Co. 

State,  it  is  clothed  with  all  the  attri-  r.  Rothschild,  4  Cent.  Rep.  107  (1886). 

butes  of  citizenship  which  the  laws  of  ^  Muller   v.    DoWs,    94    U.    S.    449 

that  State  confer,  and  the  shareholders  (1876) ;  Mead  v.  New  York,  etc.  R.  Co., 

of  that  corporation  must  be  conclusively  4.5  Conn.  199  (1877). 

regarded  as  citizens  of  the  State  wiiicli  *  Muiler    v.    Dows,  94    U.    S.    449 

created   the   corporation  precisely   the  (1876). 
same  as  if  it  were  a  defendant."    Quoted 

167 


§  107  INTERCORPORATE    RELATIONS.  [PART    I. 

faith  of  such  mortgages.  In  many  cases  these  investments 
are  suniciently  insecure  at  the  best.  But  if  the  railroad, 
under  legal  process,  can  be  sold  only  in  fragments  ;  if,  as  in 
this  case,  where  the  mortgage  is  upon  the  whole  line,  and 
includes  the  franchises  of  the  corporation  which  made  the 
mortgage,  the  decree  of  foreclosure  and  sale  can  reach  only 
the  part  of  the  road  which  is  within  the  State, —  it  is  plain 
that  the  property  must  be  comparatively  wortliless  at  the  sale. 
A  part  of  a  railroad  may  be  of  little  value  when  its  owner- 
ship is  severed  from  the  ownership  of  another  part.  And  the 
franchise  of  the  company  is  not  capable  of  division.  In  view 
of  this,  before  we  can  set  aside  the  decree  which  was  made  it 
ought  to  be  made  clearly  to  appear  beyond  the  power  of  the 
court.  Without  reference  to  the  English  chancery  decisions, 
where  this  objection  to  the  decree  would  be  quite  untenable,  we 
think  the  powers  of  courts  of  chancery  in  this  country  is 
sufficient  to  autliorize  such  a  decree  as  was  here  made.  It  is 
here  undoubtedly  a  recognized  doctrine  that  a  court  of  equity 
sitting  in  a  State  and  having  jurisdiction  of  tlic  person,  may 
decree  a  conveyance  by  him  of  land  in  another  State,  and  may 
enforce  the  decree  by  process  against  the  defendant." 


168 


CHAP.  XI.]     SALES  OF  CORPORATE  PROPERTY.         §  108 


PART   II. 

CORPORATE   SALES. 


ARTICLE   I. 

SALES   OF  CORPORATE  PROPERTY  AND  FRANCHISES. 


CHAPTER   XL 

SALES  OF  CORPORATE  PROPERTY. 

L    Sales  of  Property  of  Private  Corporations. 

§  108.  Power  to  purchase  and  sell  generally. 

§  109.  Sale  of  Entire  Corporate  Property  by  Unanimous  Consent. 

§  110.  Sale  of  Entire  Property  of  Prosperous  Corporation  by  Majority  Vote. 

§111.  Sale  of  Entire  Property  of  Losing  Corporation  by  Majority  Vote. 

§  112.  Sale  of  Entire  Corporate  Property  by  Directors. 

§  113.  Katification  by  Stockholders  of  Sale  by  Directors. 

§  114.  Remedies  of  Dissenting  Stockholders  in  Case  of  Invalid  or  Unfair  Sales. 

§  115.  Procedure  in  Stockholders'  Actions. 

§116.  Defences  to  Stockholders' Actions.     Estoppel. 

§  117.  Effect  of  Sale  of  Entire  Corporate  Property. 

II.    Exchange  of  Property  of  One  Corporation  for  Stock  of  Another. 

§  118.  Transfer  of  Entire  Corporate  Property  without  Unanimous  Consent  re- 
quires Monetary  Consideration. 

§  119.     Exchange  of  Property  for  Stock  ultra  vires. 

§  120.  Exchange  of  Property  for  Stock  Infringement  of  Rights  of  Dissenting 
Stockholders. 

§  121.     Appraisal  of  Stock  of  Dissenting  Stockholders. 

§  122.     Stock  received  upon  Exchange  belongs  primarily  to  Corporation. 

III.   Rights  and  Remedies  of  Creditors. 

§  123.  Liability  of  Purchasing  Corporation  for  Debts  of  Vendor  Company. 

§  124.  Fraudulent  Sales. 

§  125.  Remedies  of  Creditors. 

§  126.  Priority  of  Purchaser's  Mortgage  over  Claims  of  Vendor's  Creditors. 

169 


§108 


INTERCORPORATE    RELATIONS. 


[part  II. 


IV.    Salts  of  Property  of  Qtuisi-puhlic  Corporations. 

§  127.     Iiidispens:iljle  Property  cannot  be  alienated  or  taken  on  Execution  with- 
out Statutory  Authority. 
§  128.     Test  of  In(lis|ieu.sal)ility. 
§  12'J.     Salea  of  Surplus  Property. 


I.    Sales  of  Property  of  Private  Corporations. 

§  108.  Power  to  purchase  and  sell  geuerally.  —  It  is  an 
elementary  principle  of  corporation  law  that  a  corporation, 
subject  to  the  limitations  of  its  charter  and  constitutional  and 
statutory  prohibitions,  has  inherent  power  to  acquire  and  hold 
any  jtrojjerty,  real  or  personal,  reasonably  useful  or  convenient 
in  cari-ying  on  the  business  for  which  it  was  organized.^ 

The  right  to  ac(iuire  property  carries  with  it  the  corre- 
sponding power  of  disposition,  8ui)ject  likewise  to  any  restric- 
tions in  the  charter  of  the  corj)oration  and  considerations 
of  public  policy.^     As  said  by  Mr.  Justice  Campbell,  in   White 

*  Lathrop    r.     Commercial     Bank,  ^  (JniteJ  States :  Jones  i-.  (Juaranty, 

8  Dana  (Ky.)  114  (18.39),  (3.1  Am.  Dec.  etc  Co.,  101  U.  S.  62.'>  (1879) :  "  At  the 

481) :  "  No  doctrino  of  the  omnion  law  coniinoii  law,  every  corporation  iiad,  a^ 

is  more  dearly   and  undeniably  estab-  incident  to  its  existence,  the  power  to 

lishetl  than  th:it  which  conce<ies  to  cor-  accjuire,  hold,  and  convey  real  estate, 

f  orations  an  inherent  or  resulting  riglit  except  so  far  as  it  was  restrained  by  its 

to  acquire  and  hold  title  to  land  hy  con-  charter  or  by  act  of  Parliament.     This 

tract,  except   so  far  only  aa  they  may  comprehen.sive    capacity  included   also 

be  restricted    by  the  objects    of    their  personal  effects  of  every  kind."     Also 

creation,   or    the   limitations    of   their  White  Water,   etc.  Co.  v.  Valette,  21 


charters." 

See  also  : 

United  Stales:  Blanchard  Gun 
Stock,  etc.  Factory  v.  Warner,  1  Rlatch. 
277  (1848),  (Fed.  Cas.  Xo.  1521). 

Maasachusetts :  Old  Colony  R.  Co. 
V.  Evan.s,  6  Gray,  38  (1856). 

Michigan  :  Thompson  i-.  Waters,  25 
Mich.  227  (1872). 

New  Jersey :  Freeman  o.  Sea  View 
Hotel  Co.,  57  N.  J.  Eq.  68  (1898). 

New  York:  NicoU  v.  New  York,  etc. 
R.  Co.,  12  N.  Y.  121  (1854);  Moss  i-. 
Averell,  10  X.  Y.  449  (1853) ;  Spear  i^. 
Crawford,  14  Wend.  23  (1835). 

North  Carolina  :  Mallett  v.  Simp- 
son, 94  X.  C.  37  (1886),  (55  Am.  Rep. 
594). 

Vermont :  Page  i'.  Heineberg,  40  Vt. 
81  (1868). 

170 


How.  424  (1858). 

Alabama  :  Hall  v.  Tanner,  etc.  En- 
gine Co.,  91  Ala.  363  (1890),  (8  So. 
Rep.  348). 

California :    Miner's   Ditch    Co.    v. 

Zellerbach,  37  Cal.  543  (18G9)  ;  People 

V.  California  College,  38  Cal.  1 66  (1869). 

Iowa:     Buell     r.    Buckingham,    16 

Iowa,  284  (1864),  (85  Am.  Dec.  516). 

^f an/land :  Binney's  Case,  2  Bland. 
142  (1840). 

Michigan  :  Joy  v.  Jack.oon,  etc.  Plank 
Road  Co.,  11  Mich.  165  (1863). 

New  Hampshire :  Pierce  r.  Emery, 
32  N.  H.  484  (1856). 

New  York :  Barry  i-.  ^^e^chant3  Exch. 
Co.,  1  Sandf.  Ch.  280  (1844). 

North  Carolina :  Benbow  v.  Cook, 
115  N.  C.  324  (1894),  (20  S.  E.  Rep. 
453,  44  Am.  St.  Rep.  454). 


CHAP.  XI.]     SALES  OF  CORPORATE  PROPERTY.  §  109 

Water,  etc.  Co.  v.  Valette :  ^  "It  is  well  settled  that  a  corpo- 
ration, without  special  authority,  may  dispose  of  lands,  goods 
and  chattels,  or  any  interest  in  the  same."  A  private  corpo- 
ration, therefore,  by  proper  corporate  action  —  generally  by 
its  directors  and  always  by  vote  of  a  majority  of  its  stock- 
holders —  may  sell  any  portion  of  its  property  not  sufficient 
to  constitute  an  abandonment  of  its  business.  , 

§  109.  Sale  of  Entire  Corporate  Property  by  Unanimous 
Consent.  — A  corporation  which,  in  consideration  of  the  grant 
of  franchises,  has  assumed  the  performance  of  public  duties 
—  a  quasi-^whMo,  corporation  —  cannot  dispose  of  all  its  prop- 
erty and  disable  itself  from  fulfilling  its  obligations  without 
the  consent  of  the  State  —  the  other  party  to  the  contract.  It 
is  immaterial  that  all  the  stockholders  approve  of  the  sale. 

A  private  corporation,  on  the  other  hand,  with  the  unani- 
mous consent  of  its  stockholders,  may  sell  and  dispose  of  its 
entire  property  without  other  restriction  or  qualification  than 
that  the  purpose  must  be  lawful  and  free  from  fraud  —  actual 
or  constructive.^  It  may  make  such  terms  as  it  may  deem 
expedient,  and,  if  intra  vires,  may  accept  stock  in  other  cor- 
porations in  payment  for  property  sold.^ 


Ohio :    Reynolds    v.   Stark    County  retire  from  business ;    and  it  appears 

Comm'rs,  5  Ohio,  204  (1831).  from  the  evidence  in  this  case  that  the 

Pennsylvania :    Ardesco    Oil  Co.    v.  consent    of   all    the    stockholders    was 

North  American  Oil,  etc.  Co.,  66  Pa.  St.  given  to  the  sale  that  was  made." 

382   (1870);  Dana   v.   Bank  of  United  'Leathers  y.  Janney,  41  La.  Ann.  1123 

States,  5  W.  &  G.  243  (1843).  (1889),   (6   So.   Kep.   884,   6  L.  R.  A. 

England:  Mayor,  etc.  of  Colchester  661)  :  [It  is  maintained]  "that  the  s.ale 

I'.  Lawton,  1  V.  &  B.  244  (1813).  was  the  whole  property  of  the  selling 

1  White  Water,  etc.  Co.  v.  Valette,  corporation  and  was,  therefore,  ultra 
21  How.  (U.  S.)  424  (18.58).  vires  and  void.     The  inference  does  not 

2  Holmes,  etc.  Mfg.  Co.  v.  Holmes,  follow  from  the  predicate.  There  is  no 
etc.  Metal  Co.,  127  N.  Y.  252  (1891 ),  (27  law  prohibiting  a  corporation  from  sell- 
N.  E.  Rep.  841),  (per  Haight,  J  ) :  "  The  ing  all  or  any  of  its  property  provided 
plaintiff  was  a  private  manufacturing  its  cliarter  contains  no  restraint  thereof 
corporation.     It  exercises  no  power  of  and  it  acts  under  proper  authority." 

a  public  nature  and  has  attempted  no  See  also  Jordan  v.  Collins,  107  Ala. 

combination  by  which  the  public  may  572  (1894),  (18  So.  Rep.  137)  ;   State  r. 

in  any  manner  be   prejudiced.     There  Western  Irrigating  Canal  Co.,  40  Kan. 

are  consequently  no  questions  of  public  96  (1888),  (19  Pac.  Rep.  349). 

policy  to  be  considered.  .  .  .  The  plain-  3  Kohl    v.   Lilienthal,    81    Cal.   378 

tiff  had  the  right,  with  the  consent  of  (1889),    (20   Pac.  Rep.  401).     See  also 

its  stockholders,  to  sell  its  plant  and  /)os?,.§§  118-122. 

171 


§110 


INTERCORPORATE   RELATIONS. 


[part    II. 


§  110.  Sale  of  Entire  Property  of  Prosperous  Corporation  by 
Majority  Vote.  —  Tlic  implied  contract  —  the  contract  of  asso- 
ciation —  between  stoclvholders  in  forming  a  corporation  is 
that  a  majority  shall  bind  the  whole  body  as  to  all  trans- 
actions within  the  scope  of  the  corporate  powers.  The 
authority  carries  with  it  a  corresponding  obligation.  The 
powers  of  a  corporation  must  be  exercised  in  furtherance  of 
the  objects  for  which  it  was  created  and  with  due  regard  to 
the  rights  of  minority  stockholders.^ 

A  majority  of  the  stockholders  of  a  prosperous  corporation 
have  no  authority  to  sell  its  entire  property  in  order  to  engage 
in  a  new  enterprise,  fur  [)urpose3  of  8pcculati(jn  or  when  no 
reasons  of  expediency  require  the  sale.^     But  when,  in  tiie 


1  Ervin  v.  Orejjoii  li  ,  etc.  Co.,  27 
Fed.  631  (1886),  (Wallace,  J.) :  "It 
cannot  be  denied  that  minority  stock- 
lioldcrs  arc  buuntl  hand  and  foot  to 
the  majority  in  all  matters  of  legiti- 
mate administration  of  the  corporate 
affairs ;  arid  tlie  courts  are  powerless  to 
redress  many  forms  of  oppression  prac- 
tised upon  tlie  minority  under  the  guise 
of  legal  sanction  wliich  fall  short  of 
actual  fraud.  This  is  a  consequence  of 
the  implied  contract  of  association,  by 
which  it  is  agreed  in  advance  that  a 
majority  sliall  bind  the  whole  body  as 
to  all  matters  within  the  scope  of  the 
corporate  ])o\ver3.  15ut  it  is  also  of  the 
essence  of  the  contract  tliat  the  corpo- 
rate powers  shall  only  be  exercised  to 
accomplish  the  objects  for  wiiich  they 
were  called  into  existence,  and  that  the 
majority  shall  not  control  those  powers 
to  prevent  or  destroy  the  original  pur- 
poses of  the  corporators." 

Taylor  v.  Chicester,  etc.  R.  Co..  L.  R. 
2  Exc'h.  379  (1867),  (Blackburn,  J.): 
"  As  the  sliareholders  are,  in  substance, 
partners  in  a  trading  corporation,  the 
management  of  which  is  intrusted  to 
the  body  corporate,  a  trust  is,  by  impli- 
cation, created  in  favor  of  the  sliarehold- 
ers that  the  corporation  will  manage 
the  corporate  affairs,  and  apply  the  cor- 
porate funds,  for  the  purpose  carrying 
out  the  original  speculation." 

172 


2  Price  r.  llolcorab,  89  Iowa,  135 
(1893),  (56  N.  W.  Hep.  407):  "It  w 
uncpu'stionably  true  that  a  private  cor- 
poration holds  its  proj)crty  as  a  trust 
funtl  for  the  stockholders  and  that, 
when  a  majority  of  the  stockholders 
act  together,  they  are  in  a  sense  the 
corporation  and  must  act  with  due  re- 
gartl  to  the  right  of  the  minority.  If 
the  majority  decide  arbitrarily,  and 
without  just  cause,  to  sell  the  property 
of  the  corporation  to  the  prejudice  of 
the  minority,  and  thereby  compel  the 
winding  up  of  the  business  of  the  cor- 
poration, it  is  a  fraud  upon  the  minority 
and  courts  of  equity  will  interfere.  If, 
however,  just  cau.se  exists  for  selling 
the  property,  as  when  the  corporation  is 
insolvent,  and  the  sale  is  necessary  to 
pay  debts,  or  when,  from  any  cause,  the 
business  is  a  failure  and  an  unprofitable 
one,  and  the  best  interests  of  all  recjuire 
it,  the  majority  have  clearly  power  to 
order  the  sale,  and  in  such  case  their 
acts  are  not  ttUni  vires."  The  concln- 
sion  reached  in  this  case  that  the  courts 
may  determine  whether  "just  rau.se" 
exists  for  winding  up  the  affairs  of  a 
corporation  is  opposed  to  sound  prin- 
ciple. They  may  properly  determine 
whether  fraud  or  oppression  towards 
the  minority  exists,  but  the  inquiry 
cannot  go  further  without  encroaching 
upon  the  rights  of  the  majority. 


CHAP.    XI,]  SALES    OF    CORPORATE    PROPERTY. 


§110 


opinion  of  a  majority,  the  interests  of  the  stockholders  as 
a  whole  require  that  the  affairs  of  a  corporation  should  be 
wound  up,  a  majority  may  authorize  the  sale  of  the  entire 
assets  of  a  corporation,  for  a  pecuniary  consideration,  as  a 
step  toivards  liquidation.^ 


The  rule  that  a  majority  cannot  sell 
the  entire  corporate  assets  has  been 
stated  very  broadly  by  courts  of  high 
authority.  Thus  in  Bryne  v.  Schuyler 
Electric  Mfg.  Co.,  65  Conn.  351  (1895), 
(.31  Atl.  Kep.  833),  the  Supreme  Court 
of  Errors  of  Connecticut  said:  "It  re- 
sults tliat  neither  the  directors  nor  a 
majority  of  the  stockholders  can  sell 
the  corporate  property  against  the  dis- 
sent of  any  stockholder.  This  is  en- 
tirely clear  in  case  of  a  solvent  corpo- 
ration." And  in  People  v.  Ballard, 
134  N.  y.  294  (1892),  (32  N.  E.  Kep. 
84),  the  New  York  Court  of  Appeals 
said :  "  While  a  corporation  may  sell 
its  property  to  pay  its  debts  or  to  carry 
on  its  business,  it  cannot  sell  its  prop- 
erty in  order  to  deprive  itself  of 
existence." 

An  examination  of  tliese  cases,  how- 
ever, clearly  indicates  that  the  courts 
merely  intended  to  state  the  general 
rule  that  a  majority  cannot  sell  the 
entire  corporate  assets  of  a  solvent  cor- 
poration and  did  not  intend  to  negative 
the  exception  stated  in  the  text  that,  for 
the  bona  fide  purpose  of  winding  up  the 
affairs  of  the  corporation,  such  power 
exists.  In  the  New  York  cases  the 
sales  were  to  foreign  corporations  for 
the  purpose  of  escaping  State  control 
over  domestic  companies. 

1  United  States :  Hayden  v.  Official 
Ked  Book  and  Directory  Co.,  42  Fed. 
876  (1S90)  :  "The  right  of  the  majority 
stockholders  of  a  corporation  established 
for  manufacturing  or  trading  purposes 
to  wind  up  its  affairs,  and  dispose  of 
its  assets,  even  against  the  objections 
of  the  minority  stockholders,  whenever 
it  appears  that  the  business  can  be  no 
longer  advantageously  carried  on,  is 
well  recognized." 

Alabama :  Elyton  Land  Co.  v.  Dow- 


dell,  113  Ala.  ISO  (1S9G),  (20  So.  Kep. 
931),  semble. 

Louisiana :  Pringle  v.  Eltriugham 
Construction  Co.,  49  La.  Ann.  303 
(1897),  (21  So.  Rep.  515). 

Maine :  Inhabitants  of  Waldo- 
borough  V.  Knox,  etc.  K.  Co.,  84  iMe. 
469  (1892),  (24  Atl.  Rep.  942). 

Massachusetts  :  In  Treadwell  v.  Sal- 
isbury Mfg.  Co.,  7  Gray,  404  (1856), 
Judge  Bigelow  said  :  "  At  common  law, 
the  right  of  corporations,  acting  by  a 
majority  of  their  stockholders,  to  sell 
their  property  is  absolute,  and  is  not 
limited  as  to  objects,  circumstances  or 
quantity.  ...  To  this  general  rule 
there  are  many  exceptions,  arising  from 
the  nature  of  particular  corporations, 
the  purposes  for  which  ihey  were 
created,  and  tlie  duties  and  liabilities 
imposed  on  them  by  their  charters. 
Corjjorations  established  for  objects 
9«as/-public,  such  as  railway,  canal  and 
turnpike  corporations,  to  which  the 
right  of  eminent  domain  and  other 
large  privileges  are  granted  in  order  to 
enable  them  to  accommodate  the  public, 
may  fall  within  the  exception ;  as  also 
charitable  and  religious  bodies,  in  the 
administration  of  whose  affairs  the 
community  or  some  portion  of  it  has  an 
interest  to  see  that  their  corporate  duties 
are  properly  discharged.  Such  corpora- 
tions may,  perhaps,  be  restrained  from 
alienating  their  property,  and  compelled 
to  appropriate  it  to  specific  uses,  by  man- 
damus or  other  proper  process.  But  it 
is  not  so  with  corporations  of  a  private 
character,  established  solely  for  trading 
and  manufacturing  purposes.  Neither 
the  public  nor  the  legislature  have  any 
direct  interest  in  their  business  or  its 
management.  These  were  committed 
solely  to  the  stockholders,  who  have  a 
pecuniary  stake  in  the  proper  conduct 

173 


§110 


INTICRCORPORATE   RELATIONS. 


[part  II. 


In  Pringle  v.  Eltringham  Construction  Co.^  Judge  McEnery 
said:  "It  is  a  fundamental  principle  that,  in  a  corporation 
organized  for  the  exclusive  Ijenefit  of  the  corporators  or 
sharch(jlders,  the  majority  of  its  members  may,  in  their  dis- 
cretion, wind  up  its  business  whenever  they  deem  this  step  to 
be  in  the  interests  of  the  whole  association.  The  majority 
may,  without  the  consent  of  the  minority,  sell  the  whole  of 
the  company's  property,  close  up  its  business  and  distribute 
its  assets,  provided  this  is  done  in  good  faith  and  not  for  the 
purpose  of  speculation  and  the  intention  of  starting  the  com- 
pany's business  anew  at  a  subsequent  time." 

The  power  to  sell  the  entire  corporate  assets  follows,  there- 
fore, as  an  incident  to  the  power  to  wind  uj)  the  affairs 
of  the  corporation.  Corporate  action  towards  dissolution 
is  essentially  within  the  powers  of  a  corporation  and,  con- 
sequently, may  be  exercised  by  a  majority  of  the  stock- 
holders.2 

It  has  been  urged  that  this  power  of  a  majority  to  wind  up 
a  corporation,  and  to  disj)oso  of  its  assets  for  such  purpose, 
exists  only  in  the  case  of  failing  concerns.^     The  distinction 

of  their  affairs     By  acceptinsj  a  charter,  Alahamn  :    Merchants,  etc.   Line  v. 

they  do  not  umlortnke  to  carry  on  the  Waiijaner,  71  Ala.  581  (1882). 

bn.sincss  for  wliich  they  are  incoriiorated,  Louisiana:    I'ringle  v.   Kltringham, 

inilcfinitcly,  ami  without  any  re^jard  to  etc.  Co.,  49   La.  Ann.  301    (1897),   (21 

the  condition  of  tlioir  corporate  prop-  So.  Rep.  515)  ;  Trisconi  v.  Win.ship,  43 

erty.     Puhlic   policy   does  not   require  La.  Ann.  45  (1891 ),  (9  So.  T?ep.  29). 

them  to  pjo  on  at  a  loss.     On  the  con-  Massnchnselts :    Trcailwell    i;.    Salis- 

trary,  it  would   i^eein  very  clearly   for  bury  Mfg.  Co.,  7  Gray,  393  (1856),  (66 


tlio  puhlic  welfare,  as  well  as  for  the 
interest  of  the  stockholder.^,  that  they 
should  cease  to  transact  business  as  soon 
as,  in  tlie  exercise  of  a  sound  judgment. 


Am.  Dec.  490). 

iVfic  Jersey :  Black  v.  Delaware,  etc. 
Canal  Co..  22  N.  J.  Eq.  415  (1871). 

Pi  nnsyiraiiia :    McCnrdy    v.   Myers, 


it  is  found  that  it  cannot  be  prudently     44  Pa.  St.  535  (18')3)  ;  Lauman  r.  Leb- 


cou  tinned." 

liliode  Island:  Peabody  i*.  Westerly 
Water  Works,  20  R.  I.  176  (IS07),  (37 
Atl.  Rep.  807). 

1  Pringle  v.  Eltringham  Construc- 
tion Co.,  49  La.  Ann.  303  (1897),  (21 
So.  Rep.  515),  citing  1  Morawetz  on 
Priv.  Corp.  §  413. 

-  United  States :  Hayden  v.  Official 
Red  Book,  etc.  Co.,  42  Fed.  876  (1890). 
Compare  Ervin  v.  Oregon  R.,  etc.  Co., 
27  Fed.  625  (1886). 

174 


anon  Valley  R.  Co.,  30  Pa.  St.  42 
(1858). 

Rhode  Island :  Wilson  i*.  Central 
Bridge  Co.,  9  R.  I.  590  ( 1 870).  Compare, 
however,  Boston,  etc.  K.  Co.  v.  New 
York,  etc.  R.  Co.,  13  R.  I.  260  (1881). 

8  Kean  v.  Johnson.  9  N.  J.  Eq.  401 
(1853),  dictum  of  Parker,  .Ma.ster.  See 
also  Price  v.  Holcomb,  89  Iowa,  135 
(1893),  (56  N.  W.  Rep.  407),  2  Cook 
on  Corp.  §  670. 


CriAP.    XI,]  SALES    OF    CORPORATE   PROPERTY.  §  111 

is  not  -well  drawn.  Where  no  time  is  fixed  for  its  duration 
in  the  charter  of  a  corporation  or  in  some  general  or  special 
law^  there  is  no  contract  between  the  stockholders  tliat  it 
shall  go  on  forever  or  until  it  becomes  embarrassed.  The 
very  best  time  to  wind  up  the  affairs  of  a  corporation  may- 
be —  in  view  of  future  uncertainties  —  when  it  is  most  pros- 
perous and  has  accumulated  a  large  surplus.  The  determina- 
tion of  the  question  when  this  action  should  be  taken,  must 
rest  in  the  discretion  of  the  majority.  If  unanimous  consent 
were  necessary  a  single  stockholder  might  prevent  action  and 
thus,  negatively,  control  the  corporation. 

The  courts  cannot  pass  upon  the  question  whether  a  corpo- 
ration should  be  wound  up,  further  than  to  determine  whether 
the  majority  act  in  good  faith  and  without  oppression  towards 
the  minority.  Questions  of  expediency  in  corporate  man- 
agement cannot  properly  be  brought  before  the  courts  for 
review.2 

§  111.  Sale  of  Entire  Property  of  Losing  Corporation  by- 
Majority  Vote. —  The  general  rule  that  a  majority  cannot  sell 
the  entire  assets  of  a  prosperous  corporation  is  based  upon  the 
principle  that  a  majority  cannot  control  corporate  powers  to 
defeat  corporate  purposes.  It  is  subject  to  the  exception  — 
noted  in  the  last  section  —  that  such  sale  may  be  made  as  a 
step  towards  dissolution. 

The  power  of  a  majority  to  dispose  of  all  the  property  of  a 
losing  corporation,  however,  is  in  furtherance  of  the  purposes 
of  the  corporation  and  arises  ex  necessitate. 

When  the  further  prosecution  of  the  business  of  the  corpo- 
ration would  be  unprofitable,  it  is  the  duty,  as  well  as  the 

1  When  the  term  of  existence  of  a  18  N.  J.  Eq.  178  (1867),  (90  Am.  Dec. 

corporation   is    of   fixed   duration,   the  617)  ;   Kean  v.  Johnson,  9  N.  J.  Eq., 

implied  contract  of  the  stockholders  re-  (1853). 

fers  to  such  period,  and  the  dissolution  Where  a  corporation,  even  with  such 

of  a  prosperous  corporation  before  its  a  charter,  is  in  a  failing  condition,  liow- 

expiration    would    require   unanimous  ever,  the  majority  are  justified  in  acting 

action.       Barton     v.    Enterprise,     etc.  ex  necessitate. 

Ass'n,  114  Ind.  226  (1887),  (16  N.  E.  2   Compare,  however,  Price    v.  Hoi- 
Rep.  486).  Compare  Black  v.  Delaware,  comb,  89   Iowa,    135   (1893),  (56  N.  W, 
etc.  Canal  Co.,  22  N.  J.  Eq.  130  (1871);  Rep.  407). 
Zabriskie  v.  Hackensack,  etc.   R.   Co.^ 

175 


§  112 


INTERCORPORATE   RELATIONS. 


[PAUT    II, 


right,  of  the  majority  to  dispose  of  its  property  and  take 
action  towards  the  rKiiiidatlDn  of  its  affairs.* 

§  112.  Sale  of  Entire  Corporate  Property  by  Directors. — 
The  directors  of  a  corporation  are  appointed  to  manage  its 
affairs.  They  have  implied  authority  to  acquire  and  dispose 
of  its  property  in  the  usual  course  of  business.  They  have 
no  right  to  take  any  action  which  will  thwart  the  purpose 
for  which  the  corporation  was  created. 

The  })0wer8  of  directors  are  defined  by  the  charter  and  by- 
laws of  the  corporation.  The  extraordinary  power  of  dis- 
posing of  the  entire  corporate  assets  mijht  be  conferred  upon 
thcni.2  But,  unless  exj)ressly  conferred,  the  directors  of  a 
prosperous  corporation  have  no  jmwer  to  sell  out  its  entire 
property  and  deprive  it  of  the  means  of  continuing  business. 
And  the  directors  of  a  losing,  but  not  insolvent,  corporation 
are  cfpially  without  implied  authority  to  wind  up  its  affairs 
and  dispose  of  its  assets.^ 

1  United  Stales:  Ilayden  v.  Offici.il  ration  expressly  pives  tho  right  to  tlie 
Hotel  lied  Book,  etc.  Co.,  42  Fed.  875  directors  witii  the  a.ssent  of  [a  majority 
(1890);  Hancock  v.   noll)riH)k,  9  Fed.     in  interest  of]  tho  stockholders,  to  sell 


353(1881).  ComjHire  Hunt  r.  Ameri- 
can Grocery  Co.,  81  Fed.  532  (1897). 

Iowa:  Price  i;.  Ilidcomh,  89  Iowa, 
123  (1893),  (56  N.  W.  Rcj..  407).  Com- 
jmre  Hucll  v.  Buckingham,  16  Iowa, 
284  (1864). 

Louisiana  :  Hancock  v.  IIolhrook,40 
La.  Ann.  53  (1888),  (3  So.  Kep.  351). 

Massiirliusdis :  Tread  well  r.  Salis- 
bury Mfg.  Co.,  7  Gray,  393,  404  (1856)  ; 
Sargent  V.  Webster,  13  Met.  497  (1847). 

Mississippi :  Berry  v.  Broach,  65 
Miss.  453  (1888),  (4  So.  Kep.  117). 

New  Jersey :  Sewell  r.  East  Cape 
May  Beach  Co.,  50  N.  J.  Eq.  717  (1892), 
(25'Atl.  Kep.  929). 

New  York-:    Skinner  v.   Smith,    134 


or  tnmsfer  tiie  estate  or  frjuichi-^cs  of 
tho  comjjany  wliero,  in  tho  opinion  of 
the  directors,  such  sale  or  transfer 
would  eitlier  facilitate  tiic  construction 
of  the  road  or  promote  the  interests  of 
the  company.  Then,  too,  tiie  directors, 
without  reference  to  tlie  interest  of  the 
stockholders,  were  given  power  to  con- 
nect tho  road  with  any  other  road,  and 
to  make  contracts  in  relation  to  such 
joint  or  separate  ownersliip,  use  or  oc- 
cupatiijn.  And  hence  it  is  clear  that 
the  charter  conferred  the  power  to  make 
such  transfer,  even  tliougli  it  covered 
the  entire  estate  of  the  company  —  the 
same  being  made  witli  tlie  consent  of 
the    stockliolders    as    therein    coutem- 


N.  Y.  240  (1892),  (31  N.  E.  Rep.  911).  plated.  And  certainly  there  is  no  rule 
Quaere  People  v.  Ballard,  136  N.  Y.  of  law  which  prevents  tho.-*e  constitut- 
639  (1892),  (32   N.  E.  Kep.  611),  (mo-     ing  a  corporation  (having  reference  of 


tion  for  reargumeut  of  s.  c.  134  N.  Y. 
269  (1892),  (32  N.  E.  Kep.  54)). 

2  Maha.ska  County  R.  Co.  v.  Des 
Moines  Valley  K.  Co.,  28  Iowa,  451 
(1870) :  "It  will  be  remembered  that  the 
sixth  secliou  of  the  articles  of  iucorpo- 

176 


course  at  all  times  to  the  rights  of  third 
persons)  from  making  such  absolute 
sale  or  transfer,  though  it  should  occur 
thereby  that  the  object  contemplated 
shoulil  be  entirely  defeated." 

3  In  the  leading  case  of   Abbott  i*. 


CHAP.    XI,]  SALES   OP   CORPORATE   PROPERTY. 


§112 


The  distinction  between  a  losing  corporation  able  to  pay  its 
debts  and  an  insolvent  corporation  must  be  observed.  The 
transfer  of  the  entire  property  of  the  one  involves  primarily 
the  relations  between  a  corporation  and  its  stockholders ;  of 
the  other,  the  relations  between  a  corporation  and  its  creditors. 
A  s  said  by  Judge  Peckham  in  Vanderpod  v.  Gorman  :  ^  "  The 
assignment  of  property  by  an  insolvent  corporation  to  pay  its 
debts  is  a  very  different  action  from  so  disposing  of  its  prop- 
erty when  solvent,  as  to  make  its  continued  exercise  of  its 
franchises  impossible." 

In  the  absence  of  a  controlling  statute  or  by-law  of  the 
corporation,  the  directors  have  power  to  authorize  an  assign- 
ment of  the  property  of  an  insolvent  corporation  for  the  bene- 
fit of  its  creditors.^ 


American  Hard  Rubber  Co.,  33  Barb. 
(N.  Y.)  578  (1861),  a  majority  of  the 
trustees  of  a  business  corporation,  trans- 
ferred all  its  personal  property,  which 
was  especially  adapted  to  its  business, 
to  two  persons,  who  forthwith  caused 
another  corporation  to  be  formed,  and 
transferred  such  property  to  it.  It  was 
held,  that  as  such  transfer  practically 
terminated  the  corporation  by  taking 
from  it  the  power  to  fulfil  the  object 
of  its  organization,  it  was  a  violation  of 
that  object,  was  not  within  the  power  of 
the  trustees,  and  was  ultra  vires  and 
void. 

Compare  Wolf  v.  Arminus  Copper 
Mine  Co.,  6  Misc.  (N.  Y.)  562  (27  N. 
Y.  Supp.  642)  (1894),  distinguishing 
Abbott  V.  American  Hard  Rubber  Co., 
supra. 

For  other  cases  holding  that  the 
directors  of  a  corporation  have  no  im- 
plied authority  to  dispose  of  its  prop- 
erty so  as  to  prevent  it  from  carrying 
on  the  business  for  which  it  was  created, 
see : 

Missouri :  Feld  v.  Roanoke  Invest- 
ment Co.,  123  Mo.  613  (1894),  (27  S. 
W.  Rep.  635)  :  "  The  officers  of  a  cor- 
poration cannot,  against  the  wishes  of 
its  stockholders  or  any  one  of  them,  sell 
and  transfer  the  entire  property  from 
which  it  derives  its  emoluments  or  which 
12 


forms  the  basis  of  its  business  operations. 
To  do  so  would  be  to  commit  a  breach, 
if  not  of  the  express  terms  of  the  con- 
tract, of  its  implied  terms,  by  which  the 
general  objects  defined  in  its  charter 
would  be  diverted  and,  in  effect,  de- 
stroyed." 

New  York:  People  v.  Ballard,  134 
N.  Y.  269  (1892),  (32  N.  E.  Rep.  54) ; 
Blatchford  v.  Ross,  54  Barb.  42  (1869) ; 
Metropolitan  El.  R.  Co.  v.  Manhattan 
R.  Co.,  14  Abb.  N.  C.  103  ( 1884) ;  Smith 
V.  New  York  Consolidated  Stage  Co., 
18  Abb.  Pr.  419  (1864). 

Pennsylvania:  Carter  v.  Producers 
Oil  Co.,  164  Pa.  St.  463  (1894),  (30  Atl. 
Rep.  391) ;  Balliett;.  Brown,  103  Pa.  St. 
554  (1883). 

Tennessee :  Deaderick  v.  Wilson, 
8  Baxt.    108    (1874). 

1  Vanderpoel  v.  Gorman,  140  N.  Y. 
563  (1894),  (35  N.  E.  Rep.  932). 

2  Vanderpoel  v.  Gorman,  140  N.  Y. 
563  (1894),  (35  N.  E.  Rep.  932)  :  "The 
corporation  had  the  power  to  make  an 
assignment.  It  was  a  corporate  act 
and  neither  the  statute  nor  any  by  law 
provided  tliat  it  should  be  otherwise 
done  than  by  the  president  and  secretary 
and  treasurer,  under  the  authority  of 
the  board  of  directors.  This  sufficiently 
appears  to  have  been  so  done  and  that 
is  enough." 

177 


§113 


INTERCORPORATE    RELATIONS. 


[part  II. 


§  113.  Ratification  by  Stockholders  of  Sale  by  Directors.  — 
While  directors  have  no  implied  authority  to  sell  the  entire 
assets  of  a  corporation,  a  sale  made  by  them  may  be  validated 
by  the  subsequent  ratification  of  the  stockholders.^ 

Ratification  and  authorization  are  governed  by  the  same 
principles.  A  sale  of  corporate  jiropcrty  which,  in  the  first 
instance,  requires  unanimous  consent,  can  only  be  made  good 
by  the  approval  of  all  the  stockholders.  A  sale  requiring  the 
vote  of  a  majority  may  be  ratified  by  a  majority. 


Seo  also  I)e  Camp  v.  Alward,  52 
lud.  468  (1876) ;  Sargent  i-.  Webstor,  13 
Mete.  (.Ma.ss.)  497  (1847);  Dana  v. 
Bank  i.f  United  Stato.x,  5  W.  &  S.  223 
(1843);  IJruntoii  v.  Uoe,  114  Mich.  401 
(1897),  (72  N.  W.  Hep.  257)  ;  Tripp  v. 
Nurtli  Western  Nat.  Bank,  41  Minu. 
400  (1889),  (43  \.  W.  l{ep.  CO,  8.  C.  45 
Minn.  383  (1891),  (48  N.  W.  Rep.4); 
Wright  r.  Lee.  2  S.  I).  590  (1892),  (57 
N.  W.  Ivcj).  706);  Birmingham,  etc. 
Co.  V.  Freeman,  15  Tex.  Civ.  App.  Bep 
451  (1897).  (39  S.  W.  liep.  626).  Most 
of  these  (leci.-ii)ns  are  based  upon  State 
in.solvcncv  statutes. 

1  In  Sheldon,  etc.  Co.  v.  Eickemeyer, 
etc.  Co.,  90  N.  Y.  613  (1882),  the  Court 
of  Appeals  said:  "In  transferring  tlie 
property  of  the  cor])oratioii  to  pay  its 
debts  the  trustees  I)elioved  that  they 
were  acting  within  tlie  scope  of  their 
autliority,  and  the  defendant  accepted 
the  transfer  and  received  the  property 
in  satisfaction  of  its  claim  against  the 
plaintiff,  in  the  hone.st  belief  that  it  ac- 
quired good  title  tliereto.  If  the  trustees 
had  no  power,  as  the  agents  of  tlie  cor- 
poration, to  transfer  all  its  property, 
thus  depriving  it  of  the  means  of  carry- 
ing on  the  business  for  which  it  was 
organized,  it  is  but  the  case  of  an  agent 
making  a  contract  in  excess  of  his  au- 
thority. The  act  is  voidable,  not  void. 
The  principal  may,  nevertheless,  affirm 
the  act,  and  a  ratification  is  equivalent 
to  a  prior  authorization.  If  all  the 
stockholders  of  this  corporation  had, 
with  full  knowledge,  subsequently  rati- 
fied the  transfer  and  affirmed  the  settle- 

178 


ment,  the  act  —  though  beyond  the 
powers  given  the  trustees  by  tlie  charter 
—  could  not  be  subsecpiently  avoided  by 
the  stockholders,  or  by  the  corporation." 

The  conveyance  under  the  authority 
of  the  directors,  whose  action  is  rati- 
fied subse(jucntly  by  a  majority  of  the 
stcK'kliolders,  of  the  total  assets  of  a 
jirivate  corj)oration  in  payment  of  its 
debts,  operates  as  a  valid  conveyance 
of  the  [)roperty,  as  against  other  stock- 
holders, in  the  absence  of  fraud,  and 
when  a  longer  continuance  of  the  bu.si- 
ness  would  be  jirejudicial  to  all  parties. 
Hancock  r.  Ilolbrook,  9  Fed.  353  (1881 ). 

See  also  Hancock  v.  Holbrook,  40 
La.  Ann.  53  (1888),  (3  So.  Hep.  351); 
Kent  V.  Quicksilver  Mining  Co.,  78 
N.  Y.  159  (1879). 

Wiiere  the  directors  of  a  mercantile 
corporation  called  a  stockholders'  meet- 
ins  to  consider  the  proj)riety  of  a  sale 
of  its  business,  at  which  less  than  one- 
third  of  the  stock  was  represented,  but 
a  resolution  was  adopted  instructing  the 
directors  to  dispose  of  the  business  upon 
such  terms  as  they  should  deem  best,  it 
was  held  that  as  the  statutes  fully  pro- 
vided for  winding  up  the  corporation 
in  case  its  business  was  unprofitable,  or 
in  c.asft  it  was  oblidged  to  suspend  for 
want  of  funds,  the  directors  should  be 
enjoined,  at  the  Kuit  of  a  stockholder, 
from  disposing  of  the  assets,  so  a.s  to 
prevent  the  corporation  from  carrying 
out  the  objects  of  its  incorporation. 
Hunt  r.  American  Grocery  Co.,  81  Fed. 
532  (1897). 


CHAP.  XI.]     SALES  OF  CORPORATE  PROPERTY.  §  114 

The  approval  by  the  stockholders  of  a  sale  made  by  the 
directors  may  also  be  inferred  from  their  failure  to  object 
within  a  reasonable  time.^  In  Stokes  v.  Defriek  ^  the  Supreme 
Court  of  Maryland  said :  "  While  it  is  well  settled  that  the 
directors  of  a  corporation  cannot,  ordinarily,  alone  sell  and 
convey  the  whole  of  its  property,  yet  it  is  equally  true  that, 
if  such  an  unauthorized  transfer  is  made,  it  may  be  ratified  by 
the  assent  of  the  stockholders,  and  such  assent  may  be  inferred 
from  their  failure  to  protest  against  and  promptly  condemn 
the  unauthorized  acts  of  the  officers  of  the  corporation." 

§  114.  Remedies  of  Dissenting  Stockholders  in  Case  of  In- 
valid or  Unfair  Sales.  —  A  sale  of  the  entire  property  of  a 
prosperous  corporation  for  purposes  other  than  the  winding 
up  of  its  affairs,  or  an  exchange  of  corporate  assets  for  prop- 
erty entailing  outside  obligations,  requires,  for  reasons  else- 
where indicated,  the  unanimous  consent  of  the  stockholders.^ 
Any  such  sale  or  exchange  is  ultra  vires  the  majority  and  an 
infringement  upon  the  rights  of  minority  stockholders. 

A  dissentiug  stockholder  has  a  right  to  stand  upon  the 
contract  of  association  as  made,  and  equity  will  afford  him  a 
remedy  —  preventive  or  annulling  —  against  any  acts  of  the 
majority  beyond  their  powers.*     It  is  entirely  immaterial  that 

1  Balliet  v.  Brown,  103  Pa.  St.  554  injunction,  at  the  instance  of  stock- 
(1883);  Stokes  u.  Detrick,  75  Md.  256  holders,  to  restrain  those  administering 
(1892),  (23  Atl.  Kep.  846).  the  affairs  of  a  corporation  from  doing 

2  Stokes  V.  Detrick,  75  Md.  263  acts  amounting  to  a  violation  of  its 
(1892),  (23  Atl.  Rep.  846).  charter  or  from  monopolizing  its  funds. 

3  See  ante,  §  109  :  "  Sale  of  Entire  And  in  the  later  leading  case  of  Hawes 
Corporate  Property  bi/  Unanimous  Con-  v.  Oakland,  104  U.  S.  450  (1881),  Jus- 
sent;"  ante,  §  110:  "Sale  of  Entire  tice  Miller  formally  states  the  rules  gov- 
Property  of  Prosperous  Corporation  by  erning  the  grant  of  equitable  relief  to 
Majority  Vote;"  post,  §  118  :  "  Transfer  stockholders  of  corporations. 

of  Entire    Corporate    Property    without  Connecticut:  Byrne y.  Schuyler  Elec- 

Unanimous    Consent    requires   Monetary  trie  Mfg.  Co.,  65  Conn.  336  (1895),  (31 

Consideration."  Atl.  Kep.  833). 

*   United  States  :  Mason  v.  Pewabic  Georgia :  Central  R.,  etc.  Co.  v.  Col- 
Mining  Co.,   133  U.  S.   50  (1890),    (10  lins,  4o"Ga.  582  (1869). 
Sup.    Ct.    Rep.    224);    Mackintosh    v.  New    York:    Abbott    v.    American 
Flint,  etc.  R.  Co.,  34  Fed.  582  (1888).  Hard     Rubber     Co.,     33     Barb.     578 
In  Dodge  v.  Woolsey,  18  How.  (U.  S.),  (1861). 

331  (1855),Justice  Wayne  clearly  states  Pennsylvania:  Lauman  v.   Lebanon 

the   general   principles    governing   the  Valley  R.  Co.,  30  Pa.  St.  42  (1858). 

application  of  preventive  remedies  by  Rhode  Island:  Boston,   etc.  R.   Co. 

179 


114 


INTERCORPORATE   RELATIONS. 


[part  II. 


a  proposed  purchase  or  sale  may,  in  the  opinion  of  the  court, 
be  advantageous  to  such  stockholder.^  lie  alone  can  deter- 
mine that.  So  his  motive  in  bringing  suit  is  of  no  importance.^ 
Upon  similar  principles,  where  a  majority  of  the  stoci<holder3 
of  a  corporation  have  power  to  dispose  of  its  entire  assets, 
they  must  act  with  fairness  towards  minority  stockholders. 
A  sale  wherein  the  majority  obtain,  directly  or  indirectly, 
more  favorable  terms  than  the  minority  may  be  avoided  by 
the  latter,  or  the  majority  may  be  compelled  to  account.'^  So 
where  a  majority  sell  the  corporate  assets  to  another  corpora- 


r.  New  York,  etc.  R.  Co.,  13  R.  I.  260 
(1881). 

J'Jwjland:  Beman  v.  Rufford,  1  Sim. 
(N.  s.)  550  (1851)  ;  Ware  v.  Graml  Junc- 
tion Water  Co.,  2  Huss.  &  Myl.  470 
(1831);  Bagshaw  V.  Kasteru  Uuiou  R. 
Co.,  7  Hare,  114  (1849). 

Compare  Trcadwell  v.  Salisbury 
Mfg.  Co.,  7  Gray  (Mass.),  393  (1856), 
(66  Am.  Dec.  490)  ;  Hodges  v.  New 
Euglaiid  Screw  Co.,  1  R.  I.  312  (18.50), 
(53  Am.  Dec.  624);  Dudley  v.  Ken- 
tucky High  School,  9  Bush  (Ky),  576 
(1873). 

1  Central  R.,  etc.  Co.  v.  Collins,  40 
Ga.  617  (1869) :  "  We  do  not  think  tlio 
profitableness  of  this  contract,  to  the 
stockholders  of  the  Central  Railroad 
Co.,  .  .  .  has  anything  to  do  with  the 
matter.  These  stockholders  have  the 
right,  at  their  plea.sure,  to  stand  on  their 
contract.  If  the  charters  do  not  give  to 
these  companies  the  right  to  go  into  this 
new  enterprise,  any  one  stockholder  has 
the  right  to  object.  He  is  not  to  be 
forced  into  an  enterprise  not  included 
in  the  charter.  That  it  will  be  to  his 
interest  is  no  excuse  ;  that  is  for  him  to 
judge." 

See  also  Byrne  v.  Schuyler  Electric 
Mfg.  Co.,  65  Conn.  336  (1895),  (31  Atl. 
Rep.  833) ;  Stevens  v.  Rutland,  etc.  R. 
Co.,  29  Vt.  545  (1851) ;  Beman  v.  Ruf- 
ford, 1  Sim.  (n.  s.)  550  (1851). 

-  Central  R.,  etc.  Co.  v.  Collins,  40 
Ga.  582  (1869)  ;  Carson  v.  Iowa,  etc. 
Co.,  80  Iowa,  638  (1890),  (45  N.  W.  Rep. 
1068)  ;  Elkins  v.  Camden,  etc.  R.  Co., 
36  N.  J.  Eq.  5  (1882);  Ramsey  v. 
180 


Gould,  57  Barb.  (N.  Y.),  398  (1870)  ; 
Pender  i'.  Lushington,  L.  R.  6  Ch.  70 
(1877). 

3  In  Ervin  i'.  Oregon  R.,  etc.  Co.,  27 
Fed.  625  (1886),  where  a  majority  of 
the  stockholders  of  a  corporation  merged 
its  bu.siuess  and  projjcrty  with  busiuessea 
and  }>r<)pcrtios  belonging  to  themselves 
and  embarked  the  wliole  in  a  joint  ven- 
ture. Judge  Wallace  said  (p.  632)  :  "  Ap- 
plying these  principles  to  the  case  in 
hand,  although  the  minority  of  stock- 
holders cannot  complain  merely  be- 
cause the  majority  have  dissolved  the 
corporation  and  sold  its  property,  they 
may  justly  complain  because  the  ma- 
jority, while  occupying  a  fiduciary 
relation  towards  the  minority,  have 
exercised  their  powers  in  a  way  to  buy 
the  property  for  themselves,  and  ex- 
clude the  minority  from  a  fair  partici- 
pation in  the  fruits  of  the  sale.  In  the 
language  of  Mellisli,  L.  J.,  in  Menier 
V.  Hooper's  Telegraph  Works,  L,  R. 
9  Ch.  App.  354  (1874):  'The  majority 
cannot  sell  the  assets  of  the  company, 
and  keep  the  consideration,  but  must 
allow  the  minority  to  have  their  share 
of  any  consideration  which  may  come 
to  them.'  " 

For  other  somewhat  similar  cases 
where  the  courts  have  protected  the 
interests  of  minority  stockholders  see 
Buckley  v.  Big  Muddy  Iron  Co.,  7  Mo. 
App.  589  (1879);  Fougeray  v.  Cord,  50 
N.  J.  Eq.  185  (1899),  (24  Atl.  Rep.  499). 
See  also  Hayden  i;.  Official  Red  Book 
etc.  Co.,  42  Fed.  875  (1890). 


CHAP.  XI.]     SALES  OF  CORPORATE  PROPERTY.  §  115 

tion,  owned  by  themselves,  in  violation  of  the  rights  of  the 
minority,  the  latter  have  an  equitable  lien  upon  the  property 
sold  to  the  extent  of  their  interests. ^ 

§  115.  Procedure  in  Stockholders'  Actions.  —  All  the  mi- 
nority stockholders  may  join  in  a  suit  to  enjoin  the  execution 
of  a  contract  of  sale,  proposed  by  the  majority  and  requiring 
unanimous  consent  —  or  for  its  cancellation  if  executed  ;  or 
any  less  number  of  such  stockholders  may  maintain  the  suit. 
In  the  latter  case,  in  order  to  prevent  a  multiplicity  of  suits 
and  that  all  parties  interested  shall,  theoretically,  be  before 
tlic  court,  it  is  necessary  that  the  stockholder  —  in  case  an 
individual  stockholder  acts  —  should  institute  the  suit  in 
behalf  of  himself  and  of  other  stockholders  similarly 
situated.2 

All  the  actors,  in  transactions  by  which  the  rights  of  mi- 
nority stockholders  have  been  infringed,  are  proper  parties 
defendant  to  suits  at  their  instance.^ 

While  a  rule  of  the  federal  courts,  established  to  prevent 
collusive  transfers  of  stock  merely  for  the  purpose  of  con- 
ferring jurisdiction,  requires  that  a  plaintiff  stockholder  should 
have  been  such  at  the  time  when  the  transaction  complained  of 
took  place,*  the  prevailing  rule  in  England  and  this  country 

1  Ervin  v.  Oregon  R.,  etc.  Co.,  27  Western  R.  Co.,  L.  R.  3  Ch.  App.  262 
Fed.  62.5  (1886).  (1867). 

2  [Jiiited  States:  Zabriskie  l^  Cleve-  ^  Ervin  v.  Oregon  R.,  etc.  Co.,  27 
land.  etc.  R.  Co.,  23  How.  395  (18.59).  Fed.  625  (1886). 

Illinois:    Whitney  v.  :SIayo,    15    111.  *  Supreme  Court  equity  rule  94  is 

251(1853).  as  follows  :   "  Ever}' bill  brought  by  one 

^fnssnrhHsefts :     Peabody    v.    Flint,  or  more  stockholders  in  a  corporation 

6  Allen  52  (1863).  against     the     corporation     and     other 

Neiv  Hampshire :  March  v.  Eastern  parties,  founded  on  rights  which  may 

R.  Co.  40  N.  H.  548  (1860).  properly  be  asserted  by  the  corporation, 

Neiv  York:  Blatchford  v.  Ross,  54  must  be  verified  by  oath, and  must  con- 
Barb.  42  (1869).  t^i"  ^^  allegation  that  the  plaintiff  was 

Vermont:  Stevens  r.  Rutland,  etc.  R.  a  shareholder  at  the  time  of  the  trans- 
Co.,  29  Vt.  545  (1851).  action  of  which  he    complains,  or  that 

England :  Clinch  v.  Financial  Corp.,  his  share  had  devolved  on  him  since  by 

L.  R.  4  Ch.  App.   117  (1868)  ;  Taylor  operation  of  law,  and  that  the  suit  is 

V.   Salmon,   4    Myl.  &  C.   134   (1838);  not  a  collusive  one  to  confer  on  a  court 

Mozley  I'.  Alston,  1  rhill.  790  (1847);  of  the  United  States  jurisdiction  of  a 

Beman  v.  Rufford,  1  Sim.   (n.  s.)  550  case  of  which  it  would  not  otherwise 

(1851);  Winch  v.  Birkenhead,  etc.  R.  have  cognizance." 

Co.,  5  De  G.  &  S.,  562  (1852).  For  cases  in  the  federal  courts  con- 

Comjiare,  however,    Iloole  v.  Great  struing  the  rule   see   Lafavette  Co.   v. 

181 


§116 


INTERCORPORATE   RELATIONS. 


[part  ir. 


is  that  a  transferee,  taking  his  stock  since  that  time,  may 
sue.^ 

The  general  rule  of  equity  that  a  stockholder  must  first 
seek  relief  within  his  corporation,  manifestly  has  no  applica- 
tion when  the  minority  seek  relief  from  the  wrongful  acts  of 
the  majority.  The  majority  will  hardly  attack  sales  which 
they,  themselves,  have  made  or  authorized.  Under  such  cir- 
cumstances, demand  that  the  corporation  take  action  is  un- 
necessary before  bringing  suit.- 

§  116.  Defences  to  Stockholders' Actions.  Estoppel.  —  SalcS 
of  corporate  property,  for  an  unlawful  purpose,  are  ultra  vires 
of  the  corporation.  Sales  of  corporate  property,  for  a  pur- 
pose requiring  unanimous  consent,  are  ultra  vires  of  the  ma- 
jority. Principles  of  estoppel  may  make  good  the  latter  but 
not  the  former.^ 


Neely,  21  Fed.  738  (1884);  Evans  v. 
Union  I'acific  U.  Co.,  58  Fed.  497  ( 1 893) ; 
Symmes  v.  Union  Trust  Co.,  60  Fed. 
830  (1894). 

1  Winsor  V.  Bailey,  55  N.  H.  218 
(1875);  Ervin  v.  Oregon  R.,  etc.  Co., 
35  Hun  (N.  Y.),  544  (1885),  s.  c.  28 
Hun.  209(1882);  Chicago  v.  Cameron, 
22  111.  App.  91  (1886)  ;  Seaton  u.  Grant, 
L.  K.  2  Ch.  App.  459  (1867). 

In  Georgia  tlie  rule  of  the  federal 
courts  has  beenadopte<l.  Alexander  i-. 
Searcy,  81  Ga.  536  (1889),  (8  S.  E.  Rep. 
630,  12  Am.  St.  Rep.  337).  See  also 
Moore  v.  Mining  Co.,  104  N.  C.  534 
(1889),  (10  S.  E.  Rep.  679). 

In  Hollins  i;.  St.  Paul,  etc.  R.  Co.,  29 
N.  Y.  St.  Rep.  208  (1889),  (9  N.  Y. 
Supp.  909),  it  was  held  that  a  stock- 
holder could  not  object  to  a  transfer  of 
corporate  property  for  stock  in  another 
corporation,  decided  upon  before  he 
bought  his  stock  ;  that  he  stood  in  the 
shoes  of  those  from  whom  he  had 
bought. 

In  Bloxham  v.  Metropolitan  R.  Co., 
L.  R.  3  Ch.  App.  337  (1868),  it  was 
held  to  be  immaterial  that  the  stock  was 
purchased  for  the  purpose  of  bringing 
suit. 

2  Davis   V.   Gemmell,   70   Md.   376, 

182 


(1889),  (17  Atl.  Rep.  259);  Chicago 
Ilan.som  Cab  Co.  i;.  Yerkes,  141  HI. 
320  (1892),  (30  N.  E.  Rep.  667);  Na- 
than V.  Tompkins,  82  Ala.  437  (1887), 
(2  So.  Rep.  747). 

2  In  Kent  v.  Quicksilver  Mining  Co., 
(78  N.  Y.  185)  (1879),  Judge  Folger 
said :  "  When  it  is  a  question  of  the 
right  of  a  stockholder  to  restrain  the 
corporate  body  within  its  express  or 
incidental  powers,  the  stockholder  may 
in  many  cases  be  denied,  on  the  ground 
of  his  express  assent  or  his  intelligent 
though  tacit  consent  to  the  corporate 
action.  If  there  be  a  departure  from 
statutory  direction,  which  is  to  be  con- 
sidered merely  a  breach  of  trust  to  be 
restrained  by  a  stockholder,  it  is  perti- 
nent to  consider  what  has  been  his  con- 
duct in  regard  thereto.  A  corporation 
may  do  acts  which  affect  the  public  to 
its  harm,  inasmuch  as  they  are  per  se 
illegal  or  are  malum  prohibitum.  Then 
no  assent  of  stockholders  can  validate 
them.  It  may  do  acts  not  thus  illegal, 
though  there  is  a  want  of  power  to  do 
them,  which  affect  only  the  interests 
of  the  stockholders.  They  may  be  made 
good  by  the  assent  of  the  stockholders, 
so  that  strangers  to  tlie  stockholders, 
dealing  in  good  faith  with  the  corpora- 


CHAP,    XI.]  SALES   OF   CORPORATE   PROPERTY. 


116 


Where  the  want  of  a  stockholder's  assent  affects  the  validity 
of  a  sale,  he  may  be  estopped  from  setting  it  up.  By  partici- 
pating in  the  transfer  of  corporate  property,^  or  by  acquiescing 
and  failing  for  an  unreasonable  time  to  take  steps  to  set  it 
aside,2  a  stockholder  may  be  estopped  from  taking  action. 
"  Acquiescence  is  an  implied  sanction  of  the  sale,"  ^  and,  as  a 
defence,  is  essentially  the  same  as  laches,  although  the  former 
carries  the  idea  of  tacit  approval  and  the  latter  of  neglect  or 
delay. 

The  defence  of  estoppel  involves  both  knowledge  and  un- 
reasonable delay  on  the  part  of  the  stockholder  who  brings 
the    suit,*  or  the  prior  holder  of   his  shares,^  although  the 


tion,  will  be  protected  in  a  reliance  upon 
those  acts." 

Symmes  i'.  Union  Trust  Co.,  60  Fed. 
855  (1894):  "In  reference  to  tlie  acts 
and  conduct  of  complainants  and  their 
participation  and  acquiescence  in  the 
various  transactions,  it  must  be  remem- 
bered that  the  doctrine  of  ultra  vires 
has  two  separate  and  distinct  phases,  — 
one,  where  the  public  or  creditors  are 
concerned,  which  has  no  application  to 
this  case ;  the  other,  where  the  question 
is  between  the  stockholders  and  the  cor- 
poration, or  between  it  and  its  stoclv- 
holders  and  third  parties  dealing  with 
it  and  through  it  with  them." 

1  Where  minority  stockholders  wlio 
opposed  a  transfer  of  corporate  assets 
for  stock,  subscribed  for  their  pro- 
portion under  protest,  and  permitted 
the  purchasing  corporation  to  transact 
business  for  eighteen  months,  it  was 
held  that  tliey  were  then  estopped  to 
ask  for  a  rescission.  Post  v.  Beacon 
Pump,  etc.  Co.,  84  Fed.  371  (1898). 

A  stockholder  who  accepts  his  shares 
of  the  stock  cannot  complain  of  the 
transaction.  Feld  v.  Roanoke  Inv.  Co., 
123  Mo.  603  (1894),  (27  S.  W.  Rep. 
635).  See  also  Glymont  Imp.  Co.  v. 
Toller,  80  Md.  278  (1894),  (30  Atl.  Rep. 
651). 

Stockholders,  after  voting  for  and 
approving  a  sale  or  purchase,  cannot  be 
heard  to  complain  thereof  in  equity. 


McGeorge  v.  Big  Stone  Gap  Inip't. 
Co.,  57  Fed.  262  (1893) ;  Burr  v.  Pitts- 
burgh, etc.  Co.,  51  Fed.  33  (1892). 

See  also  generally  as  to  estoppel 
against  stockholders,  tSheldon,  etc.  Co. 
V.  I^ickemeyer,  etc.  Co.,  90  X.  Y.  667 
(1882)  ;  Berry  v.  Broach,  65  Miss.  450 
(1888),  (4  So"  Rep.  117). 

2  Sir  John  Romilly  in  Gregory  i'. 
Patchett,  33  Beav.  602  (1864),  thus 
stated  the  position  of  stockholders  who 
acquiesce  and  outstay  their  time: 
"  Shareholders  cannot  lie  by,  sanc- 
tioning, or  by  their  silence  at  least 
acquiescing  in,  an  arrangement  which 
is  iiltrn  vires  of  the  company  to  which 
they  belong,  watching  the  result;  if  it 
be  favorable  and  profitable  to  them- 
selves, to  abide  by  it  and  insist  on  irs 
validity,  but  if  it  prove  unfavorable  and 
disastrous,  then  to  institute  proceedings 
to  set  it  aside."  See  also  Watt's  Ap- 
peal, 78  Pa.  St.  370  (1875). 

'^  Boston,  etc.  R.  Co.  v.  New  York, 
etc.  R.  Co.,  13  R.  I.  260  (1881).  Evans 
t'.  Smallcomb.  L.  R.  3  H.  L.  249  (1868). 

■*  Cumberlnnd  Coal  Co.  v.  Sherman, 
30  Barb.  (N.  Y.)  553  (1859). 

°  A  transferee  stands  in  no  better 
position  than  the  holder  of  the  stock  at 
the  time  of  the  transaction.  Brown  v. 
Duluth.  etc.  R.  Co.,  53  Fed.  889  (1893). 
Re  Syracuse,  etc.  R.  Co.,  91  N.  Y.  1 
(1883). 

183 


§118 


INTERCORPORATE   RELATIONS. 


[part  II. 


means  of  knowled<^c,  readily  available,  may  be,  in  legal  effect, 
equivalent  to  knowledge.^  No  rule  can  be  laid  down  for  de- 
termining what  length  of  time  will  constitute  unreasonable 
delay.  It  will  depend  upon  the  facts  and  circumstances  of 
each  case.2 

§  117.  Effect  of  Sale  of  Entire  Corporate  Property.  —  A  sale 
of  the  entire  property  of  one  cor[)oration  to  another  may 
render  the  vendor  corporation  unal)le  to  fulfil  the  purposes 
of  its  organization,  but  does  not  dissolve  it.^  A  corporation 
may  exist  without  property. 

II.   Exchange  of  Property  of    One   Corporation  for  Stock  of 

Another. 

§  118.  Transfer  of  Entire  Corporate  Property  -writhout  Unani- 
mous    Consent    requires    Monetary    Consideration.  —  I  pon    the 


^  Jessup  V.  Illinois  Central  R.  Co., 
4.3  Fed.  48.3  (1890).  See  also  Taylor  v. 
Railroad  Co.,  4  Woods  (U.  S."),  575 
(1882). 

2  Connecticut:  Seven  years'  delay  a 
bar.  Banks  r.  Judah,  8  Conn.  145 
(1830),  (the  earliest  reor;,'anization 
case).  Six  montlus'  delay  after  the  an- 
nual meeting  not  a  har.  IJyrne  v. 
Schuyler  Electric  Mfg  Co.,  65  Conn. 
336  (1895),  (31  Atl.  Rep.  833  ) 

Georijin :  Alexander  v.  Searcy,  81 
Ga.  536  (1888),  (8  S.  E.  Rep.  6.30), 
four  years'  delay  a  bar  to  stockholder's 
suit. 

Louisiana  :  Hancock  v.  Ilolbrook,  40 
La.  Ann.  53  (1888),  (3  So.  Rep.  351), 
two  years'   delay  a   bar. 

^fass(Ichusftts :  Snow  r.  Boston,  etc. 
Co.,  158  Mass.  325  (1893),  (33  N.  E. 
Rep.  588),  one  year  a  bar.  Peabody  v. 
Flint,  88  Mass.  52  (1863),  three  and  a 
half  years  a  bar. 

Minnesota :  Pinkus  v.  Minneapolis 
Linen  Mills,  65  Minn.  40  (1896),  (67 
N.  W.  Rep.  643),  two  years  a  bar. 

Missouri:  Descombes  v.  Wood,  91 
Mo.  196  (1886),  (4  S.  W.  Rep.  82),  four 
years  a  bar. 

Pennsi/lvania  :  Ashhurt's  Appeal,  60 
Pa.  St.  290  (1869),  seven  years  a  bar. 

Rhode  Island :  Boston,  etc.  R.  Co.  i'. 

184 


New  York,  etc  R.  Co.,  13  R.  I.  260 
(1881 ),  twelve  years  a  bar. 

Iini/linid :  In  Re  Pinto  Silver  Min. 
Co.,  L.  R.  8  Ch.  273  (1877),  Lord  Ju.s- 
tice  James  held  three  years'  delay  a  bar 
and  said  :  "  But  when  a  person,  iiaving 
knowledge  of  what  is  being  done, assents 
by  his  trustees  to  the  transfer  of  the 
property  of  the  company  to  another 
company,  being  aware  that  the  former 
com])any  was  in  course  of  wimling  up, 
and  takes  no  step  during  the  whole  of 
that  wimling  up,  it  is  utterly  <nit  of  the 
question  tliat  he  should  be  at  liberty  to 
come,  after  the  lapse  of  years,  and  up- 
set all  that  has  been  done." 

8  Price  I'.  Holcomb,  89  Iowa,  137 
(1893).  (56  N.  W.  Rep.  407):  "The 
sale  of  all  the  property  may  have  the 
effect  of  terminating  the  business  for 
which  the  corporation  was  organized, 
but  it  does  not  dissolve  it.  Such  a  sale 
no  more  dissolves  the  corporation  than 
would  the  giving  of  a  mortgage  that 
might  ultimately  result  in  all  tlie  prop- 
erty being  taken  from  the  corporation." 

See  also  State  i;.  Bank  of  Maryland, 
6  Gill  &  J.  (Md.)  205  (1834),  (26*  Am. 
Dec.  561);  Brufett  v.  Great  Western 
R.  Co.,  25  111.  353  (1861).  Compare 
Stone  V.  Framingham,  109  Mass.  303 
(1872). 


CHAP.  Xr.]     SALES  OF  CORPORATE  PROPERTY.  §  119 

winding  up  of  the  affairs  of  a  corporation,  every  stockholder 
has  a  right  to  insist  that  the  property  of  the  corportion  be 
converted  into  money  and  that  the  proceeds  be  distributed.^ 
He  has  a  right  to  require  the  valuation  of  the  corporate 
property  to  be  fixed  by  a  sale. 

Similarly,  it  is  the  right  of  every  stockholder  to  demand 
that  sales  of  corporate  assets  made  preliminary  to,  and  for  the 
purposes  of,  liquidation  shall  be  for  money.  He  cannot  be 
compelled  to  accept  "chips  and  whetstones"  instead  of  cash. 
Whether  the  exchange  of  one  species  of  property  for  another 
is  even  a  step  towards  liquidation  depends  entirely  upon  their 
comparative  marketableness.     An  exchange  is  not  a  sale. 

A  transfer  of  all  the  property  of  one  corporation  for  stock 
in  another  is  an  exchange.  Its  legality  depends  upon  two 
considerations : 

(1)  The  power  of  the  corporation  to  acquire  stock  in 
another  corporation. 

(2)  The  power  of  the  majority  to  authorize  such  transfer. 

§  119.  Exchange  of  Property  for  Stock  ultra  vires. — A 
private  corporation,  by  the  unanimous  consent  of  its  stock- 
holders, may  exchange  its  assets  for  any  other  property  it  has 
power  to  acquire.  The  validity  of  a  transfer  of  the  property 
of  one  corporation  for  stock  in  another  therefore  depends, 
primarily,  upon  the  power  of  the  former  corporation  to 
acquire  the  stock. 

The  general  rule  that  one  corporation  has  no  implied 
authority  to  acquire  and  hold  stock  in  another  corporation, 
and  the  exceptions  thereto,  are  considered  at  length  in  another 
part  of  this  treatise.^  Unless  the  corporation  transferring  its 
property  has  express  statutory  authority  to  acquire  stock,  or 
the  circumstances  are  such  as  to  bring  it  within  an  exception 
to  the  rule,  a  transfer  of  corporate  property  for  stock  in 
another  corporation  is  idtra  vires. 

It  would  seem,  however,  that  the  objection  of  ultra  vires  to 

^  Mason  i'.  Pewahic  Mininpj  Co.,  133  Infringement    of   Eights     of  Dissenting 

U.  S.  50  (1890),  (10  Sup.  Ct.  Rep.  224).  Stockholders." 

See  also  cases  cited  in  notes  to  §  120,  ^  ggg  post,  Part    IV. :    "  Corporate 

post:  "Exchange  of  Property  for  Stock  Stockholding  and  Control." 

185 


§120 


INTERCORPORATE   RELATIONS. 


[part  II. 


an  exchange  of  property  for  stock  when  all  the  stockholders 
agree,  might  be  avoided  by  directly  distributing  the  stock 
among  the  stockholders  instead  of  delivering  it  to  the  cor- 
poration. If  ilie  rights  of  creditors  are  protected  and  stock- 
holders agree,  no  one  else  can  complain  of  a  donation  by  a 
private  corporation  for  the  direct  pecuniary  benefit  of  its 
stockholders. 

§  120.  Exchange  of  Property  for  Stock  Infringement  of 
Rights  of  Dissenting  Stockholdera.  —  A  corporation,  having  the 
power  to  ac([uire  stock  in  other  cor|)orations,  may,  in  ordinary 
transactions,  exercise  it  in  the  same  manner  as  other  powers. 

But  a  transfer  of  the  entire  projjerty  of  a  corporation  is  an 
extraordinary  transaction  requiring  unanimous  consent,  ex- 
cept for  liquidating  purposes,  and  for  those  purposes  requiring 
a  pecuniary  consideration. 

A  maj(jrity  of  the  stockholders  cannot  authorize  the  trans- 
fer of  the  corporate  assets  for  stock  in  another  corporation.^ 

accept,  in  payment  of  his  demand,  any- 
thinr;  but  money.  Ho  cannot  be  re- 
quireil  to  do  so  arbitrarily." 

Connecticut :  Byrne  r.  .Schuyler 
Electric  Mfg.  Co.,  65  Coun.  350 
(1895),  (3    Atl.    Rep.    833). 

Illinois:  Harding  v.  American  f!ln- 
cose  Co.,  182  111.  628  (1899),  (55  N.  E. 
Rep.  577). 

ifarijland :  Glymont  Imp.  Co.  r. 
Toller,  80  Md.  278  (1894),  (30  Atl.  Rep. 
651). 

Missouri:  Feld  v.  Roanoke  Invest- 
ment Co.,  123  Mo.  614(1894),  (27  S.  \V. 
Rep.  635) :  "  Nor  can  the  stock  of  such 
new  corporation  be  forced  upon  the  dis- 
senting stockholders  in  payment  of  their 
stock  in  the  original  company,  who  are 
entitled  to  payment  in  money." 

Xew  Yor/c :  Frothingham  v.  Barney, 
6  Ilun,  372  (1876):  "They  had  no 
right  to  exchange  the  assets  of  the 
old  association  for  the  corporate  stock 
of  any  corporations,  without  the  con- 
sent of  all  the  stockholders.  .  .  . 
Equally  were  they  without  authority 
in  making  this  partial  exchange,  with- 
out such  consent.  Stockholder-s  of  the 
old  association  could  not  thus,  against 


1  United  States :  la  Post  v.  Beacon 
Vacuum  Pump,  etc.  Co.,  84  Fed.  375 
(189j<),  Judge  Putnam  said:  "The 
minority  has  a  lawful  right  to  main- 
tain tliat  the  contractual  relations 
which  it  established  with  a  corpora- 
tion whose  shareholders  they  became 
does  not  include  a  contractual  relation 
with  any  other  corporation." 

See  also  McCutcheon  v.  Merz  Cap- 
sule Co.,  71  Fed.  787  (1896);  Easun  v. 
Buckeye  Brewing  Co.,  51  Fed.  156 
(1892)! 

Alabnma :  Ely  ton  Land  Co.  v  Dow- 
dell,  113  Ala.  186  (1896),  (20  So.  Rep. 
981) :  "  It  may  be  that  a  jirivate  business 
corporation  may  sell  out  its  entire 
property,  by  and  with  the  consent  of 
less  than  all  its  stockholders,  for  the 
purposes  of  paying  its  debts  or  for 
the  purposes  of  dissolution  and  settle- 
ment, but  when  this  is  the  purpose,  it 
must  be  clearly  understood,  and  the 
terms  and  conditions  of  the  sale  must 
be  within  the  contractual  relations 
between  the  corporation  and  its  credit- 
ors or  shareliolders.  There  can  be  no 
presumption  that  a  creditor  or  stock- 
holder of  the  dissolved  corporation  will 

186 


CHAP.  XI,]      SALES  OF  CORPORATE  PROPERTY. 


§120 


They  cannot  force  the  minority,  against  their  will,  into  a  new 
company  nor  compel  them  to  elect  between  so  entering  and 
losing  their  interests.^ 

A  possible  exception  to  this  rule  may  arise  where  tlie  stock, 
taken  upon  an  exchange,  has  an  establislied  market  value,  so 
that  it  may  fairly  be  considered  an  equivalent/or  money.  In  such 
acase  there  is, practically,  a  saleupon  a  monetary  consideration. ^ 


their  will,  be  forced  into  relations  with 
the  new  company." 

See  also  Taylor  v.  Earle,  8  Hun,  1 
(1876);  People  v.  Ballard,  134  N.  Y. 
269  (1892),  (32  N.  E.  Rep.  54). 

Rhode  Island :  Boston,  etc.  R.  Co.  v. 
New  York,  etc.  R.  Co.,  13  U.  1. 260  ( 1881 ). 

1  Notwithstanding  the  rnle  stated  in 
the  text,  transfers  of  t!ie  entire  prop- 
erty of  corporations,  authorized  only  by 
a  majority  of  their  stockholders,  in 
exchange  for  the  stock  of  other  cor- 
porations have  been  repeatedly  made 

—  often  in  the  guise  of  a  "reorganiza- 
tion"—  and  have  sometimes  received 
the  approval  of  the  courts.  Thus  in 
Sawyer  v.  Dubuque  Printing  Co.,  77 
Iowa,  242  (18S9),  (42  N.  W.  Rep.  300),  it 
was  held  that  where  a  corporation  could 
not  carry  on  a  business  with  profit, 
and  was  approaching  serious  financial 
embarrassment,  the  sale,  without  fraud 
and  in  good  faith,  of  all  its  property 
to  a  rival  corporation  whose  paid-up 
stock  was  given  in  payment,  afforded 
no  ground  of  complaint  to  a  stock- 
holder who  was  not  notified  of,  nor 
present  at,  the  meeting  at  which  the 
transfer  was  decided  upon.  In  thi.s 
case,  however,  the  question  whether  an 
exchange  of  property  for  stock  was 
valid  was  not  passed  upon  by  the  Court. 

—  And  in  Farmers  Loan,  etc.  Co.  v. 
Toledo,  etc.  R.  Co.,  54  Fed.  759  (1893), 
it  was  assumed  by  Judge  Jackson  that 
an  exchange  of  property  for  stock  was 
a  sale,  and,  from  this  wrong  premise, 
the  conclusion  was  reached  that,  under 
statutory  power  to  sell,  a  transfer  of 
property  for  stock  by  the  prescribed 
majority  left  the  minority  remediless. 

For  other   cases  where  the  courts 


have,  for  various  reasons,  approved  the 
exchange  of  the  assets  of  one  corpora- 
tion for  stock  in  another,  see  Buford  v. 
Keokuk,  etc.  Packet  Co.,  3  Mo.  App. 
159  (1876);  Treadwell  v.  Salisbury 
Mfg.  Co.,  7  Gray  (Mass.),  393  (1856), 
(66  Am.  Dec.  490)  ;  Hodges  v.  New 
England  Screw  Co.,  1  R.  I.  312  (1850). 

^  The  decision  in  Treadwell  v.  Salis- 
bury Mfg.  Co.,  7  Gray  (Mass.),  393 
(1856),  cannot  be  justified  upon  prin- 
ciple. In  this  case  the  Court  said 
(p.  405) :  "  Nor  can  we  see  anything  in 
the  proposed  sale  to  a  new  corporation, 
and  the  receipt  of  their  stock  in  pay- 
ment, which  makes  the  transaction 
illegal.  It  is  not  a  sale  by  a  trustee 
to  himself,  for  his  own  benefit ;  but  it 
is  a  sale  to  another  corporation  for  the 
benefit  and  with  the  consent  of  the 
cestuis  que  trust,  the  old  stockholders. 
The  new  stock  is  taken  in  lieu  of 
money,  to  be  distributed  among  those 
stockholders  who  are  willing  to  receive 
it,  or  to  be  converted  into  money  by 
those  who  do  not  desire  to  retain  it. 
Being  done  fairly,  and  not  collusively, 
as  a  mode  of  payment  for  the  property 
of  the  corporation,  that  transaction  is 
not  open  to  valid  objection  by  a  minor- 
ity of  the  stockholders." 

The  rights  of  minority  stockholders 
cannot  be  made  to  depend  upon  their 
ability  to  convert  into  money  stock 
which  has  no  established  market  value 
—  is  not  regularly  bought  and  sold. 
Compare  Easun  v.  Buckeye  Brewing 
Co.,  51  Fed.  156  (1892);  Byrne  v. 
Schuyler  Electric  Mfg  Co.,  65  Conn. 
336  (1895),  (31  Atl.  Rep.  833);  Buford 
V.  Keokuk,  etc.  Packet  Co.,  3  Mo.  App. 
159  (1876).     Compare  also  decision  of 

187 


§  120  INTERCORPORATE   RELATIONS.  [PART    II. 

Ill  order  to  avoid  the  objection  that  dissenting  stockholders 
cannot  be  forced  into  a  new  corporation,  reorganization  plans 
have  often  provided  that  stockholders  who  do  not  choose  to 
go  into  the  new  or  purchasing  company  may  take  a  stated 
sum  of  money  in  lieu  of  the  shares  to  which  they  would  be 
entitled.  Tlic  objection  to  a  plan  of  this  character  is  that  the 
majority  have  no  right  to  fix  the  value  of  the  property  of  the 
minority.^  As  said  by  Mr.  Justice  Miller  in  Munon  v.  Peicahic 
3Unmg  Co.:^  "It  is  further  said  that,  in  the  present  case, 
the  dissenting  stockholders  are  not  compelled  to  enter  into  a 
new  corporation  with  a  now  set  of  corporators,  but  have  their 
option,  if  they  no  not  choose  to  do  this,  to  receive  the  value 
of  their  stock  in  money.  It  seems  to  us  that  there  are  two 
insurmountable  objections  to  this  view  of  the  subject.  The 
first  of  these  is  that  the  estimate  of  the  value  of  the  proj)erty 
which  is  to  be  transferred  to  the  new  corporation  and  the  new 
set  of  stockholders  is  an  arbitrary  estimate  made  by  this 
majority,  and  without  any  power  on  the  part  of  the  dissent- 
ing stockholders  to  take  part,  or  to  exercise  any  influence,  in 
making  this  estimate.  They  are,  therefore,  reduced  to  the 
proposition  that  they  must  go  into  this  new  company,  how- 
ever much  they  may  be  convinced  that  it  is  not  likely  to  be 
successful,  or  whatever  other  objection  they  may  have  to 
becoming  members  of  that  corporation,  or  they  must  receive 
for  the  property  which  they  have  in  the  old  company  a  sum 
which  is  fixed  by  those  who  are  buying  them  out.  The  injus- 
tice of  this  needs  no  comment.  If  this  be  established  as  a 
principle  to  govern  the  winding  up  of  dissolving  corporations, 
it  places  any  unhappy  minority,  as  regards  the  interest  which 
they  have  in  such  corporation,  under  the  absolute  control  of  a 
majority,  who  may  themselves,  as  in  this  case,  constitute  the 


the  Chancellor  in  Black  v.  Delaware,  tween  such  new  contractual  relations 

etc.  Canal  Co.,  22  N.  J.  Eq.  415  (1871).  and  the  loss  of   its  shares  in  the  old 

1  Mason  v.  Pewabic  Mining  Co.,  1.3.3  corporation,  or  compensation  for  them 

IT.  S.  .50  (1890),  (10  Sup.  Ct.  Kep.  224).  on  any  arbitrary  basis  which  a  reorgan- 

See  also  Post  i'.  Beacon  Vacuum  Pump,  ization  may  give." 

etc.  Co.,  84  Fed.  375  (1898),  where  it  2  Mason  i.-.  Pewabic  Mining  Co.  1.33 

was  said:  "There  is  no  right  in  law  to  U.  S.  58  (1890),  (10  Sup.  Ct.  Rep.  224). 
compel  it  [the  minority]  to  elect   be- 

188" 


CHAP.  XI.]      SALES  OF  CORPORATE  PROPERTY.  §  121 

new  company,  and  become  the  purchasers  of  all  the  assets  of 
the  old  eompiiny  at  their  own  valuation." 

§  121.  Appraisal  of  Stock  of  Dissenting  Stockholders.  — 
Several  of  the  statutes,  already  referred  to,  providing  for  the 
appraisal  of  the  shares  of  dissenting  minority  stockholders, 
are  probably  broad  enough  to  be  available  in  aid  of  a  reorgan- 
ization through  the  transfer  of  corporate  assets  in  exchange 
for  stock.^  Theoretically,  such  statutes,  when  constitutionally 
applicable,  may  do  exact  justice  to  a  dissenting  stockholder. 
He  is  given  the  option  of  entering  the  new  corporation  or  sell- 
ing out  for  the  value  —  fixed  by  appraisal  —  of  his  interest  in 
the  old.  The  result  is  apparently  so  equitable  that  it  has 
been  intimated  by  the  Supreme  Court  of  the  United  States 
that  a  court  of  equity,  without  such  a  statute,  might  be  justi- 
fied in  itself  appraising  the  interests  of  minority  stockholders.* 
It  is,  however,  fundamentally  wrong  in  principle  and  should 
not  be  extended  by  judicial  legislation. 

If  the  business  of  a  corporation  is  not  to  be  continued 
according  to  the  contract  of  association,  each  stockholder  is 
entitled  to  his  actual  distributive  share  of  the  proceeds  of 
the  corporate  property.     A  court  of  equity  cannot  equitably 

1  See  ante,  §  57 :  "  Statutory  Provi-  sentient  stockholders   may  require  the 

sions  for  Appraisal  of  Stock."  liquidator  to   purchase  their   interests. 

The  English  statute   applicable    in  Section  162  provides  for  determining 

case  of  transfers  of  corporate  property  the  price  by  arbitration. 

for   stock   is   contained    in  Companies  For  construction  of  this  statute  see 

Act  1862  (25  and  26  Vict.  ch.  89,  §  161) :  In  re  London,  etc.  Bread  Co.,  62   L.  T. 

"Where  any  company  is  proposed  to  Rep.  224    (1890);  In  re  Imperial  Mer- 

be  or  is  in  the  course  of  being  wound-up  cantile  Credit  Ass'n,  L.  R.   12  Eq.  504^ 

altogether  voluntarily,  and    the  whole  (1871) ;  Southall  v.  British  Mutual  Life 

or  a  portion  of  its  business  and  property  Assur.  Soc.,L.  R.  6  Ch.  App.  614  (1871); 

is  proposed  to  be  transferred  or  sold  to  In  re  Irrigation  Co.,  L.  R.  6  Ch.  App. 

another  company,  the  liquidators  of  the  176  (1871);  Clinch  v.  Financial  Corp., 

first  mentioned     company   may,    with  L.  R.  4  Ch.  App.  117  (1868). 

the  s.anction  of  a  special  resolution  of  the  See    also    Pennsi/lvania      appraisal 

companj'  by  whom  they  were  appointed,  statute.  Laws  1901,  Act  No.  20,  p.  53. 

.  .  .  receive  in  compensation  or  in  part  2  Mason  v.    Pewabic  Min.  Co.,   133 

compensation  for  such  transfer  or  sale,  U.  S.  50  (1890),  (10  Sup.  Ct.  Rep.  224). 

shares,  policies  or  other  like  interests  in  See    conclusion  of    opinion  of   Justice 

such  other  company,  for  the  purpose  of  Miller  and  opinion  of  Justice  Bradley, 

distribution,  amongst    the  members  of  See  also  Lauman  v.  Lebanon    Valley 

the  company  being  wound  up."  R.  Co.,  30  Pa   St.  42  (1858),  (72  Am. 

Section    161    also  provides  that  dis-  Dec.  685)  ;  McVicker  v.  Ross,  55  Barb. 

(N.  Y.)  247  (1869). 

189 


§  122  INTERCORPORATE  RELATIONS.  [PART   II. 

put  him  off  by  securing  for  liim  "  a  theoretical  distributive 
share  "  fixed  by  appraisal.^ 

§  122.  stock  received  upon  Exchange  belongs  primarily  to 
Corporation.  —  When  the  property  of  a  corporation  is  duly 
transferred  to  another  corporation  for  its  shares  of  stock,  the 
title  to  such  shares  —  the  consideration  for  the  transfer  — 
vests,  in  the  absence  of  express  agreement  otherwise,  in  the 
vendor  corporation,  as  a  distinct  corporate  entity.  The  stock 
so  acquired  becomes  the  property  of  the  corporation  —  in  lieu 
of  the  property  transferred  —  and  the  stockholders  of  the 
corporation  have  only  an  indirect  interest  therein,  through 
their  interest  in  the  corporation  as  a  whole.  The  stockholders 
own  the  corporation  but  the  corporation  owns  the  stock. 
The  powers  of  the  corporation,  under  its  charter,  will  deter- 
mine the  question  whether  the  stock  so  acquired  can  be  per- 
manently held,  or  whether  the  immediate  winding  up  of  the 
corporation's  affairs  and  distribution  of  the  stock  is  necessary. 
But  whether  distributed  sooner  or  later,  the  stockholders  take 
only  through  the  distribution.^ 

By  unanimous  consent,  however,  a  corporation  may  make  a 
donation  of  its  property.  If  creditors  are  provided  for  and 
stockholders  are  satisfied,  no  one  else  can  complain.  Under 
like  conditions,  a  corporation,  exchanging  its  property  for 
stock  in  another  corporaticm,  may  enter  into  a  valid  agreement 
that  such  stock,  instead  of  being  delivered  to  it — the  corpo- 
ration—  shall  be  directly  divided  among  its  stockholders  pro 
rata.  This  amounts  to  a  liquidation  of  the  corporation's 
affairs  by  unanimous  consent,  but,  in  the  absence  of  a  con- 

^  4  Thompson  Corp.  §  4543.  belonged   to   them   and   could    not   be 

2  In  Kohl  V.  Lilienthal,  81   Cal.  378  divided  among  their  stockholders  until 

(1889),  (20  Pac.  Kep.  401),  two  corpora-  after  the  dissolution  of  the  corporations 

tions  sold  their  property  to  a  third  cor-  iu  tlie  manner  provided  by  statute, 
poration,  under  an  agreement  that  its  It  appears,  however,  that  there  was 

stock  should  be  delivered  in  payment,  an  agreement  that  the  new  stock  should 

and  stockholders  of  a  vendor  company  be  divided  among  the  stockholders  and 

brought    suit    asking    that    tlie   stock  the  decision  is  opposed  to  the  weight  of 

should  be  divided  among  them.     The  authority  except  when  placed  upon  the 

Court   held   that   as   the   former  com-  ground  that  the  laws  of  California  per- 

panies  had  not  passed  out  of  existence  mit  the  liquidation  of  corporations  only 

nor   been  dissolved,  the  new  stock,  re-  in  the  statutory  way.     See  also  Martin 

ceived  in  payment  for  their   property,  i'.  Zellerbach,  38  Cal.  309  (1869). 

190 


CHAP.  XI.]      SALES  OF  CORPORATE  PROPERTY. 


§123 


trolling  statute,  there  is  no  legal  objection  to  it ;  and,  between 
the  parties,  it  is  a  contract,  upon  a  valid  consideration,  for 
the  benefit  of  a  third  party  —  the  stockholders  —  which  gen- 
erally, under  modern  codes,  gives  such  ])arty  a  right  of  action 
upon  it.^  When  such  an  express  agreement  is  made,  there- 
fore, the  stockholders  may  maintain  an  action  directly  against 
the  purchasing  corporation  to  compel  the  delivery  of  the 
stock  to  them,  but  without  such  agreement  an  action  can  be 
maintained  only  by  and  for  the  corporation  itself. 


III.    Rights  and  Remedies  of  Creditors. 

§  123.    Liability  of  Purchasing   Corporation  for  Debts  of  Ven- 
dor Company. — A  corporation  in  selling  its  entire  property, 


^  In  Anthony  v.  American  Glucose 
Co.,  146  N.  y.  407  (1895),  (41  N.  P]. 
Kep.  23),  a  new  corporation  having 
been  organized  by  the  transfer  to  it  of 
the  property  of  several  corporations, 
upon  an  agreement  that  payment  for 
the  transfer  should  be  made  by  appor- 
tioning to  the  original  stockholders  the 
whole  of  the  stock  of  the  new  corpora- 
tion not  reserved  for  the  use  of  the 
treasury,  certain  stockholders  in  one  of 
the  original  corporations  brought  an 
action  against  the  new  corporation  for 
a  delivery  of  its  stock  to  them,  and  it 
was  held  that  the  action  was  maintain- 
able against  the  new  corporation,  and 
that  such  stockholders  were  not  to  be 
turned  over  for  relief  to  their  origi- 
nal corporation  after  all  its  functions 
had  ceased,  although  it  might  not  be 
wholly  dead  —  it  appearing  that  the 
new  corporation  owed  a  contract  duty 
directly  to  the  individual  corporators 
and  not  to  their  corporate  entities. 

The  Court  said  (p.  413)  :  "  We 
have,  of  late,  refused  to  be  always  and 
utterly  trammelled  by  the  logic  derived 
from  corporate  existence  where  it  only 
serves  to  distort  or  hide  tlie  truth,  and 
I  think  we  should  not  hesitate  in  this 
case  to  reject  the  purely  technical  de- 
fence attempted.  For  nothing  isplainer 
than  that  the  transfer  of  the  property 
aud  business  of  the  five  original  com- 


panies to  the  new  company  to  be  organ- 
ized was  upon  an  agreement  between 
the  corporators  of  thein  all  that  pay- 
ment for  the  transfer  should  be  made 
by  apportioning  to  the  origiual  stock- 
holders the  whole  of  the  stock  of  the 
uew  company,  not  reserved  for  the  use 
of  the  treasury.  That  agreement  is  not 
denied  by  anybody,  aud  every  word  and 
every  act  of  all  the  companies,  and  of 
each  and  all  of  the  corporators,  have 
proceeded  upon  that  assumption.  The 
companies,  as  corporate  entities,  could 
not,  alone  and  without  the  consent  of 
their  constituent  members,  make  a  trans- 
fer which  was  intended  to  end  their 
whole  practical  business  existence,  and 
it  was  agreed  by  such  companies  when 
they  made  the  written  contract  among 
themselves  that  the  refusal  of  any  one 
corporator,  in  any  one  company  to  give 
his  consent  to  the  transfer  should  turn 
the  proposed  sale  into  a  mere  lease. 
The  authority  of  the  corporations  to 
sell  and  make  a  valid  agreement  of  sale 
to  which  the  new  company  could  be- 
come a  party,  was  upon  the  explicit  and 
understood  condition  that  the  new  stock 
should  be  issued  in  exchange  for  the  old 
stock  to  the  several  corporators,  and  the 
necessary  consent  of  the  stockholders 
was  given  upon  that  express  condition." 
See  also  Hatch  v.  American  Union  Tel. 
Co.,  9  Abb.  N.  C.  (N.  Y.)  223  (18S1.) 

191 


§  123  INTERCORPORATE  RELATIONS.        [pART  II. 

with  the  approval  of  all  or  a  majority  of  its  stockholders, —  as 
the  occasion  may  require  —  is  governed  hy  the  same  general 
principles  of  law  applicable  to  natural  persons.  It  cannot 
transfer  its  property  in  fraud  of  its  creditors.  It  may  not  so 
dispose  of  all  its  assets  as  to  leave  notliing  for  its  creditors,  and 
if  it  attempts  such  transfer  the  creditors  may  follow  the 
property.  But  it  may,  in  good  faith,  for  a  valuable  consider- 
ation, sell  its  entire  property  to  another  corporation,  and  the 
purchaser  will  take  the  property  free  from  all  incumbrances, 
except  specific  liens  and  equitable  liens  of  which  it  has  notice, 
and  will  not  be  liable  in  any  way  for  the  debts  of  the  vendor 
company.^  The  purchase  price  takes  the  place  of  the  prop- 
erty sold,  as  respects  creditors,  and  they  have  no  rights  of 
action,  legal  or  equitable,  against  the  purchaser  or  the 
property. 

The  doctrine  that  the  property  of  a  corporation  is  a  trust 
fund  for  the  payment  of  its  debts  does  not  prevent  its  transfer 
in  good  faith  for  a  valuable  consideration.^  As  said  by  Mr. 
Justice  Field  in  Fogg  v.  Blair -.^  "That  doctrine  only  means 
that  the  property  must  first  be  ajtpropriated  to  the  payment 
of  the  debts  of  the  company  before  any  portion  can  be  dis- 

1  United   States:   Gray  v.  Natioual  K.  Co.,  93  Wis.  344  (1896),  (67  N.  W. 

Steamship  Co.,   115   U.S.   116   (1885),  Kep.  70). 
(5  Sup.  Ct.  Kcj).  1166.)  As  to  equitable  liens  see  Union  Pa- 

.dr^uHsas ;  Sappington  V.  Little  Rock,  cific  11.  Co.  r.  McAlpine,  129  U.  S.  305 

etc.  R.  Co.,  37  Ark.  23  (1881).  (1889),  (9  Sup.  Ct.  Rep.  286). 

Illinois:     Brufett  !-'.  Great  Western  A  corporation  buying  all  the  property 

R.  Co.,  25  III.  353  (1861).  of    anotiier   corporation   and  assuming 

loiL-a :  Warnekl  v.  Marshall,  etc.  Co.,  its  name  is  not  identical  with  it.     Hug- 

72  Iowa,  666  (1887),  (34  N.  W.  Rep.  467,  gins    v.    Milwaukee  Brewing    Co.,    10 

2  Am.  St.  Rep.  263).  Wash.  579  (1895),  (39  Tac.  Rep.  152). 

Kentucky:    Chesapeake,    etc.  R.  Co.  Co;n;wre,  however,  Island  City  Savings 

I'.  Griest,  85  Ky.  619  (1887),  (4    S.  W.  Bank  v.  Schattchen,  67  Tex.  420(1887), 

Rep.  323,  30  Am.  &  iMig.  R.  Cas.  149).  (3   S.  W.   Rep.  733)  ;  Lehigh  Mining, 

Missouri:   Powell  i'.  North  Missouri  etc.  Co.  v.  Kelly,  64  Fed.  401,  (1894). 
R.  Co.,  42  Mo.  63  (1867).  ^  Chattanooga,  etc.  R.  Co.  v.  Evans, 

Nebraska  :  Campbell  v.  Farmers,  etc.  66  Fed.  809,  (1895) ;  Fogg  v.  Blair,  133 

Bank,  49  Neb.  143    (1896),  (68  N.  W.  U.  S.  534   (1890),    (10  Sup.    Ct.  Rep. 

Rep.  344).  338)  ;  Hollins  v.  Iron  Co.,  150  U.  S.371 

Tennessee:  First  National  Bank  v.  (1893),  (14  Sup.  Ct.  Rep.  127).  Corn- 
North  Alabama,  etc.  Co.,  91  Tenn.  12  ;)are  Montgomery,  etc.  R.  Co.  u.  Branch, 
(1891 ),  (18  S.  W.  Rep.  400).  59  Ala.  139  (1877). 

Wisconsin :  Pennison  v.  Chicago,  etc.  ^  Fogg  r.  Blair,  133  U.  S.  541  (1890), 


192 


(10  Sup.  Ct.  Rep.  338). 


CHAP.  XI.]     SALES  OP  CORPORATE  PROPERTY,  §  124 

tributed  to  the  stockliolders  ;  it  does  not  mean  that  the  prop- 
erty is  SO  affected  by  the  indebtedness  of  the  company  that  it 
cannot  be  sold,  transferred,  or  mortgaged  to  bona  fide  pur- 
chasers for  a  valuable  consideration,  except  subject  to  the 
liability  of  being  appropriated  to  pay  that  indebtedness.  Such 
a  doctrine  has  no  existence." 

The  principle  that  a  purchasing  corporation  is  not  respon- 
sible for  the  debts  of  its  vendor  does  not,  in  any  way,  interfere 
with  its  right  to  make  such  contracts  as  it  may  deem  expe- 
dient. It  may, as  a  part  of  tlie  consideration,  assume  and  agree 
to  pay  the  debts  of  the  vendor  company ,i  or,  what  is  equiva- 
lent, may  purchase  the  property  subject  to  the  payment  of  all 
the  indebtedness  of  the  vendor.^  In  either  case  the  creditors 
may  bring  suit  directly  against  the  purchaser.  The  right  of 
action  of  any  creditor  is,  however,  based  entirely  upon  the 
assumption  clause  of  the  contract,  and  the  fact  that  the  pur- 
chaser has  agreed  to  pay  certain  debts  does  not  make  it  liable 
for  others.^ 

§  124.  Fraudulent  Sales.  —  The  general  rules  of  law  relat- 
ing to  fraudulent  conveyances  are  equally  applicable  to  corpo- 
rations and  individuals.  Conveyances  in  which  actual  fraud 
appears  are,  manifestly,  void.  Transfers,  constructively 
fraudulent  when  made  by  individuals,  are  of  the  same  charac- 
ter when  made  by  corporations.  From  the  nature  of  corpora- 
tions, however,  intercorporate  sales  sometimes  present  cases 
of  constructive  fraud  of  their  own  kind. 

1  loiua :     Benesh    v.     Mill    Owners  '^  In  Chicago,  etc.  R.  Co.  v.  Lund- 

Mut.,etc.Ius.  Co.,  103  Iowa,  465  (1897),  strom,   16  Neb.   254  (1884),  (20  N.  W. 

(72  N.  W.  Rep.  674).  Rep.   198),  tlie    property   was  bought, 

Kansas :     Baker    v.     Harpster,    42  under  the  Nebraska  statute,  subject  to 

Kan.  511  (1889),  (22  Pac  Rep.  415).  "all   liens,  incumbrances    or  indebted- 

Nebraska:  Tecuinseh  National  Bank  ness"  existing  against  the  vendor  cor- 

V.  Best,  50  Neb.  518  (1897),  (70  N.  W.  poration,  and  in  Plaiuview  v.  Winona, 

Rep.  41) ;  Austin  v.  Tecumseh  National  etc.  R.  Co.,  36  Minn.  505  (1887),  (32  N. 

Bank,  49   Neb.  412    (1896),  (68  N.  \V.  W.  Rep.   749),  the  purchase  was  made 

Rep.  628).  "subject   to  all  demands,    claims   and 

New  York :  Fernschild  v.  Yuengling  rights   of  action."     In  both  cases   the 

Brewing  Co.,  154  N.  Y.  667  (1898),  (49  purchasing  company  was  held  liable. 
N.  E.  Rep.  151.)  3  Fernschild  v.  Yuengling  Brewing 

Tennessee:     Wall   v.     Chattanooga  Co.,  154  N.  Y.   667   (1898),    (49  N.  E. 

Co.,  38  S.  W.  Rep.  278  (1896) ;  Planters  Rep.  151).     See  also  Hall  v.  Herter,  83 

Ins.  Co.  V.   Wickes,  4  S.  W.   Rep.  172  Hun  (N.  Y.),  19  (1894),  (31  N.  Y.  Supp. 

(1887).  692). 

13  193 


§124 


INTERCORPORATE   RELATIONS. 


[part  II. 


Where  the  assets  of  a  corporation  are  transferred  for  stock 
in  anotlier  company,  if  the  stock  received  has  a  market  vahie 
and  may  fairly  be  considered  an  equivalent  for  money,  and  the 
transfer  is  made,  in  all  respects,  in  good  faith,  it  cannot  be  set 
aside  by  creditors.  The  shares  of  stock  take  the  place  of  the 
property  sold  and  are  liable  for  the  debts  of  the  corporation. 
Creditors  have  no  ground  of  complaint.  The  fund  for  their 
benefit  is  merely  changed  in  form.  But,  as  a  general  rule, 
the  transfer  of  corporate  assets  for  stock,  whether  to  a  stran- 
ger corporation  or  to  a  new  corporation  formed  by  the  stock- 
holders of  the  old,  will  be  treated  as  invalid  as  to  creditors, 
and  may  be  set  aside  as  in  fraud  of  tiicir  rights.^  A  corpora- 
tion which  pays  only  with  its  own  stock  does  not  take  as  a 
purchaser  for  value,  without  notice,  but  is  put  upon  inquiry  as 
to  the  debts  of  the  corporation  making  the  transfer.^ 

A  corporation  cannot,  directly  or  indirectly,  turn  over  its 
property  to  its  stockholders  at  the  expense  of  its  creditors. 

R. 


1  United  States:  In  Ilibernia  Ins. 
Co.  V.  St.  Louis,  etc.  Transp.  Co.,  13 
Fed.  518  (1882),  Judge  McCnxry  said: 
"  A  corporation,  unlike  a  natural  per- 
son, by  disposing  of  all  its  property, 
may  not  only  deprive  itself  of  the 
means  of  paying  its  debts,  but  may 
deprive  itself  of  corporate  existence  and 
place  itself  beyond  the  reacli  of  process 
of  law.  At  all  events,  equity  will  not 
permit  the  owners  of  one  corporation  to 
organize  another,  and  transfer  from  the 
former  to  the  latter  all  the  corporate 
property,  without  paying  all  the  corpo- 
rate debts."  In  his  concurring  opinion 
in  this  case.  Judge  Treat  said  (p.  .521) : 
"  If  the  new  company  has  paid  the  full 
value  of  the  property  acquired,  then  it 
may  possibly  not  be  answerable  ;  but  if 
it  merely  issued  to  the  old  its  stock 
tlierefor,  why  should  it  not,  at  least  to 
the  e.xtent  of  that  stock,  which  repre- 
sents value  for  property  acquired,  meet 
rtie  obligations  to  which  such  stock 
should  fairly  be  held  subject  ?  " 

Also  Chattanooga,  etc.  R.  Co.  v. 
Evans,  66  Fed.  810  (1895);  Blair  ». 
St.  Louis,  etc.  R.  Co.,  22  Fed.  36 
(188-4). 

194 


California  :    San    Francisco,   etc. 
Co.  u.  Bel],48Cal.  398  (1874). 

New  Jersey  :  Couse  v.  Columbia 
Powder  Mfg.  Co.,  33  Atl.  Kep.  297 
(1895). 

Tennessee :  Where  a  new  corporation 
is  organized,  through  the  efforts  of  the 
officers  of  another  corporation,  for  the 
purpose  of  .acquiring  its  property,  and 
the  transfer  is  made  upon  the  agreement 
of  the  new  company  to  issue  to  the  old 
a  part  of  its  stock,  the  transaction  is 
void  as  against  the  creditors  of  the  old 
corporation.  Vance  v.  McNabb  Coal, 
etc.  Co.,  92  Tenn.  47  (1892),  (20  S. 
W.  Rep.  424). 

-  A  corporation  which  purchases  all 
the  property  of  another  company,  know- 
ing that  such  company  is  insolvent, 
under  an  arrangement  by  which  a  large 
part  of  the  purchase  price  will  be  placed 
beyond  the  reach  of  the  creditors,  if 
there  are  any,  is  under  a  duty  to  inquire 
as  to  the  existence  of  unsecured  credit- 
ors, and  is  chargeable  with  all  knowl- 
edge which  such  an  inquiry  would 
disclose.  Chattanooga,  etc.  R.  Co.  v. 
Evans,  66  Fed.  810  (1895). 


CHAP.    XI.]  SALES   OF   CORPORATE   PROPERTY, 


Upon  this  principle  a  conveyance  of  the  entire  property  of  an 
insolvent  corporation,  under  an  arrangement  whereby  the  pur- 
chase price  —  in  money,  bonds  or  stock — is  to  be  distributed 
directly  to  the  stockholders  of  the  vendor  corporation,  is 
fraudulent  and  void  as  to  creditors.^ 

Where  directors  of  an  insolvent  corporation  are  also  in  the 
directory  of  another  company,  a  conveyance  of  all  the  assets 
of  the  one  corporation  to  the  other  —  these  directors  partici- 
pating in  the  transaction  —  is  prima  facie  fraudulent.^  But 
the  fact  that  both  corporations  have  the  same  officers  and 
stockholders  does  not  necessarily  render  a  conveyance  fraudu- 
lent as  to  creditors.^ 


1  Where  the  stockliolders  of  an 
insolvent  corporation  convey  all  its 
projjerty  to  another  corporation  in  con- 
sideration of  mortgage  bonds  issued  by 
the  purchaser  on  the  property,  and,  with- 
out providing  for  the  debts,  divide  the 
bonds,  pro  rata,  among  themselves,  such 
transfer  is  a  fraud  on  creditors.  Fort 
Payne  Bank  v.  Alabama  Sanitarium, 
103  Ala.  358  (1894),  (15  So.  Rep.  618). 

A  provision,  in  the  transfer  of  the 
assets  of  one  corporation  to  another, 
that  stock  in  tlie  purchasing  corporation 
shall  be  issued  to  the  stockholders  of 
the  vendor  corporation  renders  the 
transfer  fraudulent  and  void  as  to  cred- 
itors, being,  in  effect,  a  transfer  of  prop- 
erty by  a  debtor  with  a  reservation  of 
an  interest  therein  to  itself.  Mont- 
gomery Web  Co.  V.  Dienelt,  133  Pa. 
St.  58.5  (1890),  (19  Atl.  Rep.  428). 

A  transfer  by  a  corporation  of  all  its 
property  to  another  corporation,  in  con- 
sideration of  the  assumption  of  debts 
and  tlie  issuance  of  stock,  which  is  car- 
ried out  by  the  delivery  of  such  stock  to 
individual  stockholders  of  the  grantor, 
is  prima  facie  fraudulent  as  to  creditors. 
Couse  V.  Columbia  Powder  Mfg.  Co. 
(N.  J.  1895),  33  Atl.  Rep.   297. 

See  also  Grenell  v.  Detroit  Gas  Co., 
112  Mich.,  73  (1897),  (70  N.  W.  Rep. 
413) ;  Jones  v.  Arkansas  Mechanical  and 
Agricultural  Co.,  38  Ark.  17  (1881); 
Chattanooga,  etc.  R.  Co.  v.  Evans,  66 
Fed.  810  (1895). 


2  Where  tlie  directors  of  an  insolvent 
corporation  ordered  the  conveyance  of 
all  its  property  to  secure  a  debt  due 
from  it  to  another  corporation,  at  a 
meeting  in  which  several  directors  who 
voted  for  the  resolution  authorizing  the 
conveyance  were  also  directors  of  the 
corporation  for  whose  benefit  the  con- 
veyance was  made,  it  was  held  that  the 
conveyance   so    authorized   was  prima 

facie  fraudulent  as  to  creditors,  and 
would  be  declared  void,  unless  it  was 
clearly  shown  that  it  was  fair  and  rea- 
sonable, and  absolutely  free  from  fraud. 
Sweeny  v.  Grape  Sugar  Refining  Co., 
30  W."  Va.  443  (1887),  (4  S.  E.  Rep. 
431). 

See  also  Banks  v.  Judah,  8  Conn. 
145  (1830)  ;  Levins  c.  Peoples  Grocery 
Co.  (Tena.  1896),  38  S.  W.  Rep. 
733. 

3  Cole  V.  Millerton  Iron  Co.,  133 
N.  Y.  164  (1892),  (30  N.  E.  Rep.  847), 
affirming  59  Hun,  217  (1891),  (13  N.  Y. 
Supp.  851). 

In  Warfield  v.  Marshall  County  Can- 
ning Co.,  72  Iowa,  666(1887),  (34  N.  W. 
Rep.  467),  it  was  held  that  a  sale  by  a 
failing  corporation  of  all  its  property 
to  another  corporation,  which  agreed  to 
pay  its  obligations  to  the  full  value  of 
the  property  sold,  would  not  be  set 
aside  as  fraudulent,  because  the  stock- 
holders of  the  first  formed  a  part  of 
stockholders  of  the  second  corporation, 

195   . 


§125 


INTERCORPORATE   RELATIONS. 


[part  II. 


§  125.  Remedies  of  Creditors.  —  There  are  several  remedies 
open  to  creditors  in  the  case  of  fraudulent  conveyances  by 
debtor  corporations. 

1.  A  creditor  may  subject  the  consideration  for  the  sale, 
money,  stocks,  bonds  or  other  j)roperty,  when  received  by 
the  vendor  corporation — his  debtor  —  to  the  payment  of  his 
debt  in  such  manner,  by  execution  sale  or  otherwise,  as  the 
statutes  may  permit.^  This  course  may  be  taken  in  every 
case,  without  regard  to  the  fraudulent  character  of  the  trans- 
action, for  corporate  property  is  always  liable  to  be  taken  for 
corporate  debts. 

2.  A  creditor,  having  established  the  validity  of  his  claim  at 
law,2  may  seek  the  aid  of  a  court  of  equity  to  follow  the  cor- 
porate property  into  the  hands  of  the  purchaser  and  apply  it, 
or  its  avails,  in  ])ayment  of  his  judgment  dcbt.^  A  court  of 
equity  may  grant  this  relief,  or  may  charge  the  purchaser  with 


tliere    beinj;    no     frauduleut     purpose 
shown. 

See  tilso  Barr  v.  Bartram,  etc.  Mfg. 
Co.,  41  Conn.  506  (1874). 

1  Where  the  assets  of  a  corporation 
were  transferred  to  a  new  company, 
formed  for  the  purpose  of  ac(|uinng 
them,  the  consideration  of  the  transfer 
being  the  issue  of  stock,  tiie  stock  so 
issued  to  the  old  corporation  cannot  be 
appropriated  by  siiarcholders  to  the 
detriment  of  creditors,  but  it  is  liable 
for  the  corporate  debts.  Vance  v. 
McNabb  Coal,  etc.  Co.,  92  Teun.  47 
(1892),  (20  S.  W.  Rep.  424). 

2  Swan  Land,  etc.  v.  Frank,  148 
U.  S.  603  (189.3),  (13  Sup.  Ct.  Rep. 
691),  citing  Nat.  Tube  Works  v.  Ballon, 
146  U.  S.  517  (1892),  (13  Sup.  Ct. 
Rep.  165);  Scott  ».  Neely,  140  U.S. 
106  (1891),  (11  Sup.  Ct.'  Rep.  712); 
Taylor  r.  Bowker,  1 1 1  U.  S.  110  (1884), 
(4  Sup.  Ct.  Rep.  397).  But  see  Blanc 
V.  Paymaster  Min.  Co.,  95  Cal.  524 
(1892),  (30  Pac.  Rep.  765). 

3  In  Ewing  v.  Composite  Brake  Shoe 
Co.,  169  Mass.  73  (1897),  (47  N.  E.  Rep. 
241),  Judge  Lathrop  siiid :  "It  is  obvi- 
ous, however,  that  wliere  a  new  corpo- 
ration is  formed,  tlie  creditors  of  the  old 

196 


corporation  do  not,  without  something 
furtiiep  being  done,  become  creditors 
of  tlie  new  corporation.  They  have 
an  e(|uitable  right  to  follow  tlie  assets 
of  tiie  ohl  corporation  ;  but  tiiey  cannot 
maintain  an  action  at  law  against  the 
new  corj)oratioii,  for  there  is  no  privity 
of  contract.  To  render  tiie  new  corpo- 
ration liable  tliere  must  be  a  new  con- 
tract made,  sndi  as  will  amount  to  a 
novation." 

Wiiiie  a  reorganized  corporation  may 
not  be  liable  for  the  debts  of  the  origi- 
nal corjjoration,  tiie  property  ac(|uired 
from  it  may  be  readied  by  its  creditors 
in  tlie  hands  of  a  reorganized  corpora- 
tion. Marshall  v.  Western  North  Caro- 
lina R.  Co^92N.  C.  322  (1885). 

See  also  Sehleider  v.  Dielman,  44  La. 
Ann.  63  (1892),  (10  So.  Rep.  934); 
Brum  V.  Merchants  Ins.  Co.,  16  Fed. 
140  (1883);  Hiberiiia  Ins.  Co.  v.  St. 
Louis,  etc.  Transp.  Co.,  10  Fed.  596 
(1882),  s.  c.  13  Fed.  516  (1882);  First 
Nat.  Bank  v.  Chattanooga,  etc.  Co., 
97  Tenn.  .308  (1896),  (37  S.  W.  Rep.  8). 
Also  Montgomery,  etc.  R.  Co.  v.  Branch, 
59  Ala.  139  (1877),  considered  in  Central 
R.,  etc.  Co.  V.  Pettus,  113  U.  S.  116 
(1885),  (5  Sup.  Ct.  Rep.  387). 


CHAP.  XI.]     SALES  OF  CORPORATE  PROPERTY. 


§125 


the  value  of  the  property,  upon  the  ground,  already  noticed, 
that  the  assets  of  a  corporation  constitute,  in  equity,  a  fund 
for  the  payment  of  its  debts,  and  cannot  be  diverted  therefrom 
and  nothing  left.^  Judgment  creditors  may  also  be  entitled 
to  the  aid  of  a  receiver  in  following  corporate  assets.^ 

3.  Upon  the  same  principle,  a  creditor  may  charge  stock- 
holders who  have  received  shares  of  stock  or  other  property 
forming  the  consideration  for  a  sale  of  corporate  assets,  as 
trustees  for  his  benefit.^  The  property  belongs,  in  equity,  to 
the  corporation  to  be  held  for  the  benefit  of  its  creditors.  It 
constitutes  the  purchase  price  for  the  sale  of  the  property,  and 
when  stockholders  divert  it  to  themselves,  they  appropriate 
trust  funds  and  are  chargeable  therefor. 

4.  A  creditor  may  institute  an  action  at  law  against  his 
debtor  —  the  vendor  corporation  —  and,  where  attachments 
are  permitted,  may  attach  the  corporate  property  so  trans- 
ferred as  being  still  the  property  of  his  debtor,  or  may  levy 
execution  thereon  after  judgment.*     This  action  is  predicated 


1  Grenell  v.  Detroit  Gas  Co.,  112 
Mich.  73  (1897),  (70  N.  W.  Rep.  413): 
"  A  corporation  cannot  sell  all  its  prop- 
erty and  take  in  payment  stock  in  a 
new  corporation  under  an  arrangement 
that  lias  the  effect  of  distributing  the 
assets  of  the  vendor  among  its  stock- 
holders to  the  exclusion  and  prejudice 
of  its  creditors ;  and  a  company  making 
Buch  a  purchase,  in  consideration  of  the 
issue  of  its  own  stock  to  such  stock- 
holders, takes  the  property  subject  to 
tlie  rights  of  creditors.  Such  an  ar- 
rangement is  a  diversion  of  the  trust 
fund." 

2  Barclay  v.  Quicksilver  Min.  Co., 
6  Lans.  (N.  Y.)  25  (1872),  (9  Abb.  Pr. 
N.  s.  283).  See  also  Alexander  v. 
Relfe,  74  Mo.  495  (1881);  Couse  v. 
Columbia  Powder  Mfg.  Co.  (N.  J.  1895), 
33  Atl.  Rep.  297. 

^  Where  the  assets  of  a  corporation 
are  transferred  to  another  company  and 
the  proceeds  are  divided  among  its 
stockholders,  in  proportion  to  the 
amount  of  their  stock,  they  are  trustees 
for  creditors  as  to  the  amount  received, 


the  transaction  being,  in  effect,  a  distri- 
bution of  such  assets  by  the  company  to 
its  own  stockholders. 

Hill  i>.  Gruell,  42  111.  App.  411  (1891). 
See  also  Panhandle  Nat.  Bank  v. 
Emery,  78  Tex.  498  (1890),  (15  S.  W. 
Rep.  23)  ;  McKusick  v.  Seymour,  Saben 
&  Co.,  48  Minn.  172  (1892),  (50  N.  W. 
Rep.  1116). 

Where,  upon  a  sale  of  the  entire 
property  of  a  corporation  to  another 
company  for  its  bonds,  an  arrangement 
is  made  whereby  the  bonds  are  divided 
directly  among  its  stockholders,  such 
an  arrangement  is  void  as  to  the  credit- 
ors, and  the  bonds  belong  to  them.  Fort 
Payne  Bank  v.  Alabama  Sanitarium, 
10.3  Ala.  358  (1893),  (15  So.  Rep.  618) ; 
Chattanooga,  etc.  R.  Co.  v.  Evans,  66 
Fed.  809  (1895). 

*  The  property  of  a  corporation, 
transferred  to  a  new  corporation  for  its 
stock,  may  still  be  attached  by  the  credit- 
ors of  the  old  company.  McVicker  v. 
American  Opera  Co.,  40  Fed.  861 
(1889). 

A  judgment  creditor  may  levy  upon 

197 


§  126  INTERCORPORATE   RELATIONS.  [PART    II. 

Upon  the  principle  that  a  transfer  in  fraud  of  creditors  is  void 
as  to  them. 

6.  A  creditor  may  hold  the  purchasing  corporation  directly 
responsible  when,  in  taking  over  the  property,  it  assumes  the 
debts  of  the  vendor.^ 

Laches  may  bar  a  creditor  from  seeking  relief  in  equity.* 

§  120.  Priority  of  Purchaser's  Mortgage  over  Claims  of  Ven- 
dor's Creditors.  —  Upon  the  priiici{)le  that  the  assets  of  a 
corporation  are  a  trust  fund  for  the  payment  of  its  debts,  it  is 
sometimes  said  that  creditors  have  an  equitable  lien  thereon 
which  they  may  enforce  against  transferees.  The  expression 
can  be  so  used  only  in  a  figurative  sense.  Creditors  have  no 
lien  before  judgment,  and  after  judgment  only  when  given  by 
statute.  They  may  follow  pro[)crty  into  the  hands  of  -a  pur- 
chaser when  transferred,  actually  or  constructively,  in  fraud  of 
their  rights,  because,  in  such  a  case,  equity  will  disregard  forms 
and  treat  the  property  as  being  held  by  the  purchasing  com- 
pany for  their  benefit.  So  equity  will  disregard  or  set  aside  a 
mortgage  made  by  the  purchaser  of  the  property  so  acquired 
when  the  mortgagee  takes  with  knowledge  of  the  whole 
transaction.^ 

When,  however,  the  purchaser  mortgages  the  property  for 
a  present  consideration  and  the  mortgagee  acts  in  good  faith, 
the  mortgage  takes  precedence  of  claims  of  creditors  who  have 

and   sell   upon   execution   property  so  Rep.  997) ;  Vanghn  v.  Comet,  etc.  Co., 

transferred.  21   Colo.  54  (1893),  (39  Tac.  Uep.  422). 
Montgomery   Web   Co.    v.   Dienelt,         ^  Wliere  a  transfer  by  a  corporation 

133   Pa.  St.  585  (1890),  (19  Atl.  Rep.  to  another  company,  with  the  same  stock- 

428).       See    also    Prentice    i'.    United  holders,  of  all  its  property  was  without 

States,  etc.  Steamship  Co.,  78  Fed.  106  consideration,  except  the  assumption  of 

(1897).  debts,  and  the   transferee  immediately 

1  Where  a  corporation  sells  its  prop-  executed  a  mortgage  to  secure  an  issue 
erty  to  another  corporation  in  payment  of  bonds,  covering  its  own  property  and 
for  stock  of  the  latter,  and  the  new  cor-  that  thus  acquired,  it  was  held  that 
poration  assumes  all  the  liabilities  of  the  mortgage  should  be  set  aside,  at 
the  old  corporation,  a  creditor  of  the  least  as  to  bondholders  who  did  not 
old  corporation  may  sue  the  new  cor-  stand  as  bona  fide  purchasers.  Cole  v. 
poration  on  his  claim.  Friedenwald  Millerton  Iron  Co.,  133  N.  Y.  164 
Co.  V.  Asheville  Tobacco   Works,   117  (1892).  (30  N.  E.  Rep.  847). 

N.    C.    544    (1895),    (23    S.   E.    Rep.  Where  a  sale  is  set  aside  as  u/<ra  ciVes 

490).  a   mortgage    by   the   vendee    is   void. 

2  Townsend  v.  St.  Louis,  etc.  Mining  Knoxville  v.  Knoxville,  etc.  R.  Co.,  22 
Co.,  159  U.  S.  21  (1894),  (15  Sup.  Ct.  Fed.  758  (1684). 

198 


CHAP,  XI.]      SALES  OP  CORPORATE  PROPERTY. 


§127 


not  acquired  a  statutory  lien,  by  judgment  or  attachment,  prior 
to  its  execution.!  This  conclusion  is  not  inequitable.  It 
merely  gives  the  same  priority  to  a  bona  fide  mortgage  made 
by  a  purchaser  that  such  a  mortgage  would  have  had  if  made 
by  the  debtor,  the  selling  corporation.  Questions  as  to  follow- 
ing the  avails  of  a  mortgage  do  not  affect  its  validity. 

Notice  of  the  existence  of  a  creditor's  claim  does  not, 
standing  alone,  alter  the  position  of  a  mortgagee.^  Knowl- 
edge of  the  fraudulent  character  of  the  transfer,  as  well  as  of 
the  claim,  must  be  shown. 


lY.    Sales  of  Property  of  Quasi-public  Corporations. 

§  127.  Indispensable  Property  cannot  be  alienated  or  taken  on 
Execution  without  Statutory  Authority.  —  Private  corporations, 
owing  no  public  duties,  have  power,  as  already  shown,  to  sell 
all  their  property .^     Limitations,  for  the  protection  of  creditors 


i  In  Fogg  V.  Blair,  133  U.  S.  538 
(1890),  (10  Sup.  Ct.  Rep.  338),  Justice 
Field  said  :  "  The  property  of  a  railroad 
company  is  not  held  under  any  such 
trust  to  apply  it  to  the  payment  of  its 
debts  as  to  restrict  its  use  for  any  other 
lawful  purpose,  it  matters  not  how  meri- 
torious the  demand  of  the  creditor  may 
be.  He  must  obtain  a  lien  upon  the 
property  of  the  company,  or  security  in 
some  other  form,  or  he  will  have  to  take 
his  chances  with  all  other  creditors  to 
obtain  payment  in  the  ordinary  course 
of  legal  proceedings  for  the  collection 
of  debts." 

See  also  Lebeck  v.  Fort  Payne  Bank, 
115  Ala.  447  (1897),  (22  So.  Rep.  75). 

2  In  Fogg  V.  Blair,  supra,  Justice 
Field  also  said  (p.  540)  :  "There  is  no 
eridence  in  the  record  before  us  that  the 
parties  who  took  the  bonds  issued  by 
the  St.  Louis,  Hannibal  and  Keokuk 
Railroad  Co.  had  any  notice,  actual  or 
constructive,  of  the  demand  of  the  com- 
plainant. But  if  they  had,  it  would  not 
have  affected  their  rights.  That  de- 
mand was  not  then  reduced  to  judgment 
and  created  no  lien  upon  the  property 
of  the  company,  nor  any  restriction  upon 


the  companies'  right  to  use  it  for  any 
lawful  purpose.  The  bonds  were  given 
to  raise  the  necessary  funds  to  com- 
plete the  road  of  the  company  and  the 
mortgage  was  executed  to  secure  their 
payment.  They  were  negotiable  in- 
struments, and,  in  the  hands  of  the  pur- 
chasers, cannot  be  impeached  for  any 
neglect  of  the  company  issuing  them  to 
pay  the  demands  of  other  creditors. 
We  are  unable  to  perceive  any  ground 
upon  which  their  priority  over  the 
claim  of  the  appellant  can  be,  in  any 
way,  impaired.  We  do  not  question  the 
general  doctrine,  invoked  by  the  appel- 
lant, that  the  property  of  a  railroad 
company  is  a  trust  fund  for  the  pay- 
ment of  its  debts,  but  do  not  perceive 
any  place  for  its  application  here." 

Compare  this  opinion  with  those  of 
the  circuit  judges  in  same  case  su6  nom. 
Blair  v.  St.  Louis,  etc.  R.  Co.,  27  Fed. 
176  (1886)  (Brewer,  J.),  25  Fed.  684 
(1885)  (Brewer,  J.),  24  Fed.  148  (1885) 
(Treat,  J.),  and  22  Fed.  36  (1884) 
(Treat,  J.). 

8  Ante,  §  108:  "Power  to  purchase 
and  sell  generally." 

199 


§127 


INTERCORPORATE   RELATIONS. 


[part  II. 


and  minority  stockholders,  may  be  placed  upon  the  exercise 
of  the  power,  but  its  existence,  as  between  the  corporation  and 
the  State,  is  unquestionable. 

Qxasi-puhWc  corporations  —  railroad,  canal,  telegraph,  gas 
and  other  public  utility  companies  —  stand  in  an  essentially 
different  position.  These  companies  enjoy  franchises  granted 
by  the  State,  in  consideration  of  the  assumption  of  obligations 
to  the  public.  As  a  corollary  to  the  conclusion,  elsewhere 
shown  to  be  established,  that  corporate  franchises  cannot  be 
transferred  without  authority  from  the  State,  it  follows  that 
corporate  property,  necessary  for  the  performance  of  public 
duties,  or,  as  sometimes  stated,  essential  to  the  exercise  of 
corporate  franchises,  cannot  be  sold  or  disposed  of  without 
such  authority.^  Upon  the  same  principle,  it  also  follows  that 
such  essential  property  is  not  subject  to  sale  on  execution, 
unless  the  levy  is  authorized  by  statute.^  The  underlying 
principle  is  that  property,  necessary  to  enable  a  corporation  to 
fulfil  its  obligations  to  the  State,  is  impressed  with  a  trust  in 
favor  of  the  public.^ 


1  United  States:  Central  Transp. 
Co.  V.  Pullman  Car  Co.,  139  U.  S.  2-4 
(1891),  (11  Sup.  Ct.  Kep.  478)  ;  York, 
etc.  R.  Co.  V.  Wirians,  17  How.  (U.  S.) 
30  (1854).  See  also  Briscoe  i'.  South- 
ern, etc.  R.  Co.,  40  Fed.  280  (1889). 

Georgia  :  Singleton  v.  Southwestern 
R.  Co.,  70  Ga.  464  (1883),  (48  Am.  Dec. 
574). 

New  Hampshire :  Richards  v.  Merri- 
mack, etc.  R.  Co.,  44  N.  H.  127  (1862). 

New  Jersey :  Black  v.  Delaware,  etc. 
Canal  Co.,  22  N.  J.  Eq.  399  (1871). 

Pennsylvania :  Foster  v.  Fowler,  60 
Pa.  St.  27  (1868). 

Texas :  Missouri  Pac.  R.  Co.  v. 
Owens,  1  Tex.  Civ.  Cas.  App.  §  385 
(1883);  Gulf,  etc.  R.  Co.  i-.  Morris,  67 
Tex.  692  (1887),  (4  S.  TV.  Rep.  156). 
See  also  cases  cited  in  the  following 
note  which  illustrate  the  same  principle. 

2  United  States:  East  Alabama  R. 
Co.i;.  Doe,  114  U.S.  340  (1885),  (5  Sup. 
Ct.  Rep.  869)  ;  Gue  v.  Tide  Water 
Canal  Co.,  24  How.  257  (I860). 

200 


Indiana  :  Loui.sville,  etc.  R.  Co.  r. 
Boney,  117  Ind.  501  (1888),  (20  N.  E. 
Rep.  432) ;  Indianapolis  R.  Co.  i-.  State, 
105  Ind.  37  (1885),  (4   N.  E.  Rep.  316). 

Kentucky:  Louisville  Water  Co.  v. 
Hamilton,  81  Ky.  517  (1883). 

North  Carolina :  State  v.  Rives,  5  Ired. 
297  (1844). 

Ohio :  Coe  v.  Columbus,  etc.  R.  Co., 
10  Ohio  St.  372  (1859),  (75  Am. 
Dec.  518). 

Pennsylvania :  Youngman  v.  Elmira, 
etc.  R.  Co.,  65  Pa.  St.  278,  286  (1870)  ; 
Western  Penn.sylvania  R.  Co.  v.  John- 
ston, 59  Pa.  St.  290  (1869);  Plymouth 
R.  Co.  V.  Colwell,  39  Pa.  St.  337  ( 1 861 ) ; 
Ammant  v.  New  Alexandria  Turnpike 
Co.,  13  Serg.  &  R.  210  (1825),  (15  Am. 
Dec.  593) ;  Leedam  v.  Plymouth  R.  Co., 
5  W.  &  S.  265  (1843). 

Tennessee :  Baxter  v.  Nashville,  etc. 
Turnpike  Co.,  10  Lea,  488  (1882). 

Texas :  City  of  Palestine  v.  Barnes, 
50  Tex.  538  (1878). 

8  2  Morawetz  Priv.  Corp.  §  1125. 


CHAP.   XI.]  SALES   OP   CORPORATE   PROPERTY.  §  128 

§  128.  Test  of  indispensabiiity.  —  In  applying  the  rule  that 
the  property  of  a  quasi-imhVic  corporation,  necessary  for  the 
performance  of  its  public  duties,  cannot,  in  the  absence  of  stat- 
utory authority,  be  alienated  or  taken  on  execution,  the  courts 
have  sometimes  drawn  the  line  of  indispensabiiity  between 
the  real  and  the  personal  property  of  the  corporation  — holding 
that  the  latter  can,  and  that  the  former  cannot,  be  sold  or  taken. 
Thus,  in  Coe  v.  Columbus,  etc.  R.  Co}  the  Supreme  Court  of 
Ohio  said :  "  The  line  can  be  clearly  drawn  between  the  inter- 
est in  real  estate  and  the  franchise  connected  therewith,  and 
the  movable  things  employed  in  the  use  of  the  franchise." 
Upon  this  principle,  it  has  been  held  that  the  road-bed  and 
fixtures  of  a  railroad  company,^  the  road  of  a  turnpike  com- 
pany,^ the  canal  and  locks  of  a  canal  company  ^  and  the  plant 
of  a  water  company  ^  cannot  be  seized  upon  execution  ;  while, 
on  the  other  hand,  it  has  been  held  that  the  rolling  stock  of  a 
railroad  ^  and  the  ferry  boat  of  a  ferry  company^  can  be  taken. 

This  test  of  indispensabiiity  is  illogical.  The  rolling  stock 
of  a  railroad  is  as  essential  to  its  use  and  operation  as  the 
road-bed,  and  neither  is  more  necessary  than  the  other.  The 
foundation  of  the  rule  being  the  indispensabiiity  of  the  prop- 
erty, the  assumption  that  real  estate  is  more  necessary  than 
personal  property  begs  the  question.  The  true  test  should  be 
whether   the    property,  real  or   personal,  is   necessary,  in  a 

^  Coe  V.  Columbus,  etc.  R.  Co.,  10  Am.    Dec.   593);  Baxter   v.  Nashville, 

Ohio    St.   379    (1859),    (75    Am.  Dec.  etc.  Turnpike  Co.,  10  Lea  (Tenn.),  488 

518).       Compare,      however,      Central  (1882). 

Transp.    Co.  v.  Pullman  Car  Co.,  139  *  Gue  v.  Tide  Water  Canal  Co.,  24 

U.  S.  24  (1891),  (11  Sup.  Ct.  Rep.  478).  How.    (U.    S.)    257     (1860)  ;     Susque- 

2  Coe  V.  Columbus,  etc.  R.  Co.,  10  hanna  Canal  Co.  v.  Bonham,  9  W.  &  S. 

Ohio  St.  372  (1859),  (75  Am.  Dec.  518)  ;  (Pa.)  27  (1845). 

Youngman  v.  Elmira,  etc.    R.   Co.,  65  ^  Louisville  Water  Co.  v.  Hamilton, 

Pa.  St.  278,  286   (1870) ;  Western,  etc.  81  Ky.  517  (1883). 
R.    Co.  V.  Johnstown,  59   Pa.  St.  290  ^  Louisville,    etc.  R.   Co.  v.  Boney, 

(1869);  Leedam  v.   Plymouth  R.  Co.,  117  Ind.  501  (1888),  (20  N.  E.  Rep.  432)  ; 

5  W.  &  S.  (Pa.)  265  (1843).  Boston, etc.  R.  Co.  v.  Gilmore,  37  N.  H. 

A  portion  of  a  railroad  which  has  410  (1858);  Coe  v.  Columbus,  etc.  R. 

been  abandoned   is  subject  to  levy  of  Co.,  10  Ohio  St.  372  (1859),  (75  Am. 

execution.     Benedict  i;.  Heineberg,  43  Dec.  518). 
Vt.  231  (1870).  -  Lathrop  v.  Middleton,  23  Cal.  257 

^  Ammantu.  New  Alexandria  Turn-  (1863),  (83  Am.  Dec.  112). 
pike  Co.,  13  Serg.  &  R.  210  (1825),  (15 

201 


§  129  INTERCORPORATE   RELATIONS.  [I'AIIT    II. 

reasonable  sense,  for  the  performance  of  the  public  duties  of 
the  corporation.^  This  subject  is,  however,  at  the  present 
time,  a  matter  of  statutory  regulation  in  nearly  all  the  States. 

§  129.  Sales  of  Surplus  Property.  —  Indispensable  |)roperty, 
in  the  absence  of  statutory  authority,  cannot  be  sold.  Con- 
versely, surplus  property  —  property  which  is  not  indispensable 
—  in  the  absence  of  statutory  prohibition,  may  be  sold.  A 
quasi-puhVic  corporation  is  vested  with  full^i^*  disponetidi  oxer 
all  its  property,  real  and  personal,  which  is  not  necessary  to 
enable  it  to  carry  on  the  business  for  which  it  was  chartered 
or  to  fulfil  its  public  obligations.^ 

In  Hcndee  v.  Pinkerton^  Judge  Foster  said  :  "  We  entertain 
no  doubt  that  the  Grand  Junction  Railroad  and  Depot  Com- 
pany could  hfwfully  sell  and  convey  the  lands  embraced  in 
this  bill.  They  were  not  acquired  to  enable  tiie  corj)oration 
to  carry  on  tlie  business  which  it  was  chartered  to  do  for 
the  benefit  of  the  public,  nor  needed  or  used  for  that  pur- 
pose. Their  alienation  in  no  wise  impaired  or  affected  the 
usefulness  of  the  company  as  a  railroad,  or  its  ability  to 
exercise  any  of  its  corporate  franchises.  In  the  absence  of 
any  express  or  implied  legislative  prohibition,  this  corpora- 
tion possessed  all  the  ordinary  rights  of  ownership  over  these 
lands,  and  could  convey  them  away  absolutely  or  mortgage 
them  to  secure  any  valid  indebtedness." 

1  See  an  able  and  comprehensive  note  chises.     Shamokin    Valley    R.   Co.    v. 

to  Brunswick,  etc.  Co.  r.  United  States  Livermore,  47  Pa.  St.  465  (1864).     Com- 

Gas  Co.,  35  Am.  St.  Rep.  390.     Also  pare  I'lntt  i;.  Union  Pacific  11.  Co.,  99 

Short's    Railway  Bonds  &  Mortgages,  U.  S.  48  (1878). 
p.  165.  See  also   Yates  v.  Van  De   Bogert, 

-  Branch    v.   Jesup,   106    U.   S.  468  56  N.  Y.  530  (1874) :"  The  company  ac- 

(1882),  (1  Sup.  Ct.  Rep.  495).  quired    title    in    fee   under   that    deed. 

Town  lots,  held  by  a  railroad  com-  When  the  land  was  no  longer  necessary 

pany,  do  not  pass  by  a  sale  of  a  railroad  for  the  purposes  of  the  corporation  it 

"  with  its  corporate  privileges  and  had  a  right  to  sell  and  convey  the  same." 
appurtenances "  unless  directly  appur-  ^  Hendee    v.    Pinkerton,    14    Allen 

tenant  to  the  railroad  and  indispensably  (Mass.),  386  (1867). 
necessary  to  the  enjoyment  of  its  fran- 


202 


CHAP.   XII.]        SALE3   OP   CORPORATE   FRANCHISES.  §  130 

CHAPTER  XII. 

SALES  OF  CORPORATE  FRANCHISES. 

I.    Transferability  of  Franchises, 

§  130.  Nature  of  a  Franchise. 

§  131.  Franchise  of  Corporate  Existence. 

§  132.  Transferability  of  Franchise  of  Corporate  Existence. 

§  133.  Franchises  of  Corporations. 

§  134.  Transferability  of  Franchises  of  Corporations. 

II.    Legislative  Authority  for  Sale  of  Franchises. 

§  133.  Legislative  Authority  essential  to  Alienation  of  Franchises. 

§  136.  Unauthorized  Sale  of  Franchises —  Ultra  inres. 

§  137.  L'nauthorized  Sale  of  Franchises  —  Against  Public  Policy. 

§  138.  LTnauthorized  Sale  of  Franchises  —  Unlawful  Delegation  of  Powers. 

§  139.  Legislative  Authority  essential  to  Purchase  of  Franchises. 

I.    Transferability  of  Franchises. 

§  130.  Nature  of  a  Franchise.  —  In  Bank  of  Augusta  v. 
Earle  ^  Chief  Justice  Taney  defined  franchises  as  "  special 
privileges  conferred  by  government  upon  individuals  and 
which  do  not  belong  to  citizens  of  the  country  generally,  of 
common  right."  ^  This  definition  is  unexceptionable.  The 
essential  pre-requisites  to  the  existence  of  a  franchise  are, 
therefore : 

^  Bank  of  Augusta  v.  Earle,  13  Pet.  grantee,  as  the  consideration  therefor, 

(U.  S.)  595  (1839).  a  duty  to  the  public  to  see  that  they  are 

2  Fietsam  v.  Hay,  122  111.  294  (1887),  properly  used." 
(13N.E.Rep.  501,3  Am.  St.Rep.493):  Chancellor   Kent  says    that   "  fran- 

"The  word  franchise  is   often  used  in  chises  are  privileges  conferred  by  grants 

the  sense  of  privileges  generally,  but  in  from    the   government   and    vested   in 

its  more   appropriate    and   legal  sense  private   individuals."     3    Kent's   Cora. 

the  term  is  confined  to  such  rights  and  458.      See    also   Bouvier's   Law    Diet, 

privileges   as  are    conferred  upon  cor-  "Franchise."     Chicago,  etc.  R.  Co.  v. 

porate  bodies  by  legislative  grant."  Dunbar,   95  111.  571  (1880),  (1  Am.  & 

St.  Louis,  etc.  R.  Co.  i-.  Balsley,  18  Eng.  R.    Cas.    214).      Franchises    are 

111.  App.  82   (1885):    "Franchises   are  "branches   of  the   king's   prerogative, 

rights  and  privileges  acquii-ed  only  by  subsisting  in  a  subject  by  grant  from 

special  grant  from  the  public  through  the  crown."     3  Cruise  Dig.  278. 
the  legislature,  which  impose  upon  the 

203 


§131 


INTERCORPORATE   RELATIONS. 


[part  II. 


1.  A  grant  from  the  sovereign  authority  :  for  there  can  be 
no  franchise  which  is  not  derived  from  a  law  of  the  State. ^ 

2.  A  special  privilege:  for  that  which  belongs  to  citizens 
generally  can  never  be  a  franchise.^ 

3.  A  right  conferred  upon  private  individuals  (or  corpo- 
rations): for  privileges  granted  to  public  bodies  are  not 
franchises.^ 

Franchises  relating  to  corporations  are  of  two  kinds :  * 

1.  The  franchise  to  be  a  corporation,  conferred  upon  the 
corporators. 

2.  The  franchises  of  the  corporation,  conferred  upon  the 
corporation. 

§  131.  Franchise  of  Corporate  Existence.  —  The  legisla- 
ture, in  granting  a  special  charter  of  incorporation,  confers 
upon  the  persons  named  therein  —  the  corporators  —  the 
privilege  of  forming  and  being  a  corporation.  This  privilege 
may  be  termed  the  franchise  of  corporate  existence.^     It  is 


1  Woods  V.  Lawrence  Countr, 
1  Black  (U.  S),409  (1861):  "A  fran- 
chise is  a  privilege  conferred,  in  the 
United  States,  by  the  immediate  or  an- 
tecedent legislation  of  au  act  of  incor- 
poration, with  conditions  expressed,  or 
necessarily  inferential  from  its  language, 
as  to  the  manner  of  its  existence  and 
for  its  enjoyment." 

Bank  of  Augusta  v.  Earle,  13  Pet. 
U.  S.  595  (1839):  "It  is  essential  to  the 
character  of  a  franchise  that  it  should 
he  a  grant  from  the  sovereign  author- 
ity, and  in  this  country  no  francliise 
can  be  held  which  is  not  derived  from  a 
law  of  the  State."  See  also  Wilming- 
ton Water  Power  Co.  v.  Evans,  166  111. 
556  (1897),  (46   N.   E.  Rep.  108.3). 

2  In  California  r. Central Pac.  R.  Co., 
127  U.  S.  40  (1 888),  (8  Sup.  Ct.  Rep.  1073), 
it  was  said  :  "  Generalized,  and  divested 
of  the  special  form  which  it  assumes 
under  a  monarchical  government  based 
on  feudal  traditions,  a  franchise  is  a 
right,  ]>rivilege,  or  power  of  public  con- 
cern, whicli  ought  not  to  be  exercised 
by  private  individuals  at  their  mere 
will  and  pleasure,   but  should  be   re- 

204 


served  for  public  control  and  admin- 
istration, either  by  the  government 
directly,  or  by  public  agents  acting  un- 
der such  conditions  and  regulations  an 
the  government  may  impose  in  the  pub- 
lic interest  and  for  the  public  security." 

See  also  Abbott  v.  Omaha  Smelting, 
etc.  Co.,  4  Neb.  420  (1876)  ;  Bridgeport 
V.  New  York,  etc.  R.  Co.,  36  Couu.  255 
(1869). 

8  3  Kent's  Com.  458. 

*  In  Fietsam  v.  Hay,  122  111.  293 
(1887),  (13  N.  E.  Rep.  501,  3  Am.  St. 
Rep.  493),  the  word  "  franchise  "  was 
said  to  include  "  the  right  or  privilege 
of  being  a  corporation,  and  of  doing 
such  things,  and  such  things  only,  as 
are  authorized  by  the  corporation's 
charter." 

6  Paul  V.  Virginia,  8  Wall.  (U.  S.) 
168  (1868).  See  also  State  i-.  Western 
Irrigating  Canal  Co.,  40  Kan.  99  (1888), 
(19  Pac.  Rep.  349,  10  Am.  St.  Rep. 
166),  where  the  Supreme  Court  of  Kan- 
sas, following  2  Morawetz  Priv.  Corp. 
§  923,  said:  "The  word  'franchi.se'  is 
generally  used  to  designate  a  right,  or 
privilege,  conferred  by  law.     What  is 


CHAP.    XII.]        SALES   OF    CORPORATE    FRANCHISES. 


§131 


true  that  the  State,  in  enacting  general  incorporation  laws, 
confers  a  similar  privilege  upon  those  who  comply  with  the 
provisions  of  such  laws,  but  this  privilege  can  hardly  be  termed 
a  franchise.     It  is  not  a  special  privilege. 

The  franchise  to  be  a  corporation  belongs  to  the  stock- 
holders and  not  to  the  corporation.  The  grantees  of  the 
charter  are,  primarily,  the  corporators,  and  the  franchise  is 
vested  in  them,  their  associates  and  successors.  The  corpora- 
tion when  formed  may  itself  take,  under  the  charter,  special 
rights  and  privileges  —  also  termed  franchises  —  necessary  to 
carry  into  effect  the  objects  for  which  it  was  formed,  but  the 
franchise  to  be  a  corporation  remains  in  the  stockholders. ^  "  A 
corporation  is  itself  a  franchise  belonging  to  the  members  of  the 
corporation  :  and  a  corporation  being  itself  a  franchise  may 
hold  other  franchises,  as  rights  and  franchises  of  the  corpora- 
tion." 2    Mr.  Justice  Matthews,  in  Memphis^  etc.  R.  Co.  v.  Com- 


called  the  franchise  of  forming  a  cor- 
poration is  really  but  an  exemption 
from  the  general  rule  of  the  common 
law  prohibiting  the  formation  of  cor- 
porations. All  persons  in  this  State 
have  now  the  right  of  forming  corporate 
associations  upon  complying  with  the 
simple  formalities  prescribed  by  the 
statute.  The  riglit  of  forming  a  cor- 
poration and  of  acting  in  a  corporate 
capacity,  under  the  general  incorpora- 
tion laws,  can  be  called  a  franchise  only 
in  the  sense  in  which  the  right  of  form- 
ing a  limited  partnership,  or  of  execut- 
ing a  conveyance  of  land  by  deed,  is  a 
fraucliise.'* 

In  Young  v.  Webster  City,  etc.  R. 
Co.,  75  Iowa,  143  (1888),  (39  N.  W. 
Rep.  234),  it  was  said:  "The  corpora- 
tion itself  is  not  a  franchise  but  it  is 
the  attributes  of  the  corporation  which 
comprise  the  franchises  thereof,  —  its 
special  p<jwers  and  rights."  Compare 
Knoup  V.  ri(iua  Branch  of  State  Bank, 
1  Ohio  St.  614  (1853). 

1  Fietsam  v.  Hay,  122  111.  293  (1887), 
(13  N.  E.  Rep.  .501,  3  Am.  St.  Rep. 
449):  "  A  fraucliise  or  the  right  to  be 
and  act  as  an  artificial  bodv  is  vested  in 


the  individuals  who  compose  the  cor- 
poration and  not  in  the  corporation 
itself." 

In  Central  Trust  Co.  v.  Western 
North  Carolina  K.  Co.,  89  Fed.  24 
(1898),  Judge  Simonton  said:  "This 
new  person,  creature  of  the  law,  and 
existing  through  tlie  grace  of  and  at 
the  will  of  the  sovereign,  was  then 
clothed  with  certain  powers,  and  granted 
certain  privileges.  These  are  its  fran- 
chises. First,  the  franchise  of  existence 
as  a  corporation,  —  its  life  and  its  being. 
This  is  inseparable  from  it.  AVhen  it 
parts  with  this  franchise,  it  parts  with 
its  life.  But,  with  respect  to  the  other 
franchises  with  which  it  has  been 
clothed,  —  the  right  and  privilege  to 
act  as  a  common  carrier,  to  carrv  pas- 
sengers and  goods,  to  charge  tolls,  to 
operate  a  railroad,  —  these  it  enjoys  as 
an  individual  could,  and  they  are  not 
inseparable  from  its  existence.  They 
are  its  property.  A  franchise  to  be  a 
corporation  is  distinct  from  a  franchise, 
as  a  corporation,  to  maintain  and  oper- 
ate a  railroad." 

2  Pierce  v.  Emery,  32  N.  H.  507 
(1856). 

205 


§132 


INTERCORPORVTE  DELATIONS. 


[part  II. 


miiiionert}  pointed  out  the  distinction  between  the  franchise 
to  be  a  corporation  and  the  franchises  of  the  corporation: 
"The  essential  pro[)ertic8  of  cor|K)ratc  existence  are  quite 
distinct  from  the  franchises  of  tlie  corporation.  The  fran- 
chise of  being  a  corporation  belonjrs  to  the  cor|)orator8,  while 
tlie  powers  and  privileges,  vrsted  in  and  to  be  exercise*! 
by  the  corporate  body,  as  such,  are  the  franchises  of  the 
corporation."  ' 

§  132.  Transferability  of  Franchise  of  Corporate  Existence. 
—  As  the  franchise  of  C(»rporato  existence  belonj^s  to  the 
stockholders  of  a  corporation,  they  may,  practically,  trans- 
fer it  by  the  sale  of  their  shares  of  stock  ;  and,  in  a  sense, 
the  sale  of  a  single  share  amounts  pro  tanto  to  a  transfer 
of  an  interest  in  this  primary  franclii.se.  The  purchasers, 
however,  merely  become  stockholders  in  the  same  corporation 
in  place  of  the  vendors  —  the  corporate  identity  remains  un- 
changed. 

The  franchise  to  be  a  corporation,  as  a  franchise,  in  its 
nature   is   incommunicable    by  act  of   the    parties.'     Neither 


'  McmpJii*.  etc.  R.  Co.  r.  Commis- 
sioners, 112  U.  S.  619  (18S4),  (5  Sup. 
Ct.  Hep.  299).  See  al.io  New  Orleans, 
etc.  K.  Ca  v.  Dcbmoro.  114  U.  S.  501 
(1885),  (5  Sap.  Ct.  Kep.  1009). 

'  Wriftlit  r.  Milw.iakee,  etc.  R.  Co., 
2.1  Wi.H  5.3  (18f>0):  "The  di!«tinrtion 
between  the  framlu.^e  of  construitinfj 
ami  o|>er:itiii);  a  railri>a<l,  ami  the  fran- 
chise of  l)einj;  a  iorp<>mtii)n,  ami  of  con- 
tracting, suini;  .ind  t>oing  sued  aa  sacb, 
is  well  cstahliiliod." 

The  franchise  to  ho  a  corporation  is 
not,  strictly,  a  corporate  franchise  at  all. 
Meyer  r.  .Johnston,  53  Al.o.  217  (1875). 

•  .Vtemphi.4,  etc.  H.  Co.  r.  Commis- 
sioners. 112  U.  S.  619  (1884).  (5  Sup. 
Ct.  Rep.  299)  :  "  The  franchise  of  l>e- 
coniing  and  being  a  corporation,  in  its 
oatare,  is  incominunicahle  by  the  act 
of  the  parties  and  incapable  of  passing 
by  assignment." 

Conimonwc.ilth  v.  Smith,  10  Allen 
(Mass.),  455  (1865),/)«T  Ilo.ir,  J. :  "The 
franchise  to  be  a  corjwration  clcarlv  caa- 

206 


not  1>«  transferred  by  any  corporate 
body,  of  its  own  will.  Such  a  franchise 
is  D<it,  in  its  own  n.iture,  tran.oniissiblo." 

A  corporation  cannot  "  sell  or  con- 
Tey  its  cor{K>rate  name,  or  its  right  to 
maintain  and  dcfeixl  judicial  pn>ce«d- 
ings  ur  to  make  and  use  a  common 
seal  "  State  v.  Western  Irrigating 
Canal  C-).,  40  Kan.  96  (1«««),  (19  Tac. 
It«p.  .349.  10  Am.  St   Rep.  166). 

See  also  New  ( >rleans,  etc.  R.  Co.  v. 
Delamorc,  114  1'.  8.  .^01  (1HS5),  (5  Sap. 
Ct.  Rep.  1009) :  Welsh  r.  Old  Dominion 
Mining,  etc.  Co.,  56  Hnn  (N.  Y),  6.S0 
(1890),  (10  N.  y.  Supp.  174) ;  R.it.'an  r. 
Aiken,  9  Lea  (Tenn  ).  603  (18«2),  (42 
Am.  Rep.  684,  9  Am.  &  Eng.  R.  Cas. 
201);  Atkinson  v.  Mariett.%  etc.  R.  Co., 
15  Ohio  St.  21   (1864). 

Compare  Miller  r.  Rntl.ind,  etc.  R. 
Co,  .36Vt.  452  (186.1);  R.-ink  of  Mid- 
dlel)ary  r.  Edgerton,  30  Vt.  182  (1859) ; 
Shapley  v.  Atlantic,  etc.  R.  Co.,  55  Me. 
395  (1868). 


CHAP.    XII.]        SALES    OF    CORPORATE    FRANCHISES.  §  133 

the  corporation  nor  the  stockholders  can  usurp  the  functions 
of  the  legislature  and  confer  upon  others  the  privilege  of 
forming  a  corporation.  As  said  by  Mr.  Justice  Curtis,  at 
circuit,  in  Hall  v.  Sullivan  R.  Co :  ^  "  The  franchise  to  be  a 
corporation  is,  therefore,  not  a  subject  of  sale  and  transfer, 
unless  the  law,  by  some  positive  provision,  has  made  it  so,  and 
pointed  out  the  modes  in  which  such  sale  and  transfer  may  be 
effected." 

Even  where  a  positive  statutory  provision  appears  author- 
izing a  corporation  to  transfer  its  charter  or  franchise  to  be  a 
corporation,  the  real  transaction  is,  in  no  sense,  a  sale  or  con- 
veyance. The  so-called  transferee  takes  nothing  from  the 
deed  of  transfer  and  everything  from  the  legislative  grant 
of  power.  The  act  of  the  corporators  or  stockholders  in 
transferring — in  form  —  their  corporate  franchise,  in  legal 
effect  is  a  surrender  of  their  charter.  The  legislative  authori- 
zation amounts  to  a  grant  of  anew  charter — in  similar  terms 
—  to  the  transferees,  taking  effect  upon  the  abandonment  of 
the  old.  "  The  vital  part  of  the  transaction,  and  that  without 
wliich  it  would  be  a  nullity,  is  the  law  under  which  the 
transfer  is  made."  ^ 

§  183.  Franchises  of  Corporations.  — The  legislature,  in 
conferring  a  charter  of  incorporation  upon  persons  about  to 
engage  in  an  enterprise  involving  the  assumption  of  obliga- 
tions to  the  public,  generally  grants  such  special  rights  as 
may  be  necessary  to  enable  the  corporation,  so  created,  to  carry 
into  effect  the  objects  of  its  creation.  These  special  privileges 
constitute  the  franchises  of  the  corporation.^     Thus,  in  years 

1  Hall  V.  Sullivan  R.  Co.,  21  Law  are  legal  estates  vested  in  the  corpora- 

Eep.     138     (1857),    (1    Bruuuer    Coll.  tion  itself  as  soon  as  it  is /«  esse.    They 

Cas.  613,  11  Fed.  Cas.  257).  are  not  mere  naked  powers  granted  to 

-  State  I'.  Sherman,  22  Ohio  St.  428  the   corporation,   but    powers    coupled 

(1872),  approved  in  Memphis,  etc.    R.  with  an  interest,  which  vest  in  the  cor- 

Co.    V.  Commissioners,  112  U.  S.  609,  poration  upon  the  possession  of  its  fran- 

619  (1884),  (5  Sup.  Ct.  Rep.  299).    Com-  chises,  and  whatever  may  be  thought  of 

pare  Abbott  v.  New  York,  etc.  R.  Co.,  the  corporators,  it  cannot  be  denied  that 

145  Mass.  453  (1888),   (15  N.  E.  Rep.  the  corporation  itself  has  a  legal  interest 

91)-  in  such  franchises." 

3  In   Society   for   Savings  v.  Coite,  A  franchise  of  a  corporation  may  be 

6  "Wall.  (U.  S.)  606  (1867),  Mr.  Justice  defined  as  a  right  of  a  corporation  to 

Clifford   said  :    "  Corporate   franchises  exercise  powers  and  privileges  vested  in 

207 


§133 


INTERCORPORATE   RELATIONS. 


[part  II. 


past,  legislatures  have  j^rantod  to  innuineruble  corporations 
fraiicliises  to  build  briil^'cs,  construct  turnpike  roads,  di;^  and 
operate  canals,  maintain  ferries,  and  collect  tolls  tbereon ;  * 
and,  in  the  present,  franchises  are  j^ranted  in  constantly  in- 
creasini^  nunil)ers  for  the  occupancy  of  the  public  streets  and 
hij^hways  by  the  various  public  utility  corporations.' 

A  railroad  company  is  also  an  example  —  the  most  con- 
spicuous —  of  a  corporation  exercising  corporate  franchises. 
"  The  franc'hises  of  a  railroad  corporation,"  said  Mr.  Justice 
Field  in  Morijnn  v.  Louisimt^  ••  are  rights  or  privileges  which 
are  es.sential  to  the  operations  of  the  corporation,  and  without 
which  its  roads  and  works  would  be  of  little  value;  such  as 
the  franchise  to  run  cars,  to  take  tolls,  to  appropriate  earth 
and  gravel  for  the  bed  of  its  road,  or  water  for  its  (>ngines,  and 
the  like." 

The  franchi.HC  of  a  railroad  company  may  also  be  defined  as 
the  right,  by  virtue  of  the  powi'r  of  eminent  domain,  to  con- 
struct, maintain,  and  operate  a  railroad  u[>on  the  route  desig- 
nated in  its  charter,  and  to  take  tolls  for  the  transjwrtation  of 
persons  and  property  thereon.* 


it  l)v  its  chRrtor.  Spring  Vnller  Wator 
Work.i  V.  Si-hcttlpr.  f.2  Call.  6'J(1SS-.'). 

'  'rh.it  the  rii,'ht  to  cnlloct  toll.-t  upon 
bridj^en,  tunipiko  rondfl,  etc  ,  is  a  fmn- 
chiso,  Bfo  Turnpike  Uoad  Co.  v.  Cain|>- 
bcU.  44  Cal.  8'.>  ( If  72)  ;  Illako  v.  Winona, 
etc.  U.  Co..  19  Minn.  418  (1872)  ;  Sellen 
r.  Union  Luml>cring  Co.,  39  VVi».  525 
(1876). 

"  That  the  ri^ht  to  lav  pa.1  pipes  in 
tho  street.^  of  a  city  is  a  franclii.soileriv- 
at)le  from  the  Stale,  so©  Jersey  City  Gas 
Co.  V.  Dwinjht,  29  N.  J.  Kq.  242  (1878)  ; 
State  r.  Cincinnati  Gas  Light,  etc.  Co., 
18  Ohio  St.  262  (1868),  Conixtrf,  how- 
ever, Mayhury  v  Mnt.  Gas  Light  Co., 
38  Mich.  154  (1878);  Commonwe.ilth 
r.  LowellGas  LightCo.,  12  Allen  (Mass.), 
75  (1866). 

The  right  to  lay  water-pipes  and  col- 
lect water-rates  is  a  franchise.  Spring 
Valley  Water  Works  v.  Schottler,  62 
Cal.  69  (18S2). 

It  seems  that  corporations  organized 

208       • 


to  fnrnish  heat  to  bnildings,  throngh 
pifwi*  lai<l  in  city  streets,  are  not  71n1.11'- 
puhlic  corporations  to  the  extent  that 
they  are  snhject  to  the  general  |irin- 
ciples  of  law  applicalde  to  that  class 
of  corporations  in  the  (li.«|K>Mition  of 
their  privileges  and  projicrty.  ?!vans 
r.  Boston  Heating  Co.,  157  Mass.  37 
(1892),  (Tl  N.  K.  Kep.  698).  See  also 
as  to  irrigating  companies.  State  v. 
Western  Irrigating  Canal  Co.,  40  Kan. 
96  (IS.«»8),  (19  Pac   Hep.  .349). 

■  Morgan  v.  I/ouisiana,  93  V.  S.  223 
(1876).  See  also  I.awrence  v.  Morgan's, 
etc.  Steamship  Co..  39  I>a.  Ann.  427 
(1887),  (2  So.  Rep.  69,  4  Am.  St.  Hep. 
26.")),  where  railroad  conip.anies  were 
said  to  have  the  right  to  appropriate 
land  for  several  purposes  other  than 
those  stated  in  Morgan  v.  Louisiana, 
supra. 

*  Colt  V.  Barnes,  64  Ala.  109  (1879)  ; 
Coe  V.  Columbu.s,  etc.  R.  Co.,  10  Ohio 
St,  372  (18J9). 


CHAP.    XII.]         SALES    OP    CORPORATE    FRANCHISES.  §  133 

The  franchise  to  construct  and  operate  a  passenger  railway 
in  the  streets  of  a  city  must  proceed  primarily  from  the  State.^ 
If  such  a  franchise  is  granted  directly  to  a  street  railway  com- 
pany it  becomes  a  corporate  franchise.  If  the  legislature 
authorize  municipal  corporations  to  grant  the  privilege,  the 
effect  of  the  legislation  may  be  to  confer  the  franchise  upon 
the  municipality,  which  may  issue  a  license  for  its  exercise. 
A  municipal  corporation  cannot  grant  a  franchise.^ 

A  franchise  of  a  corporation  is  to  be  distinguished  from  a 
privilege  —  in  the  nature  of  an  exemption  —  granted  to  its 
members  or  employees.  The  grant  of  the  former  constitutes 
a  contract  with  the  State  within  the  protection  of  the  consti- 
tutional provision,  while  the  latter  may  be  revoked  at  any 
time.^ 

The  grant  of  a  franchise,  unless  expressly  so  stated,  is  not  a 
contract  on  the  part  of  the  State  that  it  will  grant  no  similar 
franchises  to  other  corporations.  That  charters  do  not  con- 
fer exclusive  privileges,  unless  so  expressed,  was  definitely 
settled  by  the  Supreme  Court  of  the  United  States  in  the 
celebrated  Charles  River  Bridge  case.* 

1  The  right  to  construct  and  operate  See  also  Southwark  R.  Co.  v.  Phila- 
a  street  railway  in  a  city,  and  to  take     delphia,  47  Pa.  St.  314  (1864). 

tolls  from  persons  travelling  upon  the         ^  It  is  the  better  view  that  statutes 

same,  is  a  franchise  which  the  sovereign  exempting  employees  of  corporations 

authority  alone  can  grant.    Denver,  etc.  from  militia  duty,  jury  duty,  road  duty, 

R.  Co.  V.  Denver  City  R.  Co.,  2  Colo,  etc.,  confer  personal  privileges  upou  the 

673  (1875).     See  also  Milhau  v.  Sharp,  employees  and  may  be  repealed  by  the 

27  N.  Y.  611  (1863)  ;  People  i'.  Kerr,  37  legislature  at  any  time  without  regard 

Barb.  (N.  Y.)  357  (1862) ;  Davis  i*.  New  to  the  existence  of  a  reserved  power  to 

York,  UN.  Y.  506(1856).     Compare  repeal.    Neeley  w.  State,  4  Lea  (Tenn.), 

People  V.   Sutter    St.  R.  Co.,  117  Cal.  316  (1880).     The  contrary  is,  however, 

604  (1897),  (49  Pac.  Rep.  736).  held  in  Johnson  v.  State,  88  Ala.  176 

2  Where  a  company  is  incorporated  (1889),  (7  So.  Rep.  253);  Zimmer  v. 
by  the  legislature  with  power  to  con-  State,  30  Ark.  677  (1875). 

struct,  maintain  and  operate  a  railway  *  Charles  River  Bridge  v.  "Warren 
in  a  city  with  the  consent  of  the  city,  in  Bridge,  11  Pet.  (U.  S.)  420  (1837).  See 
such  manner  and  upon  such  conditions  also  Thompson  v.  New  York,  etc.  R.  Co., 
as  the  city  may  impose,  and  the  city,  by  3  Sandf.  Ch.  (N.  Y.)  62  (1846).  Corn- 
ordinance,  grants  the  privilege  of  con-  jooreNew  Jersey  Southern  R.  Co. u.  Long 
structing  and  operating  the  same  upon  Branch  Commrs.,  39  N.  J.  L.  28  (1876). 
certain  streets,  the  grant  by  the  city  is  That  the  franchises  of  a  corporation 
a  mere  license  and  not  a  franchise,  may  be  taken  by  the  exercise  of  the 
The  franchise  emanates  from  the  State,  power  of  eminent  domain,  see  West 
Chicago  City  R.  Co.  v.  People,  73  111.  River  Bridge  Co.  v.  Dix,6  How.  (U.S.) 
541  (1874).  507  (1848). 

14  209 


§134 


INTERCOIiPOIlATE    RKLATIONS. 


[r.McT    II. 


The  franchises  of  a  cor^joration  are  also  to  lic  distinj^uiMhed 
from  its  powers.  The  former  are  8[)ccial  privileges;  the  latter 
are  rights  possessed  by  natural  persons  generally,  and  are 
acquired  hy  a  corporation  in  ord«'r  to  transact  business.' 

§  134.  Transferability  of  Franchises  of  Corporations.  —  Con- 
versely to  the  proposition,  considered  in  another  section,  that 
a  transfer  of  corporate  franchises,  without  legislative  author- 
ity, is  void,'  it  follows  that  such  a  transfer,  with  such 
authority,  is  valid.  When  the  State  which  grants  the  fran- 
chises of  a  corporation  consents  to  their  alienation,  they 
become  communicable,  in  whole  or  in  |>art,  in  accordance 
■with  the  consent  so  given.^ 

While  franchises  are  generally  considered  to  be  incorporeal 
hereditaments  and,  therefore,  property,*  it  seems,  upon  prin- 


'  Rtato  r.  Minnesota  Thresher  Mfg. 
Co,  40  Minn.  '.'13  (l«s't).  (41  N.  W. 
Hop.  1020),  wlipre  the  Conrt  §aid  : 
"The  kinils  of  hu.tinoM  which  corp<>- 
rations  orj^anizcd  cither  uniler  till© 
2.  c.  34  (of  (Jen  Stat.  18T8).  or  under 
the  Act  of  1873,  arc  nuthoriied  to 
carry  on,  are  powers,  but  not  fran- 
chises, iKJcanse  it  is  a  right  posaoa.-'ed 
by  all  ritizons  who  rhoose  to  engaj;e  in 
it,  without  any  lepi.xlative  prant.     The 


Dor  arbitrary  rule,  but  n[X)n  tlic  rea- 
sonable impliiation  tliat  such  alienation 
would  be  contrary  to  the  intention  of 
the  legi.tlature  ami  tmliveraive  of  the 
pnr|>ose  for  which  the  franchise  was 
granted.  The  same  considerations  ap- 
ply, only  perhaps  with  greater  force,  to 
the  subdivision  of  the  franchise  by  the 
transfer  of  a  ])art.  .  .  .  But  an  aliena- 
tion of  the  franchise,  either  in  whole 
or  in  part,  may,  undoubte<lly,  l)C  made, 


only  francliiflo  which  such  corporations  whenever  there  i.s  lei^islative  authority 
po.ssess  is  the  general  franchise  to  be  or  for  it.  eitlier  in  express  termi  or  by 
exist  as  a  corporate  entity.     Hence,  if     rea.sonable  implication." 


they  engage  in  any  business  not  author- 
izeil  by  the  statute,  it  is  ultra  rires,  or  in 
excess  of  their  powers,  but  not  a  usur- 
pation of  franchi.ses  not  granted,  nor 
necessarily  a  misuser  of  tiios©  granted." 
For  discu9,sion  of  the  distinction 
between  the  property  of  a  corporation 
and  its  franchises,  see  Tuckahi>e  Canal 
Co.  V.  Tnckahoe,  etc.  R.  Co.,  1 1  Leigh 
(V'a.),  4L»  (1840);  Bridgeport  v.  New 
York,  etc.  R.  Co.,  36  Conn.  255  (ISOO) ; 
Miner's  Ditch  Co.  v.  Zellerbach,37  Cal. 
543  (1869). 

*  See  next  section. 

'  East  Boston,  etc.  R.  Co.  r.  Eastern 
R.  Co.,  13  Allen  (Mass),  422  (1866), /.er 
Wells,  J. :  "  The  doctrine  th.it  a  railro.ad 
corporation  cannot  alienate  its  franchise 
is  not  founded  upon  anr  technical  theorv 

210 


So«!  also  Vermont,  etc.  R.  Co.  v.  Ver- 
mont Central  R.  Co.,  34  Vt.  1  (1861); 
Day  V.  Ogden.sburgh,  etc.  R.  Co,  107 
N.  Y.  120  (1887).  (13  N.  E.  Rep.  765). 

♦  In  Enfield  Toll  Bri.lge  Co.  r.  Har^ 
ford,  etc.  R.  Co..  17  Conn.  60  (1845), 
Chief  Justice  Williams  said  in  reference 
to  a  bridge  franchise  :  "  Wh.at  are  the 
rights  of  the  plaintiffs  ?  They  are  de- 
rived from  the  grant  of  the  legislature, 
and  are  what  in  law  is  known  to  be 
a  frnnrhi$r  ;  and  a  franchise  is  an  in- 
corporeal hereditament,  known  as  a 
species  of  property,  as  well  as  any 
estate  in  lands.  It  is  property,  which 
may  be  bought  and  sold,  which  will 
descend  to  heirs,  and  may  bo  devised." 

See  al.so  Hall  r.  Sullivan  R.  Co .  21 
Law  Rep.  138  (1857),  (1  Brunner  Coll. 


CHAP.   XII.]         SALES   OF   CORPORATE   FRANCHISES.  §  135 

ciple,  that  corporate  franchises  cannot  pass  directly  from 
vendor  to  purchaser  in  the  manner  of  corporate  property.  A 
franchise,  in  its  essence,  is  a  privilege,  conferred  by  grant,  to 
exercise  extraordinary  powers.  A  corporation  cannot  transfer 
this  right  any  more  than  a  person  can  transfer  an  office  which 
he  holds ;  but  in  the  same  manner  that  the  office-holder,  when 
authorized,  might  appoint  another  to  hold  the  office,  the  cor- 
poration, by  the  form  of  sale,  may  delegate  to  another  corpo- 
ration the  right  to  exercise  the  special  privileges  conferred 
upon  it.^ 

This  principle  is  somewhat  analogous  to  the  principle, 
already  considered,  that  the  "  transfer  "  of  a  charter  in  reality 
means  its  surrender  and  the  grant  anew  of  a  similar  charter 
to  the  "  transferee."  2  But  there  is  this  fundamental  distinc- 
tion :  The  exercise  of  a  power  of  appointment  in  relation  to 
the  franchises  of  a  corporation  confers  upon  the  appointee 
the  same  franchises,  while  the  grant  of  a  new  charter  confers 
similar  franchises.  This  distinction  is  of  importance  where 
constitutional  restrictions  have  intervened  between  the  grant 
of  the  old  and  the  grant  of  the  new  charter. 


II.   Legislative  Authority  for  Sale  of  Franchises. 

§  135.  Legislative  Authority  essential  to  Alienation  of  Fran- 
chises. —  It  is  a  rule  applicable  to  all  corporations  exercising 
public  franchises  that  such  franchises  can  be  transferred  only 
by  and  with  the  consent  of  the  State  which  granted  them  — 
that  corporate  franchises  are  incommunicable  without  legis- 
lative authority. 

The  courts  have  assigned  various  reasons  for  the  existence 

Cas.   613,  11    Fed.    Cas.   257).     These  use  and  express  the  idea  of  the  passing 

cases  are  merely  indicative   of  a  long  of  franchises  —  absolutely  or  for  limited 

line  of  decisions.  terms  —  from  one  corporation  to  another 

1  Compare  2   Morawetz  Priv.   Corp.  with   sufficient   accuracy.      They    will, 

§  924.  therefore,  be  employed  in  this  treatise 

The  words  "  transfer,"  "  sale  "   and  in  order  to  avoid  a  cumbersome  form  of 

"  lease  "  are,  upon  the  principles  stated  expression. 

in  the  text,  technically  incorrect  when         2  ^nte,   §    132 :    "  Transferability    of 

used  in  connection  with  corporate  fran-  Franchise  of  Corporate  Existence.'" 
chises.     Thev  are,  however,  in  general 

211 


136 


INTERCORPORATE    RFLAIlnNh. 


[part  II. 


of  the  rule,'  of  which  the  following  are  based  upou  prin- 
ciples fumJaiaentally  sounJ  : 

1,  The  cliurtcr  of  a  corporation  is  the  measure  of  its  powers. 
Unless  authority  to  transfer  its  franchises  is  expressly 
granted,  such  an  act  is  ultra  ij>e«. 

"2.  The  transfer  by  a  corporation  of  its  franchises  —  dis- 
abling it  from  the  performance  of  its  public  duties  —  is 
ajainit  pufdic  policy. 

3.  A  corporation  exercising  public  franchises  is  an  agent  of 
the  State  and,  without  the  consent  of  the  State,  cannot  dele- 
gate its  powers. 

§  13ti.  Unauthorixed  Sale  of  Franchises  —  IHtxa  vlrea.  —  Tho 
power  to  sell  its  fi;inclu.ses  is  nut  to  be  inijilie<l  from  the  usual 
grant  of  powers  to  a  7U<i#i-public  corporation  but  must  be  ex- 
pressly conferred.  Any  exercise  of  the  power,  without  the 
sanction  of  the  legislature,  is  ultra  viret.'^     The  princij)le  has 


'  It  ha<  iiotiietim«*ii  licen  naiil.  aa  an 
adiliciunal  r«aj»ou  to  those  atatcil  iu  the 
text,  that  a  frnnchii»«(  1.4  ilceiin-d  a  /*r- 
Moiiiil  tru.it  and.  tht-rvf<>r«,  that  the  State 
has  the  rif;ht  to  doteniiine  who  •hull  be 
tho  recipients  of  it.  Itut  as  poiutol  out 
in  ail  eUitorial  note  to  lirauswick  Gat 
Light  Co.  V.  I'nitctl  Ga»,  etc.  Co..  3.')  Am. 
St.  Hep.  393  (1893)  :  "The  theory  of  a 
personal  confiilt- nco  rep«jf»ed  in  the  origi- 
nal corporators  resUs  on  a  pun-l  v  arliitra- 
ry  fouiulutiou,  .  .  .  and  the  If^iitlutioo 
which  hot)  iu  most,  if  not  all.  the  States 
of  the  Union  provided  for  a  free  trans- 
fer of  franchii)i-.H,  as  the  result  of  the 
mortijiipe  thereof,  and  even  for  the  in- 
corporation of  the  entirely  uncertain 
body  of  persons  v*ho  m.iy  purchase  at 
the  foreclosure  sale,  shows  verv  con- 
clusively that,  in  the  opinion  of  the  peo- 
ple of  this  country,  the  grounds  of  public 
policy  upon  wliiili  this  restriction  of  the 
povs-er  of  transfer  is  to  l>e  sustained 
must  be  sought  in  other  directions." 

Transfers  of  franchises  have  also, 
under  certain  conditions,  been  held  ille- 
gal as  tending  to  create  monopdies. 
See  Part  V.  post :  "  Combinations  of 
Corporationg." 

'  United  States :    Branch    v.  Jesup, 

212 


106  r.  S.  46H  (1882),  (I  Sup.  Ct.  Hep. 
495):  Mackint««h  i*.  Flint,  etc.  II.  Co., 
34  Ketl.  582  (188M). 

Maryland:  State  r.  Cousulidation 
Coal  Co.,  46  Md.   1    (1876). 

Nebraska :  Clarke  r.  ( )n)aha,  etc. 
K.  Co.,  4   Neb.  458   (1876). 

yew  York:  Troy,  etc.  K.  Co.  r. 
Hoaton.  etc  R.  Co.,  86  N.  Y.  107 
(1881). 

Ohio :  Coe  V.  Columbus,  etc.  R.  Co., 
10  Ohio  St.  372  (1859). 

PmnMylianm  :  rittsbargh. etc.  R.  Co. 
p.  I'.odford  R.  Co,  i\\  I'a.  St.  104 
(1871). 

Texas :  East  Line.  etc.  R.  Co.  v. 
State,  75  Tex.  4.34  (1889),  (12  S.  W. 
Rep.  690). 

The  general  rule  that  anif  transfer  of 
corporate  franchises,  without  legislative 
authority,  i*  ultra  vires  is  supporte<l  by 
nunioroas  decisions.  Those  especi.illy 
relnting  to  tiles  of  franchi.Hcs  are  cited 
in  the  above  note  and  are  further  con- 
siilcred  in  §  143,  />o.<it :  "  .'<tiiliitori^ 
Authiiritif  essfiitinl  to  Sale  of  Railroad." 
Cases  illu.otratiug  the  same  principle 
as  applied  to  leases  of  railroads  are  col- 
lected in  note  to  §  177,  post;  as  ap- 
plied to  a  transfer  through  consolidation. 


CHAP.    XII.]         SALES   OF   CORPORATE   FRANCHISES.  §  137 

thus  been  stated  by  the  Supreme  Court  of  Pennsylvania :  "  A 
corporation,  unless  specially  restricted  by  its  charter,  or  some 
statute,  has  general  power  to  dispose  of  its  property,  the 
whole  or  part,  but  it  has  no  right  to  sell  or  assign  its 
franchises,  either  in  whole  or  in  part,  unless  specially  author- 
ized by  law."  1 

§  137.  Unauthorized  Sale  of  Franchises  —  Against  Public 
Policy.  —  Franchises  are  conferred  upon  corporations  to  en- 
able them  to  provide  facilities  of  benefit  to  the  public.  The 
consideration  for  the  grant  is  the  discharge  by  the  corporation 
of  its  public  duties ;  and  public  policy  forbids  a  corporation, 
without  legislative  authority,  to  sell  its  franchises  to  another 
corporation  and  thus  render  itself  incapable  of  performing 
those  duties.^  Mr.  Justice  Campbell,  in  York^  etc.  R.  Co. 
V.  Winans,^  thus  stated  the  reason  of  the  rule :  "  Important 
franchises  were  conferred  upon  the  corporation  to  enable  it 
to  provide  facilities  for  communication  and  intercourse  re- 
quired for  the  public  convenience.  Corporate  management 
and  control  over  these  were  prescribed,  and  corporate  re- 
sponsibility for  their  insufficiency  provided,  as  a  remuneration 

in   §  17,  ante;  as  .applied  to  mortgages  Ohio:   Railroad  Co.  v.  Hinsdale,  45 

of  franchises  in  note  to  §  149,  "Short's  Ohio  St.    556    (1888),  (15    N.  E.  Rep. 

Railway  Bonds  and  Mortgages."  665). 

1  Pittsburgh,  etc.  R.  Co.  ?>.  Bedford  Tennessee:   Frazier   v.   Railway  Co., 

R.   Co.,  81J    Pa.  St.  104  (1871).     The  88  Tenn.  138    (1889),  (12  S.  W.  Rep. 

extract  quoted  is    subject  to  the  criti-  537). 

cism   that  it  ignores  the  principle  that  Texas:     East    Line,   etc.    R.  Co.   v. 

the    property    of    a    (/MflsZ-public    cor-  Rushing,  69  Tex.   306  (1887),  (6  S.  W. 

poration  —  so  far  as  it  is  indispensable  Rep.  834)  ;  Gulf,  etc.  R.  Co.  v.  Morris, 

—  cannot  be  disposed  of.  67    Tex.    692    (1887),    (4    S.    W.    Rep. 

'^  United  States:  York,  etc.  Tl.  Co.  V.  156). 

Winaus,  17  How.  (U.  S.)  30  (1854).  Virginia  :  Naglee  v.  Alexandria,  etc. 

Georgia  :  Singleton  v.    Southwestern  R.  Co.,  83  Va.  707  (1887),  (3  S.  E.  Rep. 

R.  Co.,  70  Ga.  464  (1883).  369). 

]\fas.<sachusetfs  :  Richardson  v.  Sibley,  See  also  ante,  §  18  :  "  Consolidation  of 

11  Allen,  65  (1865).  Quasi-public   Corporations  without  Legis- 

Illinois:  Peoria,    etc.   R.  Co.   i-.  Coal  lative  Authoritif  against  Public  Policy ;" 

Valley  R.  Co.,  68  111.  489  (1873) ;  Hays  post,  §  143 :  "  Statutory  Authority  essen- 

V.  Illinois,  etc.  R.  Co.,  61  111.  422  (1871).  tial  to  Sale  of  Railroad;"  post,  §   177  : 

Nebrasl-a :     Cholette    v.  Omaha,  etc.  "  Lease     of   Railroad    invalid     without 

R.   Co.,  26  Neb.  159  (1889),  (41   N.  W.  Legislative  Authority." 

Rep.  1106).  3  York,   etc.    R.   Co.   v  Winans,   17 

New  Hampshire:    Pierce   v.  Emery,  How.   (U.  S.)  30  (1854). 
32  N.  H.  484  (1856). 

213 


§    138  INTEUCOICI'OUATE    KELATIONS.  [PAltT    II. 

to  the  community  for  their  grunt.  The  corporation  cannot 
absolve  itself  from  the  performance  of  its  obligations  with- 
out the  consent  of  the  legislature." 

§  lo8.  Uuauthorlzed  Sale  of  Franchises  —  Unlawful  Delega- 
tion of  Powers. —  A  grant  of  franoiiises  by  the  State  consti- 
tutes the  grantee,  in  a  sense,  an  agent  of  the  State  in  their 
exercise,  and,  upon  an  elementary  principle  of  the  law  of 
ii<:v\\cy,  dtl*;/at HIS  7i'>n  ihhijnr*-,  the  corj»oration  —  the  agent  — 
cannot  sell  its  franchises  to  another  corporation  without  the 
consent  of  the  State  —  the  principal.  It  is  immaterial  that 
the  intending  purchaser  agrees  to  fulfil  all  the  public  obliga- 
tions of  the  grantee.'  The  State  has  the  right  to  select  the 
persons  who  siiall  enjoy  the  franchises  it  grants,  as  well  as 
those  who  shall  fulfil  the  obligations  due  it. 

While  this  reason  for  the  doctrine  that  there  is  no  implied 
power  to  transfer  franchises  is  sound  in  principle,  and  haa 
often  iHJcn  stated  by  the  English  courts,  it  is  generally  given 
as  an  a<lditional  reason  to  that  of  ultni  virm  (jr  the  rule  of 
public  policy,  already  considered.  Thus,  in  Winch  v.  liirk' 
enhentl,  etc.  R.  Co.}  Vice-Chancellor  Parker,  while  referring 
to  an  agreement  for  '*  working  a  line"  as  a  delegation  of  pow- 
ers, also  said  that  the  agreement  was  tliat  the  company  should 
"part  with  certain  statutory  power.><  which  tiiey  have  no  au- 
thority to  part  with,  and  moreover,  that  they  were  to  |)art 
with  them  to  a  body  who,  by  their  constitution,  cannot  accept 
them." 

The  rule  that  a  corporation  has  no  implied  power  to  delegate 
its  franchises  is  essentially  difTerent  from  the  rule  that  it  has 
no  power  to  delegate  the  performance  of  its  public  duties, 
although  both  produce  the  same  result.  A  corporation,  upon 
principles  of  the  law  of  agency,  cannot  delegate  its  powers  and 
franchises.  A  corporation,  as  a  party  to  a  contract  with  the 
State,  cannot,  for  reasons  of  public  policy,  transfer  its  fran- 

1  Troy  V.  Rutland   R.  Co..  17   Barb.  Connties    R.  Co.,   9    Hare.  .306  (1851), 

(N.  Y.)  581  (1854) ;  Bcman  r.  Rufford.  (12  Kns;.  L.  &  K.).  Rep.  224). 
1    Sim.   (n.  s.)    569  (1851);    Wincli  v.  '^  Winch  f.  Birkeuheail.  etc.  R.  Co., 

Birkenhead,  etc.  R.  Co.,  5  De  Gex  &  S.  5   De  Gex  &  S.  562  (1852),  (13  Eng. 

562   (1852),  (13  Eng.  L.  &  Eq..    506);  L.  &  Eq.  506). 
Great    ^^orthcrn    R.    Co.    t;.    Eastern 

214 


CHAP.    XII.]         SALES    OP    CORPORATE    FRANCHISES. 


§139 


chises  to  others  and  absolve  itself  from  its  obligations  to  the 
public  assumed  in  consideration  of  their  grant. 

§  139.  Legislative  Authority  Essential  to  Purchase  of  Fran- 
chises. —  Tiie  same  principles  of  law  which  forbid  a  corpora- 
tion parting  with  its  franchises,  without  the  consent  of  the 
State  which  granted  them,  prevent  a  corporation,  without 
legislative  authority,  from  acquiring  franchises  granted  to 
another  corporation.^  A  corporation  has  no  implied  power 
to  purchase  corporate  franchises  and  its  acceptance  of  a  con- 
veyance of  franchises,  without  authority,  would  be  ultra  vires. 

It  is  essential  to  the  validity  of  a  contract  transferring  fran- 
chises that  both  parties  should  be  expressly  authorized  to  enter 
into  it.  As  said  by  the  Supreme  Court  of  the  United  States  in 
Louisville^  etc.  R.  Co.  v.  Kentucky :  ^  "  It  is  a  fundamental 
principle  in  the  law  of  contracts  that,  to  make  a  valid  agree- 
ment, there  must  be  a  meeting  of  minds,  and,  obviously,  if 
there  be  a  disability  on  the  part  of  either  party  to  enter  into 
the  proposed  contract  there  can  be  no  valid  agreement."  So 
upon  principles  of  public  policy,  one  corporation,  unless  per- 
mitted by  the  State,  cannot  assume  and  attempt  to  perform 
the  duties  imposed  upon  another  corporation. 


1  Louisville,  etc.  R.  Co.  v.  Kentucky, 
161  U.  S.  691  (1896),  (16  Sup.  Ct.  Reip. 
714) ;  St.  Louis,  etc.  R.  Co.  v.  Terre 
Haute,  etc.  R.  Co.,  145  U.  S.  393  (1892), 
(12  Sup.  Ct.  Rep.  953) ;  Central  Transp. 
Co.  V.  Pullman  Car  Co.,  139  U.  S.  24 
(1891),  (11  Sup.  Ct.  Rep.  478);  Pitts- 
burgh, etc.  R.  Co.  V.  Keokuk,  etc. 
Bridge  Co.,  131  U.  S.  371  (1889),  (9  Sup. 
Ct.  Rep.  770) ;  Oregon  R.,  etc.  Co.  v. 
Oregonian  R.  Co.,  130  U.  S.  1  (1889), 
(9  Sup.  Ct.  Rep.  409) ;  Pennsylvania 
Co.  V.  St.  Louis,  etc.  R.  Co.,  118  U.  S. 
310  (1886),  (6  Sup.  Ct.  Rep.  1094)  ; 
Camden,  etc.  R.  Co.  v.  May's  Landing 
R.  Co.,  48  N.  J.  L.  530  (1886),  (7  Atl. 


Rep.  523) ;  Gulf,  etc.  R.  Co.  v.  Morris, 
67  Tex.  692  (1887),  (4  S.  W.  Rep.  156). 
See  also  Rogers  v.  Nashville,  etc.  R. 
Co.,  91  Fed.  299  (1898). 

It  has,  however,  been  held  that  au- 
thority given  to  one  corporation  to 
purchase  the  franchises  of  a  specified 
corporation  gives  the  latter  authority  to 
sell.  New  York,  etc.  R.  Co.  v.  New 
York,  etc.  R.  Co.,  52  Conn.  274  (1884). 

2  Louisville,  etc.  R.  Co.  r.  Ken- 
tucky, 161  U.  S.  692  (1896),  (16  Sup.  Ct. 
Rep.  714).  See  also  pos^  §  144  :  "  Seller 
must  have  Authority  to  sell,  and  Buyer  to 
buy." 


215 


§140  INTERCORPORATE   RELATIONS.  [I'AKT    II. 

ARTICLE   II. 

SALES   OF   RAILRO.VDS. 


CHAPTKR    XIII. 
CONTRACT   OF  SALE   AND    ITS   EXECUTION. 

I.    Nnturr  of  Sale  of  Railroad. 

§  140.     Conventional  and  Juilicial  Sales  of  Uailmads  (iistinpuished. 
§  141.     Distinction  liotween  Uelation  uf  Veu<l<»r  and  Vcnde«'  and  other  Intercor- 
porate Helation.s. 
§  142.     Distinction  between  Sole  uf  Uailroad  and  Sale  of  Franchises. 

II.    Grants  of  Powtr  to  sell  and  jmrrhate  Railroad*, 

§  14.1.     Statntory  Authority  eswcntial  to  Sale  of  Uailroad. 
§  144.     Seller  must  have  Anthority  to  sell  and  Buyer  to  buy. 
%  145.     What  Kailroads  may  he  the  Subject  of  Sale.     Statutory  ProvisioiiB. 
§  146.     Construction  of  Statutes. 

§  147.     Constitutional   and  Statutory  Prohibitions   of  Purchase  of  Competing 
or  Parallel  Lines. 

in.    Authori:ati:jn  and  Execution  of  Contract  of  Sale. 

§  14*.  Statntory  Requisites. 

§  149.  A.sscnt  of  Stockholders.     Whether  Approval  of  Majority  is  snfBcient. 

§  150.  Acquiescence  of  Stockholders. 

§  151.  Ilights  and  Uemedies  of  Dissenting  Stockholders. 

I.    Nature  of  Sale  of  Uailroad. 

§  140.  Conventional  and  Judicial  Sales  of  Railroads  distin- 
gTiished.  —  Sales  of  railroads  by  one  corporation  to  another 
have  been,  perhaps,  the  least  common  form  of  intercor- 
porate relations.  A  conjunction  of  interests  has  usually  been 
obtained  by  consolidation,  lease,  or  by  the  purchase  of  con- 
trolling stock  interests.  Sales  of  railroads  in  foreclosure 
proceedings  have,  on  the  other  hand,  frequently  taken  place. 
The  numerous  railroad  reorganizations  in  the  past  ten  years 
have,  in  nearly  every  case,  required  a  sale  of  the  railroad  and 
216 


CHAP.    XIIL]       contract   OF   SALE    AND    ITS   EXECUTION.         §  141 

franchises.  There  have  also  been  instances  of  tlie  sale  of 
railroads  upon  execution. 

Conventional  sales  of  railroads  involve  relations  between 
corporations.  Judicial  sales  involve  relations  between  a 
corporation  and  its  creditors.  The  former  fall  within,  the 
latter  without,  the  scope  of  this  treatise.^ 

§  141.  Distinction  Between  Relation  of  Vendor  and  Vendee 
and  other  Intercorporate  Relations.  —  A  sale  has  already  been 
distinguished  from  a  consolidation  in  that  the  element  of  suc- 
cession to  rights  and  liabilities  is  present  in  the  latter  and  ab- 
sent in  the  former.'-*  The  same  distinction  exists  between  a 
sale  of  a  railroad  and  the  form  of  reorganization  wherein  the 
stockholders  of  a  railroad  company  turn  over  its  property  and 
franchises  to  another  corporation,  generally  formed  for  the 
purpose,  in  exchange  for  its  shares,  and  divide  them  directly, 
or  through  a  distribution,  pro  rata  among  the  stockholders.^ 
In  case  of  a  sale  for  a  valuable  consideration  and  free  from 
fraud,  the  purchasing  corporation  takes  the  property  free 
from  charges,  except  specific  liens  and  equities  of  which  it  has 
notice,  and  is  not  liable  for  the  debts  of  the  vendor.*  In  the 
case  of  such  a  reorganization,  however,  the  corporation,  taking 
the  property  in  exchange  for  its  shares,  will  be  treated  as  the 
successor  of  the  old  corporation,  and,  at  least  to  the  value  of 
the  property  received,  will  be  held  responsible  for  its  debts.^ 

The   distinction  between  sales  of   railroads   and    railroad 

1  A  railroad  company  is  a  quasi--[<nh-  ^  Ante,  §  13  :     "  Distinction   between 

lie   corporation.     The  rules   governing  Consolidation  and  Sale." 

the  sales  of  property  of  that,  class  of  "  The    term    "  reorganization  "    is 

corporations,  considered  in  §§  127-129  more    commonly,    and    perhaps    more 

ante,  apply  to  railroad  companies.     A  exactly,  applied  to  an  arrangement  be- 

railroad  company  exercises  franchises,  tween  the  stockholders  and  creditors  of 

and  in  their  disposition  is  controlled  by  an  insolvent  corporation  to  form  a  new 

the    principles    examined    in   the   last  corporation  to  take  over  the  assets  of 

chapter.      Sales  of  railroads,  however,  the   old  upon   foreclosure   sale.     Reor- 

often    involve   questions  peculiarly  ap-  ganizations  in  the  manner  stated  in  the 

plicable  to  them,  and  there  are  many  text    have,    however,   frequently    been 

statutes    especially   relating   to  them.  made.     See  3  Cook  on  Corp.  §  884. 

A  separate  examination  of  the  subject  *  Ante,^  123:  "Liability  of  Purchas- 

—  although  involving   some  repetition  ing  Corporation  for  Debts  of  Vendor  Com- 

of  principles  —  is,  therefore,  believed  to  pany." 

be  desirable.  ^  Ante,  §  125:    "Remedies  of  Cred- 
itors." 

217 


§  143  INTEIlCORrORATE    RKLAT10N9.  [PAIIT    II. 

leases,  trackage  contracts,  pools  and  other  agreements,  is  self- 
evident. 

§  142.  Distinction  between  Sale  of  Railroad  and  Sale  of 
Francbisea.  — The  franchises  of  a  railroad  company  are  special 
privileges  conferred  by  legislative  grant.  The  railroad  of  a 
railroad  coin{)aiiy  is  property  which  may  have  been  acquired 
by  the  exercise  of  its  franchises.' 

The  franchises  are  inalienable,  without  legislative  authority, 
because  a  railroad  company  cannot  delegate  its  powers  and 
shift  its  obligations.*  The  railroad  is  inalienable,  without  like 
authority,  because  it  is  impressed  with  a  trust  in  favor  of  the 
public' 

A  sale  of  the  franchises  of  the  railroad  company  alone 
would  not  carry  its  property.*  A  sale  of  a  railroad,  without 
mentioning  franrhises,  would  carry  those  franchises  neretsary 
for  its  o]>eratiou.' 

II.    Grantti  of  Power  to  Bell  and  purchase  Railroads. 

§  143.  Statutory  Authority  essential  to  Sale  of  Railroad. — 
As  already  shown,  a  sale  by  a  qH(i>ii-\n\\)\\c  corporation  of  its 
franchises,  or  of  property  necessary  for  the  performance  of  its 
public  duties,  is  invalid  without  legislative  authority.'     A  rail- 

*  Tuckahoe  Canal  Co.  v.  Tnckahoo,  fmnchise.     A  b.ink  has  a  right  to  pnr- 

etc.  R.  Co,  II  L«'igh  (Vx),"5  (IS40):  chawe.iliankinp  hou.nc  ;  when  purchaxfti, 

"  Now,  I  take  a  framhi.HC  to  be  (I)  an  is  the  honua  fraurhiso  f    Surolv  not,  for 

incorporeal    hfTe<litaincnt  ;    and   (2)   a  it   is   cor/xn-ral,  wherean  a  franchiK  is 

privilogo  of  authority  %esto(i  in  certain  incorporfol." 

persons  by  grant  of  the  sovereign  (with  ^  See  ante,  ch.  12,  sub<lir.  II. :  "  Letf- 

as,  by  special  statnto),  to  exercise  pow-  islalive  Aulhoritij  /or  SaU  of  Franrhises." 

ers,  or   to  do  and  perform  acts  which,  '  See    ante,   §    127:    "  Indi»pm*aUe 

without  such  grant,  they  could  not  do  Profyerti/  cannot  be  alienated  or  taken  on 

or  perform.     Thus,  it  is  a  franchise  to  Exenuiim  without  Lerfislative  Authority." 

be  a  corporation,  with   power  to   sne  *  That  a  franchise  does  not  include 

and  he  sued,  and  'o  hold  property  as  a  property  gained  by  the  exercise  thereof, 

corporate  body.     So  it  is  a,  franchise  to  see  Hridgeport  v.  New  York,  etc.  R.  Co., 

be  empowered  to  build  abridge, or  keep  36  Conn.  255  (1869). 

a  ferry,  over  a  public  stream,  with  a  '  See  post,  §  157:  "Essential  Fran- 

right  to  dcman<l  tolls  or  ferriage  ;  or  to  chises  pass  by  Sale  of  Railroad."   Contra, 

build  a  mill  upon  a  public  river,  and  Arthur    v.   Commercial   and    Railroad 

receive  tolls  for  grinding,  etc.     But  the  Bank,  17  Mi.'s.  394  (1848). 

franchise    consists   in    the   incorporeal  '  See  nnJf,  §§  17,  18  (consolidation) ; 

right;  the  propertv  acquired  is  not  the  ante,    §§   127-129  (indispensable  projh 

218 


CHAP.    XIII.]       CONTRACT    OF   SALE   AND    ITS    EXECUTION. 


143 


road  company  can  sell  its  franchises  and  indispensable  prop- 
erty only  when  such  sale  is  sanctioned  by  statute.^ 

Mr.  Justice  Bradley  in  Branch  v.  Jesup"^  clearly  stated  the 
rule  and  the  reasons  therefor  :  "  As  a  general  rule,  it  is  true, 
a  railroad  company,  with  only  the  ordinary  power  to  construct 
and  operate  its  road,  cannot  dispose  of  it  to  another  company. 
Legislative  aid  is  necessary  to  that  end.  .  .  .  Generally  the 
power  to  sell  and  dispose  has  reference  only  to  transactions  in 
the  ordinary  course  of  business  incident  to  a  railroad  com- 
pany ;  and  does  not  extend  to  the  sale  of  the  railroad  itself, 
or  of  the  franchises  connected  therewith.  Outlying  lands,  not 
needed  for  railroad  uses,  may  be  sold.  Machinery  and  other 
personal  property  may  be  sold.  But  the  road  and  franchises 
are  generally  inalienable  ;  and  they  are  so  not  only  because  they 
are  acquired  by  legislative  grant,  or  in  the  exercise  of  special 
authority  given,  for  the  specific  purposes  of  the  incorporating 


erty);    ante,  §§    135-139    (franchises); 
post,  §  177  (leases). 

1  United  States:  Branch  v.  Jesup, 
106  U.  S.  468  (1882),  (1  Sup.  Ct.  Rep. 
495,  9  Am.  &  Eng.  R.  Cas.  215) ;  Mack- 
intosh V.  Flint,  etc.  R.  Co.,  34  Fed.  582 
(1888). 

Georgia  :  Singleton  v.  Southwestern 
R.  Co.,  70  Ga.  464  (1883). 

Maryland:  State  r.  Consolidation 
Coal  Co.,  46  Md.  1  (1876). 

Massachusetts  :  Richardson  v.  Sibley, 
11  Allen  (Mass.),  67  (1865):  "A  cor- 
poration, created  for  the  very  purpose 
of  constructing,  owning  and  managing 
a  railroad,  for  the  accommodation  and 
benefit  of  the  public,  cannot,  without 
distinct  legislative  authority,  make  any 
alienation, absolute  or  conditional,  either 
of  the  general  franchise  to  be  a  corpora- 
tion, or  of  the  subordinate  franchise  to 
manage  and  carry  on  its  corporate  busi- 
ness, without  which  its  franchise  to  be  a 
corpor.ation  can  have  little  more  than  a 
nominal  existence." 

Nebraska :  Clarke  v.  Omaha,  etc. 
R.  Co.,  5  Neb.  314  (1877). 

New  York  :  Troy,  etc.  R.  Co.  v.  Bos- 
ton, etc.   R.  Co.,  86  N.  Y.  117  (1881)  : 


"  It  is  well  settled  that,  unless  author- 
ized thereto  by  statute,  a  railroad  cor- 
poration, organized  under  our  General 
Railroad  Act,  has  no  authority  to  trans- 
fer or  lease  its  road." 

Ohio:  Coe  V.  Columbus,  etc.  R.  Co., 
10  Ohio  St.  377  (1859):  "In  the  case 
of  a  railroad  corporation,  its  franchises 
and  corporate  rights  are  not  alienable, 
without  express  statutory  authority." 

Also  Railroad  Co.  v.  Hinsdale,  45 
Ohio  St.  556  (1888),  (15  N.  E.  Rep.  665). 

Pennsi/lvania :  Pittsburgh,  etc.  R. 
Co.  V.  Bedford  R.  Co.,  81 1  Pa.  St.  104 
(1871). 

Tennessee :  Frazier  v.  Railway  Co., 
88  Tenn.  138  (1889),  (12  S.  W.  Rep. 
537). 

Texas :  East  Line,  etc.  R.  Co.  v. 
Rushing,  69  Tex.  306  (1887),  (6  S.  W. 
Rep.  834)  ;  Gulf,  etc.  R.  Co.  v.  :Morri3, 
67  Tex.  692  (1887),  (4  S.  W.  Rep.  156). 

As  to  legislative  ratification  of  un- 
authorized sale  of  a  railroad,  see  Wood 
V.  Macon,  etc.  R.  Co.,  68  Ga.  539  (1882). 

2  Branch  v.  Jesup,  106  U.  S.  468 
(1882),  (1  Sup.  Ct.  Rep.  495,  9  Am.  & 
Eng.  R.  Cas.  215). 

219 


§115 


INTERCORPORATE   RELATIONS. 


[part  II. 


act,  but  because  they  arc  essential  to  tlje  fulfilment  of  those 
purposes  ;  aud  it  would  be  a  dereliction  of  the  duty  owed  bv 
the  corporation  to  the  State  and  to  the  i)uhlic  to  part  with 
them."  » 

Questions  as  to  what  constitutes  indispensable,  and  wliat 
surplus,  property  are  considered  elsewhere.' 

§    144.    Seller  muat  have  Authority  to  sell  and  Buyer  to  buy. 

—  From  the  principle  that  legislative  authority  is  as  necessary 
to  accppt  a  Conveyance  of  franchiaos  as  it  is  to  make  a  grant,* 
it  follows  that  both  vendor  and  vendee  corporation  must  be 
authorized  by  statute  to  enter  into  a  contract  for  the  purchase 
and  sale  of  a  railroad.*  As  said  by  the  .*^upreme  Court  of 
Texas  in  E'lat  Lint-,  etc.  11.  Co.  v.  Stated:  "To  authorize 
such  a  transaction  it  must  appear  that  one  corporation  had 
power  to  sell  and  the  other  to  buy." 

Authority  granted  to  one  railroad  comf)any  to  ptirchase 
the  railroad  and  franchises  of  a  si)eciricd  cor{)oration  gives 
the  latter  authority  to  sell." 

§  14.').  'What  Railroads  may  be  the  Svibject  of  Sale.  Statu- 
tory Provisions. — .Statutes  of  the  ditTorent  States  authorizing 
sales  of  railroads  are  collected  in  the  subjoined  note." 

*  Statntos  nathorizing  ^waii-pahlic  (1S67);  Fanning  p.  Onbome,  102  N.  Y. 
corporations  to  ncll  their  fmnchi.^oii  and  441  (1SS6),  (7  N.  K.  Rep.  .307). 
property  are  witliin  the  ronstitutional  *  Eaut  Line,  etc.  H.  Co.  v.  St.ite,  75 
powers  of  the  legi.olatnre.  Having  Tex  434  (Iss'j),  ( 12  S.  W.  Kcp.  690). 
power  to  cre.ite  i\\c  corjxiration,  it  has  •  New  York,  etc.  U.  Co.  r.  New 
power  to  authorize  the  transfer  of  its  York,  etc.  H.  Co..  52  Conn.  274  (18S4). 
frnnchise.s  an<l  a-sst'tfl.  Soc  Cl.iw  r.  Van  ^  Alnbnma.  Code  1896  (.ih  amended 
Loan,  4  Mnn  (N.  Y.),  184  (I87.'i).  br  Lawn  lS9S-l«*9a).  §  1169  :  "  When- 

2  ScedfiK  §  128:  "  Tnt  nf  Iniiitpfn-  ever  all  of  the  capital  atook  of  a  mil- 

sahilitjf;"  ante,  §  129:  "  .S»i/<j  of  Sur-  road  corjHjration,  chartered   under  the 

pint     Properly."      Also    pout,     §    172:  laws  of  this   St.ite,  is  owned  by  a  rail- 

"  Lenses  of  SnrpluM  Profterfy."  road  corporation  chartered  by  the  laws 

•  Anfe.  §  139  :  "  lAqislntive  Authority  of  another  State,"  the  domestic  corp<>- 
essential  to  Purchase  of  Franchises.'^  ration  "  may  sell  an<l  convey  to  the  cor- 

♦  Ea.-'t  Line,  etc.  R.  Co.  v.  State,  75  poration  owning  its  stock  all  of  its 
Tex.   4.34  (1889).  (12  S.  W.  Rep.  690) ;  property,"  franchises,  etc. 

East    Line,  etc.  R.  Co.  r.   Rushing,  69  76.     Foreign    railroad    corporations 

Tex.  306  (1887),  (6  S.  W.  Rep.  834).  operating    domestic  railro.id  may  pur- 

A  railroad  company  cannot  transfer  chase  or  lease  any  other  domestic  rail- 
its  franchises  to  a  private  person  so  as  road  connecting  with  its  own. 
to  enable  him  to  build  a  railroad  and  lb.  §  1170:  "  Any  railroad  corpora- 
operate  it  for  his  own  benefit.  tion    ...  of  this  or  any   other  State, 

Stewart's    Appeal.  56    Pa.    St.   413  may  lease  or  purchase  any  part  or  all 
220 


CHAP.    XIII.]      CONTRACT   OP   SALE   AND   ITS   EXECUTION.        §  145 

In  nearly  all  of  these  statutes  the  power  to  sell  or  pur- 
chase is  granted  in  connection  with  the  grant  of  power  to 
lease  or  take  a  lease. 


of  any  railroad  constructed  by  another 
corporation  ...  if  tlie  lines  of  such 
roads  are  continuous  or  connected." 

76.  §1172:  "A  corporation  .  .  .  has 
authority,  for  the  purpose  of  extending 
its  line,  or  forming  a  connection,  to  ac- 
quire, hold  and  operate  a  railroad  with- 
out the  State." 

Arizona.  R.  S.  1901,  par.  864,  §  1: 
"  Any  railroad  company  .  .  .  may  pur- 
chase or  lease  the  railroad  "  franchises, 
etc.,  "  of  any  railroad  company  of  this 
Territory  or  any  other  Territory  or 
State.  .  .  .  No  purchase  or  lease  "  shall 
be  made  "unless  the  line  of  railroad 
so  purchased  or  leased  .  .  .  shall,  when 
constructed,  form  ...  a  branch  of,  or 
a  continuous  line  with,  the  railroad  of 
such  purchasing  or  leasing  company 
either  by  direct  connection  therewith, 
or  through  an  intermediate  line  or 
lines." 

lb.  Any  railroad  company  may  sell 
or  lease  its  railroad,  franchises,  etc.,  to 
any  railroad  company,  organized  under 
the  laws  of  Arizona,  or  of  any  other 
Territory  or  State.  The  lines  must  be 
continuous,  either  directly,  or  by  means 
of  intermediate  line  or  lines. 

Arkansas.  San.  &  Hill's  Dig.  1894, 
§  6321  :  "  Any  railroad  company  of 
this  State  .  .  .  may  sell  or  lease  its 
road,  property  and  franchises  to  any 
other  railroad  company  ...  of  any 
other  State  .  .  .  whose  line  of  railroad 
shall  so  connect  with  the  leased  or  pur- 
chased road  by  bridge,  ferry  or  other- 
wise, as  to  practically  form  a  continuous 
line  of  railroad ;  and  any  railroad  of  this 
State  may  buy  or  lease,  or  otherwise 
acquire,  any  railroad  or  railroads,  with 
all  property,  .  .  .  whenever  the  roads 
shall  form,  in  the  operation  thereof,  a 
continuous  line  or  lines." 

lb.  §  6322  :  "  Any  railroad  company 
...  of  any  other  State  ,  .  .  may  buy, 
lease,  or  otherwise  acquire  any  railroad 
or  railroads,  the  whole  or  part  of  which 


is  in  this  State  .  .  .  whenever  the  roads 
of  such  companies  shall  form  in  the 
operation  thereof  a  continuous  line  or 
lines." 

lb.  §  6328  :  "  Any  railroad  company 
.  .  .  of  tliis  or  any  other  State,  or  of  the 
United  States,  may  lease  or  purchase 
all,  or  any  part,  of  a  railroad  .  .  .  the 
whole  or  part  of  which  is  in  this  State, 
and  constructed,  owned  or  leased  by 
any  other  company,  or  connected  at 
any  point  either  within  or  without  this 
State." 

lb.  §  6338  :  "  Every  railroad  corpora- 
tion ...  of  this  State  ...  is  author- 
ized to  sell,  lease  or  otherwise  dispose 
of  .  .  .  its  road,"  etc.,  "  to  any  connect- 
ing railroad  company,  or  to  any  railroad 
corporation  ...  of  this  or  any  other 
State." 

lb.  §  6342:  "Any  railroad  incorpo- 
rated by  .  .  .  any  other  State  may, 
for  the  purpose  of  continuing  its  line 
through  this  State,  lease  or  purchase 
the  property  ...  of  any  railroad  .  .  . 
of  this  State." 

California.  Pomeroy's  Code,  1901, 
§  494  :  "  Any  railroad  corporation  own- 
ing a  railroad  in  this  State  may  sell, 
convey  and  transfer  its  property  and 
franchises  ...  to  any  other  railroad 
corporation  ...  of  this  or  any  otlier 
State  or  Territory,  or  [organized]  under 
any  act  of  Congress,  and  any  other  such 
railroad  corporation  receiving  such  con- 
veyance may  hold  and  operate." 

"  This  section  does  not  authorize  any 
corporation  to  purchase  any  railroad 
property  operated  in  competition  with 
it." 

Colorado.  Mill's  Anno.  Stat.,  1891 
(as  amended  by  Sess.  Laws  1899,  p.  162- 
163),  §  611  :  "  Any  railroad  corporation 
...  of  this  State,  or  ...  of  an  adjoin- 
ing State  or  Territory,  may  lease  or 
purchase  any  part  or  all  of  a  railroad 
constructed  by  another  company  within 
or  without  this  State,  if  the  lines  of 

221 


§145 


INTERCORPORATE   RELATIONS. 


[part  II. 


As  a  general  rule  a  railroad  companv,  in  these  statutes,  is 
expressly  authorized  to  sell  its  railroad,  property  and  fran- 

roads  of  such  companies  are  contiunoua  shall  connect  with  or  form  a  continu- 

or  connected."  ous  line  or  system  witii  the  railnjad  of 

Sess.    Laws    1899,  ch.  125,    p.  313:  such  company  incorporated  under  this 

"Any   railroad    company,    owning    or  law." 

operating  a  line  of  railroad  in  this  lb.  §  2173:  "A  railroad  company 
State,  may  purch.ase  other  lines  of  rail-  shall  have  power  ...  to  lea.xe  or  pur- 
road,  within  or  witiionttliis  State,  wliich  cha.se  the  property  of  any  other  such 
shall  connect  with  tlie  road  operated  hy  company  [i)ne  whose  road  connects  with 
such  company,  directly,  or  by  means  of  tliat  of  purcha.sing  or  leasing  corportV 
any  other  line  which  such  com[)any  tion]  and  hold,  use  and  occupy  the 
shall  have  the  right,  by  contract  or  same  in  such  manner  as  they  shall 
otlierwise,  wiien  constructed,  to  use  and  deem  most  beneficial." 
operate."  Iditho.     Laws   1901,  p.  214:    "Any 

lb.    "Any   corporation  ...  of   this  railroad  corporation  whose  line  is  wholly 

State  m.ay  sell    it.s  lino  of   railroad  to  or   in  part  within  this    State,  whether 

any  other  company,  to  which,  uniler  the  .  .  .  organized    under  the  laws  of  this 

laws  of  tlii.s  State  it  may  le.a.«e  the  same  State  or  of  any  other  State  or  Territory 

or  with  which  it  may  consuli<latc."  or  of  the  United  States,  may  lea.se  or 

Florida.     II.  S.  1891,  §  2248  :  "  Any  purcha.se  .  .  .  the  whole  or  any  part  of 

railroad  ...  in    tiiis   State  shall  have  the  railroad  of  any  other  railroad  cor- 

power  ...  to    make    and    enter    into  poration.  .  .  .    Any    railroad   company 

contracts  with  any  railro.ad  .  .  .  which  m:iy  sell  or  lease  the  whole  or  any  part 

has  constructed    or  will  hereafter  con-  of    its   railroads  ...   to   any   railroad 


struct  any  railroad  .  .  .  within  this 
State  or  in  another  State,  as  will  enable 
said  companies  to  run  tlicir  roads  in 
connection  with  each  other,  ...  or  to 
lease  and  jturchase  tiie  stock  and  prop- 


company  ...  of  the  United  States  or 
of  this  State  or  of  any  other  State  or 
Territory  of  the  United  States." 

Illinois.     K.  S.  1901,  §  196.  p.  1410: 
Domestic  railroacl  corporations  oper.at- 


erty  of  any  other  company,  and  hold,  ing  foreign  or  domestic  railroads  may 
use,  and  occupy  tlie  .same  in  such  man-  purch;ise  same.  No  parallel  or  compet- 
ner  as  they  shall  deem  most  beneficial  ing  lines  can  purcluuse  one  another, 
to  their  interests."  Ih.  §  218,  p.  1415:  "Whenever  a 
Georfjia.  Code,  1895,  §  2179  :  "  Any  corporation  ...  of  another  State  shall 
railroad  company  incorporated  under  be  in  po.ssession  of  a  railroail,  .  .  . 
.  .  .  this  article  sli.all  iiave  authority  to  tlie  whole  or  a  j)art  of  which  is  situated 
sell,  lease,  or  transfer  its  .  .  .  property  in  this  State,  belonging  to  a  corpora- 
or  franchises  to  .  .  .  any  other  railroad  tion  .  .  .  of  this  State,  or  shall  own  or 
company  incorpornted  under  the  laws  of  control  all  the  capital  stock  of  such 
this  or  any  otlier  State  or  of  the  United  corporation  of  this  State,  then  the  cor- 
States,  whose  railroad,  wicliin  or  with-  poration  of  this  State  may  sell  and  con- 
out  this  State,  shall  connect  with  or  vey,  and  such  other  corporation  of 
form  a  continuous  line  with  the  railroad  another  State  .  .  .  m.ay  purchase  in  fee 
of  the  company  incorporated  under  this  simple  all  the  railroad  of  the  corpora- 
law.  Conversely,  any  such  corporation  tion  in  this  State." 
organized  under  the  provisions  of  this  See  also  i'6.  §  47,  p.  1377. 
article  may  purchase  .  .  .  the  property  Indiana.  Burn's  Anno.  Stat.  1901, 
and  franchises  of  any  other  railroad  §5215:  "  Any  railroad  company,  incor- 
company  ...  of  this  or  any  other  porated  under  the  provisions  of  this 
State  or  of  the  United  States  whose  act,  shall  have  the  power  and  authority 
railroads  within  or  without  this  State  to  acquire,  bv  purchase  or  contract,  the 

222 


CHAP.    XIIL]      contract   OF    SALE   AND    ITS    EXECUTION.         §  145 


chises ;  but  in  some  cases  the  power  is  confined  to  the  sale  of 
the  railroad,  in  whole  or  part. 


road  .  .  .  and  franchises  of  any  other 
railroad  corporation  or  corporations 
which  may  cross  or  intersect  the  line  of 
such  railroad  company,  or  any  part  of 
the  same,  or  the  use  and  enjoyment,  in 
whole  or  in  part,"  may  also  purchase 
or  contract  for  the  use  and  enjoyment 
thereof,  in  whole  or  in  part,  of  any 
railroads  lying  within  adjoining  States 
.  .  .  [This  act  does  not  authorize]  "any 
railroad  company  organizing  under  the 
same  to  .  .  .  acquire  .  .  .  the  road  .  .  . 
[or]  franchises  of  any  railroad  already 
built,  equipped  and  operated  within  the 
State  of  Indiana  and  which  may  cross 
and  intersect  the  line  of  railroads 
organizing  under  this  act ;  but  the 
powers  .  .  .  are  .  .  .  limited  ...  to 
such  roads  within  the  State  ...  as  may 
cross  or  intersect  the  same  and  which 
have  not  been  equipped  and  operated  in 
whole  or  in  part." 

Imua.  Code  1897,  §  2066:  "Any 
railroad  corporation  may  sell  or  lease 
its  property  and  franchises  to  .  .  .  any 
corporation  owning  or  operating  any 
connecting  railway." 

Kansas.  G.  S.  1897,  ch.  70,  §  95: 
"  Any  railroad  company  of  this  State 
may  sell  or  lease  ...  its  railroad  and 
branches  ...  to  any  railroad  company 
...  of  this  State  or  of  any  other  State 
or  Territory  of  the  United  States.  .  .  . 
No  purchase  .  .  .  shall  be  entered  into 
unless  the  line  of  railroad  so  purchased 
.  .  .  shall  .  .  .  form  a  continuous  line 
with  the  road  of  the  company  purchas- 
ing .  .  .  either  by  direct  connection 
therewith,  or  through  an  intermediate 
line  or  lines." 

76.  §  51  :  Domestic  corporations  may 
extend  their  lines  into  other  States  and 
purchase  or  lease  lines  of  railroad  in 
such  States,  provided  that  such  lines  are 
connected,  forming  a  continuous  line. 

Maine.  Laws  1899,  ch.  1,§54:  No 
corporation  can  assign  its  charter  or  any 
right  under  it ;  lease  or  grant  the  use 
or  control  of  its  road,  or  any  part  of  it, 
without  the  consent  of  the  legislature. 


Maryland.  P.  G.  L.  1888,  Art.  23, 
§191:  "Any  railroad  company  incor- 
porated under  .  .  .  [particular  statutes] 
shall  also  have  power  to  purcliase  or 
contract  for  the  use  and  enjoyment, 
in  whole  or  in  part,  of  any  other  railroad 
or  railroads  lying  within  or  without 
this  State,  if  the  same  shall  connect 
with  or  form  a  continuous  line  with  the 
railroad  of  the  company  incorporated 
under  said  sections." 

Michigan.  Pub.  Acts  1901,  Act  No. 
30,  p.  50  :  "  Any  railroad  company  .  .  . 
of  this  State  "  is  authorized  to  "  sell, 
lease,  and  convey  its  road  .  .  .  rights 
and  franchises  ...  to  any  other  rail- 
road company,  whether  organized 
within  or  without  this  State ;  and  to 
acquire,  by  lease  or  purchase,  from  the 
owner  of  any  other  railroad  such  road 
.  .  .  whether  located  within  or  without 
this  State;  and  .  .  .  the  railroad  com- 
pany so  purchasing  or  leasing"  may 
"  acquire  and  use  such  road,  rights  and 
franchises  by  purchase  of  stock,  or 
otherwise,  .  .  .  said  railroads  not  hav- 
ing the  same  terminal  points  and  not 
being  competing  lines." 

Comp.  Laws  1897,  §  6328:  Domestic 
railroad  company  being  unable  to  com- 
plete its  road,  may  sell  to  any  domestic 
corporation  not  owning  a  competing 
line. 

Pub.  Acts  1899,  No.  266,  §  17,  p.  447: 
Miscellaneous  provisions  as  to  sale  of 
unfinished  railroads. 

Minnesota.  Laws  1899,  ch.  229,  p.  253  : 
"  Any  railroad  corporation,  either  do- 
mestic or  foreign  .  .  .  may  lease  or  pur- 
chase or  in  any  way  become  the  owner 
of,  or  control  or  hold  the  stock  of  any 
other  railroad  corporation  when  their 
respective  railroads  can  be  lawfully 
connected  and  operated  together  so  as 
to  constitute  one  continuous  main  lino 
.  .  .  and  in  case  such  lease  or  purchase 
shall  be  made  by  a  foreign  corporation  " 
such  corporation  shall  have  the  same 
rights  as  tlie  vendor  company. 

G.   S.  1894,  §  2721:  "  Anv  railroad 

223 


§145 


INTEIICORPORATE    RELATIONS. 


[part  II. 


In  all  cases  the  purchaser  must  be  a  railroad  company,  but, 
generally,  no  distinction  is  made  between  domestic  and  foreign 
corporations  as  purchasers. 

corporation  may  .  .  .  purchase  or  lease  branches  withiu  this  State  ...  to  any 
any  railroad  coustructed  by  any  other  railroad  company  ...  of  the  United 
corporation  whose   lines   of   roads   are     States,  or  of  tliis  State  or  of  any  otlier 


continuous  or  connected  with  its  own." 
Misaoitri.  II.  8.  1899.  §  1060:  A 
railroad  company  may  aid  other  rail- 
road companies  by  purchase  and  "any 
railroad  company  ...  of  this  or  any 
other  State  (jr  of  the  United  States  may 
lease  or  purchase  all  or  any  part  of  a 
railroad  with  all  its  privileges,  rights, 
frandiise.s,  real  estate  and  other  prop- 


State     or    Territory    of     the     United 
States." 

Nehraskn.  Comp.  Stat.  1901,  §  4024  : 
"  Every  railroad  company  ...  of  this 
State  whose  railroads  .  .  .  within  this 
State  shall  be  .so  situated  with  reference 
to  any  railroad  constructed  through  any 
adjoining  State  or  Territory  by  any  rail- 
road company  .  .  .  of  tlie  United  States, 


erty,  the  whole  or  part  of  which  is  in  or  any  State  or  Territory,  that  the  .same 

this  State,  it"  the  lines  of  road  or  roads  may  be  so  connected  at  the  bountlary 

of  such  companies   are   continuous  or  line  of  this  State  or  at  any  poiut  within 

connected  at  a  point,  either  within  or  this   State,  by  bridge,  ferry,   or  otlier- 


witliout  this  State,  upon  such  terms  as 
may  be  agreed  between  tlio  companies 
respectively."' 

lb.  §  10()1  :  "  Any  railroad  company 
...  of  tills  State  .  .  .  may  ac(|uire 
any  line  of  railroad  within  or  without 
this  State  which  shall  form  a  continu- 
ous line  with  the  road  operated  by  such 
company,  by  direct  connection  or  over 
any  other  line  or  lines  .  .  .  which  such 


wise,  as  to  practically  form  a  continu- 
ous line  of  railway  over  which  cars  may 
pa.ss,  is  hereby  authorized  to  purchase 
such  connecting  railway,  or  to  sell  the 
same  to  the  railroad  company  "  that 
owns  or  ojierates,  etc.,  said  railroad 
through  the  adjoining  State,  to  said 
point  of  coiihection. 

J/).  §  1769:  "Any  railroad  company, 
existing  in  jiursuance  of  law,  may  lease 


company  shall  have  the  right,  by  con-  or   purchase  .  .  .  any    railroad  ...  if 

tract    or    otherwise  ...   to    use  and  said  cijmpanies'  lines  of  railroad  .  .  . 

operate."  are  continuous  or  connected." 

i\fonta>ia.     Code  1895,  §  912  :  "  Any  See  also  ib.  §§  4018,  4019,  4026. 

railroad  corporation  whose  line  is  wholly  Nevuda.     Laws  1901,  p.  51:  "Any 

or  partly  within  this  State,  or  reaches  railroad   corporation   owning  any  rail- 

the  boundary  lino  thereof,  whether  .  .  .  road   in    this    State    may   sell  ...  its 

of  the  State  or  Territory  of  Montana,  property  ...  to     any    other    railroad 


or  of  the  United  States,  or  of  any  other 
State  or  Territory,  may  lease  or  pur- 
chase the  whole  or  any  part  of  the  rail- 
road or  line  of  railroad  of  any  railroad 
corporation.  .  .  .  The  railroad  or  line 
of  railroad  so  leased  or  purchased " 
must  be  "  continuous  of  or  connected 
with  its  own  line." 

Ib.    §   923 :    "  Any   company    .    .    . 
within  this  State  may  .  .  .  buy  or  lease 


corporation  ...  of  this  State  or  of 
any  other  State  or  Territory ;  or  under 
any  act  of  Congress." 

iVew  Jerseij.  Laws  1900,  ch.  46, 
p.  70 :  "  Whenever  any  railroad  corpo- 
ration of  this  State  shall  own  all  the 
bonds  and  shares  of  stock  of  any  other 
railroad  corporation  of  this  State  whose 
railroad  .  .  .  connects  with  the  railroad 
of   said   first    mentioned   corporation " 


any  railroad  or  railroads  in  any  other  it  may  acquire,  have,  hold,  use,  etc.,  all 

State   or   Territory,  or  .  .  .  any  other  the  rights,  etc.,  of  the  corporations  so 

railroad  in  this  State  .  .  .  ;  or  any  rail-  controlled. 

road    company   may   sell  or   lease  the  New   Mexico.      Comp.    Laws    1897, 

whole  or  any  part   of  its   railroad  or  §   3891:    "Any   railroad   organized  in 

224 


CHAP.    XIII.]       CONTRACT   OF   SALE   AND    ITS   EXECUTION.         §  145 


The  right  to  purchase  and  sell  is  usually  limited  to  corpo- 
rations owning  connecting  or  continuous  lines  of  road.     The 


pursuance  of  law  either  withiu  this  or 
any  other  Territory,  or  State,  may  lease 
or  purchase  any  part  or  all  of  any  rail- 
road constructed,  owned,  or  leased  by 
any  other  company." 

New  York.  R.  S.  1901  (Birdseye's) 
Railroad  Law,  §  79  :  "  Any  corporation 
...  of  this  State,  or  its  successors, 
being  the  lessee  of  any  other  railroad 
corporation  may  take  a  surrender  of  the 
capital  stock  of  the  stockholders  or  any 
of  them  in  the  corporation  whose  road 
is  held  under  lease."  The  lessee  corpo- 
ration may  issue  in  exchange  therefor 
its  own  stock  at  par.  When  the  greater 
part  of  the  capital  stock  of  the  lessor  cor- 
poration is  so  acquired  the  directors  of 
the  lessee  corporation  become  ex  officio 
directors  of  the  lessor  corporation,  and 
when  the  whole  of  the  capital  stock  is 
acquired  and  a  certificate  thereof  filed 
with  the  Secretary  of  State,  the  estate, 
property,  franchises,  etc.,  of  the  lessor 
corporation  vest  in  the  lessee  corpora- 
tion and  may  be  managed  and  con- 
trolled by'  its  directors.  Rights  of 
creditors  and  existing  liabilities  of  the 
lessor  corporation  are  not  affected  by 
the  transfer. 

North  Dakota.  Rev.  Codes  1899, 
§  2954  :  "  Any  such  railroad  corporation 
[of  this  State  or  Territory  of  Dakota  or 
existing  by  consolidation  of  railways  of 
such  State  or  Territory  and  of  any  other 
Territory  or  State]  may  lease  or  pur- 
chase and  take  by  conveyance  or  assign- 
ment the  railroad  francliises  ...  of 
any  other  railroad  corporation,  or  any 
portion  thereof  within  or  without  tliis 
State,  when  their  respective  railroads 
can  be  lawfully  connected  and  operated 
together  to  constitute  one  continuous 
main  line,  or  when  the  roads  so  pur- 
chased will  constitute  branches  or 
feeders  of  any  road  maintained  and 
operated  by  such  purchasing  corpora- 
tion." 

Ohio.    Bates'  Anno.  Stat.  1787-1902, 
§  3.300 :  "  Any  company  may   lease  or 
purchase  any  part  or  all  of  a  railroad 
15 


constructed  or  in  the  course  of  con- 
struction by  another  company,  if  the 
lines  of  road  of  sucli  companies  are 
continuous  or  connected  .  .  .  upon  such 
terms  as  may  be  agreed  upon  by  the 
companies." 

lb.  §  3409.  A  railroad  company 
unable  to  complete  its  road  may  sell  to 
any  domestic  railroad  company  author- 
ized to  operate  over  the  same  route. 

See  also  ib.  §  3392  (1). 

Oklahoma.  Stat.  1893,  ch.  17,  §  15, 
par.  1016:  "Any  railroad  corporation 
whose  line  is  wholly  or  in  part  within 
this  Territory,  whetlier  ...  of  this  Ter- 
ritory, or  of  any  other  State  or  Terri- 
tory, or  of  the  United  States,  may  lease 
or  purchase  and  operate  the  .  .  .  rail- 
road of  any  other  railroad  corporation 
.  .  .  when  such  railroads  can  be  law- 
fully connected  and  operated  together 
so  as  to  constitute  a  continuous  main  or 
branch  line." 

See  also  Sess.  Laws  1901,  Art.  4, 
ch.  11,  p.  86. 

Oregon.  Hills'  Anno.  Laws  1892, 
ch.  32,  §  3221,  subdiv.  7  :  Railroad  com- 
panies have  power  "  to  lease  or  purchase, 
maintain  and  operate  any  part  or  all  of 
any  other  railroad  constructed  by  any 
other  company  upon  such  terms  and 
conditions  as  may  be  agreed  upon  be- 
tween said  companies  respectively." 

No  parallel  or  competing  lines  are 
authorized  to  lease  or  purcliase. 

Pennsi/Ivania.  Laws,  1901,  Act  No. 
20,  p.  .^3 :  "  It  shall  be  lawful  for  any 
railroad  corporation  of  this  common- 
wealth, having  a  railroad  connecting 
with  that  of  any  other  like  corporation, 
and  owning  at  least  two-thirds  of  the 
capital  stock  of  the  latter,  to  acquire  in 
the  manner  hereinafter  provided,  and 
thereafter  be  possessed  of,  own,  hold, 
exercise  and  enjoy,  all  the  franchises, 
corporate  property,  rights  and  credits 
then  possessed,  owned,  held  or  exer- 
cised, by  said  last-mentioned  vendor 
corporation." 

South  Carolina.    R.  S.  1893,  §  1624: 

225 


145 


INTERCORPORATE   RELATIONS. 


[part    II. 


considerations  of  public  policy  inducing  this  limitation  have 
already  been  considered  in  connection  with  similar  provisions 
in  consolidation  statutes.^ 


"  Railroad  companies  ...  of  this  State 
.  .  .  may  .  .  .  enter  into  contracts  for 
the  purchase,  use  or  lease  of  other  rail- 
roads .  .  .  and  may  run,  use  and  oper- 
ate such  road  or  roads  in  accordance 
with  such  contract  or  lease  :  Provided 
that  the  roads  of  the  companies  so  con- 
tracting or  lcasin<:;  shall  he  directly,  or 
by  means  of  intervening  railroads,  con- 
nected with  each  other." 

//*.  §  1542  :  "  Every  railroad  company 
incorp(jrated  in  tins  State  shall  have  all 
the  rights,  powers  ...  set  forth  in  this 
article." 

III.  §1.546:  "Such  company  shall 
have  the  power  and  authority  ...  to 
purchase,  lease,  .  .  .  any  other  railroad 
or  railroads  in  or  out  of  this  State,  in 
such  manner  and  upon  such  terms  as 
may  he  agreed  between  such  railroad 
companies." 

South  Dakota.  Anno.  Stat.  1901, 
§  3906 :  "  Any  railroad  com])any  may 
sell  or  lease  the  whole  or  any  part  of  its 
railroad  or  franchises  within  this  State 
...  to  any  railroad  com])any  ...  of 
the  United  Stales,  or  of  this  State,  or 
of  any  other  State  or  Territory  of  the 
United  States." 

Tennessee:  Code  1896,  §  1509: 
"Every  railroad  corporation  in  this 
State  .  .  .  shall  have  the  power  to" 
buy  "  any  raih-oad  .  .  .  belonging  to 
any  other  railroad  corporation." 

Ih.  §  1521  :  "Any  and  all  railroad 
companies  ...  of  this  State,  or  of  this 
State  and  any  other  State  or  States, 
whose  charters  of  incorporation  were  or 
may  be  granted  by  this  State,"  may  "  ac- 
quire the  line  or  lines  of  any  other  rail- 
road company  either  in  this  State  or  any 
other  State  or  States,  which  may  con- 
nect with  or  form  parts  and  parcels  or 
brandies  or  extensions  of  the  line  of  such 
company  chartered  by  this  State  "  and 
may  "  so  acquire  branches  or  extensions 
by  purchase,  lease  or  otherwise." 


lb.  §  1540  :  "  Railroad  companies  of 
this  State  "  may  "  lease  or  let,  acquire 
by  purchase,  lease  or  otherwise  .  .  .  any 
railroad  or  railroads  in  any  State  or 
States,  or  any  parts  or  portions  of  any 
such  railroads  ...  as  may  he  deter- 
miued  upon  by  the  stockholders." 

Utah.  Laws  1901,  ch.  26,  p.  21,  §  3  : 
"  Any  corporation  owning  any  railroad 
line  in  this  State  may  sell,  convey,  and 
transfer  its  property  and  franchises  .  .  . 
to  any  railroad  corporation  (not  owning 
any  competing  line)  in  this  State  whether 
organized  under  the  laws  of  this  State  or  ' 
of  any  other  State  or  Territory,  or  of 
any  act  of  Congress." 

76.  §  4  :  "  Railroad  corporations  may 
be  formed,  pursuant  to  the  laws  of  this 
State,  for  the  purpose  of  buying  or  leas- 
ing a  corporation  or  corporations  whose 
lines  of  railroad  are  situated  within  or 
without  this  State,  or  partly  within  and 
partly  without  this  State." 

Washimjton.  Ballinger's  Anno.  Codes 
and  Stat.  1897,  §4304:  "  Any  railroad 
corporation  whose  line  is  wholly  or  in 
part  within  this  State,  whether  chartered 
by  or  organized  under  the  laws  of  this 
State,  or  any  other  State  or  Territory, 
or  of  the  United  States,  may  lease  ht 
purchase  the  railroad  of  any  other  rail- 
road corporation." 

West  Virginia.  Code  1899  (as 
amended  by  Acts  1901,  ch.  108),  cb.  54, 
§53:  (1)  Same  as  "consolidation" 
statute  (.see  ante,  §  22),  substituting 
"purchase"  and  "sell"  for  "consoli- 
date." 

lb.  ib.  (2) :  "  Any  railroad  ...  of 
this  State  .  .  .  or  of  this  State  and  other 
States  may  purchase  the  railroad  .  .  . 
of  any  railroad  company  created  under 
the  laws  of  this  State,  or  of  this  State 
and  any  other  State  or  States,"  provided 
railroads  purchased  are  not  parallel  or 
competing  lines  with  purchaser.  And 
provided  further  that  "  the  railroad  or 


1  See  ante,  §  22  :  "  What  Railroads  may  consolidate  —  Statutory  Provisions." 

226 


CHAP.    XIII.]      CONTRACT   OP   SALE    AND   ITS   EXECUTION.         §  146 

It  will  be  observed  that  the  New  York  and  New  Jersey 
statutes  relate  rather  to  succession  than  to  purchase  and  sale. 

§  146.  Construction  of  Statutes.  —  A  railroad  Company  ob- 
tains power  to  sell  its  railroad  and  franchises,  or  to  purchase 
the  railroad  and  franchises  of  another  corporation,  only  when 
it  is  distinctly  conferred  by  statutory  authority.  Such  power 
will  not  arise  by  implication  unless  necessary  to  give  effect 
to  the  language  employed  in  a  statute.  Any  ambiguity  in  the 
terms  of  the  grant  will  operate  against  the  corporation  claim- 
ing the  power,^ 

In  Wood  V.  Bedford,  etc.  H.  Co."^  Judge  Sharswood  said : 
"  The  general  canon  of  construction  applicable  to  legislative 
grants  of  this  class,  derogating  as  they  do  from  common  right 
and  public  policy,  requires  that  the  intention  should  be  very 
manifest ;  if  not  to  be  unequivocally  expressed,  at  all  events 
not  to  depend  upon  ambiguous  phrases  rendering  the  implica- 
tion doubtful." 

Power  to  purchase  does  not  include  power  to  sell.^    Au- 


railroads  so  .  .  .  purchased  form,  with 
the  railroad  of  the  company  .  .  .  pur- 
chasing the  same,  either  directly  or  by 
means  of  other  intervening  railroad  or 
railroads,  a  through  line  for  the  trans- 
portation of  persons  and  property." 

Wisconsin.  Stat.  1898,  §  1833  (as 
amended  by  Laws  1899,  ch.  191):  "Any 
such  railroad  corporation  [see  ante,  §  22, 
"consolidation"],  may  give  or  take  a 
lease  or  may  sell  to,  or  purchase  from, 
any  railroad  company  .  .  .  within  or 
without  the  State,  and  give  or  take  a 
conveyance  of  the  railroad  franchises 
...  of  any  railroad  corporation  .  . 
of  this  State,  or  of  any  other  State,  or 
of  the  United  States,  or  any  portion 
thereof,  within  or  without  the  State, 
when  their  respective  railroads  can  be 
lawfully  connected  and  operated  together 
to  constitute  one  continuous  main  line, 
or  when  the  road  so  purchased  or  leased 
will  constitute  a  branch  ...  or  be  con- 
nected or  intersected  by,  any  line  main- 
tained and  operated  by  such  purchasing 
or  leasing  corporation,  or  which  such 
purchasing    or    leasing    corporation   is 


authorized  to  build,  own,  maintain  or 
operate." 

Wyoming.  R.  S.  1899,  §  3206  ; 
"  Any  company  owning  or  operating  a 
railroad  within  this  State  may  extend 
the  same  into  any  other  State  or  Terri- 
tory, and  may  .  .  .  buy,  lease  or  con- 
solidate with  any  railroad  or  railroads 
in  such  other  State  or  Territory,  or 
with  any  other  railroad  in  this  State, 
and  may  operate  the  same.  .  .  .  Any 
railroad  may  sell  or  lease  its  railroad  or 
branches  within  this  State  ...  to  any 
railroad  company  ...  of  the  United 
States,  or  of  this  State,  or  of  any 
other  State  or  Territory  of  the  United 
States." 

1  Black  V.  Delaware,  etc.  Canal  Co., 
24  N.  J.  Eq.  455  (1873).  Compare  de- 
cision of  the  Chancellor  in  the  same 
case,  22  N.J.  Eq.  130  (1871). 

2  Wood  V.  Bedford,  etc.  R.  Co., 
8  Phila.   (Pa.)  95  (1871). 

8  Southern  Pac.  R.  Co.  v.  Esquibel, 

5  N.  Mex.  123    (1889),  (20  Pac.  Rep. 

109).     Whether  power  to   consolidate 

includes   power  to  sell  see  ante,  §  28  : 

227 


§  146  INTEBCOEPORATE   EELATIONS.  [PART   II. 

thority  to  sell  is  not  implied  from  a  grant  of  authority  to 
mortgage.^  Authority  granted  to  one  railroad  company  to 
"  purchase,  lease,  hold  and  maintain  any  other  railroad " 
does  not  confer  upon  other  railroad  companies  implied  author- 
ity to  sell.^  Authority  to  purchase  the  railroad  of  a  specified 
corporation,  however,  empowers  the  latter  corporation  to  make 
the  sale.^  Power  to  sell  a  constructed  railroad  docs  not 
authorize  the  sale  of  road  hefore  it  is  finished;^  nor  can  a 
transfer  of  franchises  be  justified  under  a  statute  permitting 
the  lease  of  a  completed  railroad.^  Power  to  sell  or  purchase 
will  not  be  implied,  in  favor  of  a  non-competing  railroad,  from 
a  statute  prohibiting  the  execution  of  a  contract  of  sale  be- 
tween competing  roads.^ 

"  Power  to  buy  a  railroad  cannot  be  implied  from  an  ex- 
press grant  of  power  to  '  construct,  own,  maintain  and  oper- 
ate '  a  railroad  to  be  constructed  by  the  corporation  to  which 
those  express  powers  are  given,  for  the  existence  of  such  a 
power  is  not  necessary  to  accomplish  the  object  specified."^ 
A  grant  of  power  to  a  railroad  company  to  locate  and  con- 
struct branches  to  its  main  road  does  not  include  authority 
to  purchase  the  railroad  of  another  company  constructed 
under  a  different  charter.^ 

Where,  however,  the  sale  of  a  railroad  and  franchises  is  dis- 
tinctly authorized  by  statute  a  sale  may  be  effected  although, 
thereby,  the  objects  for  which  the  corporation  was  created 
are  defeated.^     Authority  "  to  have,  purchase,  possess,  enjoy 

"  Construction    of  Particular   Statutory  *  Clarke    v.    Omaha,    etc.    R.    Co., 

Provisions."  4  Neb.  458   (1876). 

1  Southern  Pac.  R.  Co.  v.  Esquibel,  ^  Pittsburgh,  etc.  R.  Co.  v.  Bedford, 
5  N.  Mex.  123  (1889),  (20  Pac.  Rep.  etc.  R.  Co.,  81^  Pa.  St.  104  (1871); 
109).  "  It  was  ar^ijued  for  the  appel-  Wood  v.  Bedford,  etc.  R.  Co.,  8  Phila. 
lant   that,  if  the  land   could  be  mort-  (Pa.)  94  (1871). 

gaged  for  the  means  to  construct,  equip,  «  East  Line,  etc.  R.  Co.,  v.  State,  75 

and  operate  the  road,  it  could   be  as-  Tex.  434  (1889),  (12  S.  W.  Rep.  690). 
signed,  in  the  first  place,  for  the  same  7  East  Line,  etc.  R.  Co.  v.  Rusliing, 

object.  The  doctrine  that  a  power  to  67  Tex.  692  (1887),  (4  S.  W.Rep.  156). 
mortgage   includes  a  power  to  sell  is         ^  Campbell  v.  Marietta,  etc.  R.  Co., 

not  supported  by  authority  of  law."  23  Ohio  St.  168  (1872). 

2  State  V.  Consolidation  Coal  Co.,  '  Mahaska  County  R.  Co.  v.  Dps 
46  Md.  1  (1876).  Moines,   etc.    R.    Co.,    28    Iowa,    437 

3  New    York,   etc.    R.    Co.    v.   New  (1870). 
York,  etc.  R.  Co.,  52  Conn.  274  (1884). 

228 


CHAP.    XIII.]       CONTRACT   OF   SALE   AND   ITS   EXECUTION.        §  148 

and  retain  lands,  rents,  hereditaments,  goods,  chattels  and 
effects,  of  whatsoever  kind,  nature  or  quality  "  sanctions  the 
purchase  of  a  railroad.^  A  statute  authorizing  "  any  railroad 
company  "  to  purchase  the  railroad  and  franchises  of  a  par- 
ticular corporation  authorizes  such  purchase  by  a  railroad 
company  of  another  State.^ 

§  147.  Constitutional  and  Statutory  Prohibitions  of  Purchase 
of  Competing  or  Parallel  Lines.  —  The  purchase  by  a  railroad 
company  of  a  line  of  railroad  competing  with,  or  parallel  to, 
its  own  is  prohibited  in  many  constitutional  and  statutory 
provisions,  in  connection  with  similar  prohibitions  against  con- 
solidations and  leases.  These  provisions,  their  construction 
and  application,  have  already  been  fully  considered.^ 


III.    Authorization  and  Execution  of  Contract  of  Sale. 

§  148.    Statutory  Requisites.  —  The  statutes  of  the  different 

States  prescribing  the  method  to  be  followed  in  authorizing 
and  executing  sales  of  railroads  are  referred  to  in  the  foot- 
note.* 

^  Branch   v.   Atlantic,   etc.   R.  Co.,  *  See  ante,  ch.  3  :  "  Constitutional  and 

3  Woods  (U.  S.),  481  (1879).  Statutory  Restraints  ttpon  Consolidation." 

For  construction  of  particular  statu-  *  Arizona.     R.  S.  1901,  par.  864,  §  1: 

tory  and  constitutional  provisions  relat-  Assent  of  holders  of  two-thirds  of  en- 

ing  to  sales  of  railroads  and  franchises  tire   corporate   stock  —  by   vote   or   in 

see  Mackintosh  v.  Flint,  etc.  R.  Co.,  34  writing  —  necessary    to     contract     of 

Fed.  582  (1888);  Venner  v.  Atchison,  sale. 

etc.  R.  Co.,  28  Fed.  581  (1886);  People  Alabama.     Code  1896,  §§  1170,  1173  : 

r.  Stanford,  77  Cal.  360  (1888),  (18  Pac.  Approval   of    holders   of    majority    in 

Rep.    85) ;   Barley  v.  Southern  R.  Co.,  value   of  stock  of  vendor  and  vendee 

61  S.  W.  Rep.  31  (1901).  corporations  at  meeting  called  for  the 

2  Boston,  etc.  R.  Co.  v.  Boston,  etc.  purpose  required. 
R.  Co.,  65  N.   H.  397  (1888),  (23  Atl.         Arkansas.     San.  &  Hill's  Dig.  1894, 

Rep.    529).     Chief  Justice   Doe   said:  §§  6321,   6328,  6332,  6338:  Assent  of 

"  Express  consent  is  given  to  a  purchase  holders  of  two-thirds  of   capital  stock 

by   '  any   railroad    company.'      Taken  is  necessary. 

without    qualification    this    clanse    in-  California.     Pomeroy's   Code    1901, 

eludes  foreign  as  well  as  domestic  rail-  §  494 :    Contract  of  sale   must   be   au- 

road   corporations.      The   words    '  any  thorized   by   directors  and   ratified    by 

railroad   company  '   might  be   used    in  three-fourths   of   stockholders   of  both 

a   connection    and   for  a   ])urpose   that  corporations. 

would  show  a  restricted  sense  not  in-  Colorado.     Mills'  Anno.  Dig.    1891, 

eluding  foreign  companies.     Here  is  no  §  612.     Also  Sess.  Laws  1899,  ch.  125, 

evidence  to  exclude  them."  p.  313  :  Assent  of  holders  of  two-thirds 

229 


§148 


INTERCORPORATE   RELATIONS. 


[part   II. 


The  State  may  withhold  the  grant  of  power  to  sell  entirely 
or  may  attach  such  conditions  to  its  exercise  as  it  may  deem 
expedient.  These  conditions  —  as  distinguished  from  mere 
directions  —  must  he  strictly  complied  with.  They  are  con- 
ditions precedent  to  the  validity  of  the  sale. 

As  a  general  rule,  these  statutes  prescribe  three  steps  in  the 
authorization  and  execution  of  a  contract  of  sale  : 


of  capital  stock  of  each  company  re- 
qaired. 

Illinois.  R.  S.  1901,  §§  196.  218: 
Approval  of  holders  of  two-thirds  of 
capital  stock  required. 

Kansas.  G.  S.  1897,  §  95:  Sale 
must  be  ratified  by  vote  of  two-thirds 
of  caj)ital  stock  of  eacli  company,  or  ap- 
proved by  such  holilers  in  writing. 

Michigan.  Comp.  Laws  1 897.  §  6.328  : 
Consent  of  two-tiiirds  of  stockliolders 
required  for  sale  of  uncompleted  road. 
Consent  of  majority  sufficient  under 
1901  Act  (P.  A.  1901,  Act  No.  30, 
p.  50). 

Minnetota.  G.  S.  1894,  §§  2721, 
2736 :  Sale  must  bo  approved  by 
holders  of  two-thirds  of  capital  stock  of 
each  company  at  meetings  called  for 
the  purpose. 

Missouri.  R.  S.  1899,  §  1060: 
Holders  of  a  majority  of  stock  of  each 
company  must  assent  in  writing  to  sale 
proposed  by  directors  before  it  can  be 
perfected. 

Montana.  Code  1895,  §  912,  requires 
approval  of  three-fifths  of  stockholders, 
lb.  §  923  requires  approval  by  majority 
vote  or  by  majority  in  writing.  Apply 
to  sales  under  different  statutes. 

Nebraska.  Comp.  Stat.  1901,  §  1 769  : 
Sale  must  be  assented  to  by  vote  of 
holders  of  two-thirds  of  capital  stock ; 
(§  4026)  by  vote  or  written  approval  of 
like  number.  lb.  §§  4018,  4019,  au- 
thorize approval  of  certain  sales  by 
majority   vote. 

New  Jersey.  Laws  1900,  ch.  46, 
p.  70 :  Acquisition  effected  by  written 
agreement  executed  pursuant  to  reso- 
lution adopted  by  directors  of  each 
company. 

230 


New  Mexico.  Comp.  Laws  1897, 
§  3891  :  Holders  of  two-thirds  of  capi- 
tal stock  must  a.ssent  to  sale. 

North  Dakota.  liev.  Codes  1899, 
§  2954  :  Sale  must  be  approved  in  same 
manner  as  consolidation.  See  ante, 
§  52  :  "  Formal  Statutory  Requisites " 
(consolidation). 

Ohio.  Bates'  Anno.  Stat.  1787-1902, 
§§  3301,  3411:  Twtvtliirds  of  stock- 
holders must  approve  sale  at  meeting 
called  by  each  corporation. 

Pe/insylrania.  Laws  1901,  p.  52, 
Act  No.  20:  Agreement  adopted  by  di- 
rectors must  be  approved  by  majority 
of  stockholders  of  each  corporation 
present  at  meeting  called  for  the  pur- 
pose. 

South  Dakota.  Anno.  St.at.  1901, 
§  3906  :  Sale  nmst  be  approved  in  same 
manner  as  consolidation.  See  ante, 
§  52  :  "  Formal  Statutory  Requisites  " 
(consolidation). 

Tennessee.  Code  1896,  §  1540:  Sale 
must  be  approved  by  votes  of  holders 
of  three-fourths  of  capital  stock. 

West  Virginia.  Code  1899,  ch.  54, 
§  53  :  Sale  under  first  part  of  statute 
requires  approval  of  majority  of  stock- 
holders ;  under  second  part  two-thinl.-^. 
Also  refers  to  consolidation  statute. 
See  ante,  §  52,  "  Formal  Statutory  Req- 
uisites" (consolidation). 

Wyoming.  R.  S.  1899,  §  3206  :  Sale 
must  be  approved  by  vote  of  holders  of 
a  majority  of  stock,  or  their  written 
approval  must  be  given. 

All  the  above  abstracts  should  be  ex- 
amined in  connection  with  the  statutes 
collected  in  note  to  anfe,  §  145  :  "  What 
Railroads  maij  be  the  Subject  of  Sale. 
Statutory  Provisions." 


CHAP.    XIII.]       CONTRACT   OF   SALE    AND   ITS   EXECUTION.        §  149 

1.  The  contract  must  be  approved  by  the  boards  of  directors 
of  both  vendor  and  vendee  companies. 

2.  It  must  be  submitted  to  and  approved  by  the  prescribed 
majority  of  the  stockholders  of  each  company. 

3.  It  must  be  formally  executed  in  behalf  of  each  corpora- 
tion by  agents  appointed  for  the  purpose. 

§149.  Assent  of  Stockholders.  Whether  Approval  of  Maj ority 
is  sufficient.  —  As  shown  in  the  last  section,  statutes  authoriz- 
ing sales  of  railroads  generally  prescribe  the  number  of  stock- 
holders whose  consent  is  necessary. 

Where,  however,  the  statute  merely  grants  power  to  sell, 
questions  may  arise  as  to  the  manner  of  exercising  the 
power. 

It  may  be  contended  that  the  grant  of  authority  to  sell  only 
waives  the  rights  of  the  public,^  and,  therefore,  that  a  railroad 
company  —  a  quasi-puhVic  corporation  —  with  power  to  sell, 
stands  in  the  position  of  a  private  corporation  with  respect  to 
the  disposition  of  its  property  — that  whether  unanimous  con- 
sent is  necessary  to  a  sale  of  a  railroad  and  franchises,  where 


1  Knoxville  v.  Knoxville,  etc.  R.  Co., 
22  Fed.  763  (1884) :  "The  authority  thus 
given  to  any  railroad  company  to  buy 
necessarily  implies  authority  to  other 
compauies  to  sell,  inasmuch  as  there 
could  be  no  purchase  without  corre- 
sponding sale.  But  it  was  not  compe- 
tent for  the  legislature  to  do  more  in 
this  respect  than  to  waive  the  public 
rights.  It  could  not  divest  or  impair 
the  rights  of  the  shareholders,  as  be- 
tween themselves,  as  guaranteed  by  the 
company's  charter,  without  their  con- 
sent. It  was  upon  the  faith  of  the  stip- 
ulations contained  in  said  charter  that 
the  shareholders  subscribed  to  the  capi- 
tal stock,  and  thereby  made  themselves 
members  of  the  corporation.  These 
stipulations,  as  we  have  already  seen, 
contemplated  and  provided  for  the  con- 
struction of  a  railroad  between  the 
termini  named,  to  be  governed  by  the 
shareholders,  in  the  manner  and  upon 
the  terms  prescribed.  Each  corporator 
is  entitled  to  have  the  contract  fairly 


interpreted  and  honestly  enforced.  The 
charter  invests  the  owners  of  a  majoi-ity 
of  the  capital  stock  witli  the  right  to 
control  the  corporate  business  within 
the  scope  of  its  provisions.  Within  this 
limit,  the  power  of  the  majority,  when 
acting  in  good  faith,  is  supreme.  But 
complainant's  charter  does  not,  by  anv 
reasonable  intendment,  clothe  the  major- 
ity with  authority  to  sell  the  company's 
franchise  and  property,  and  in  this 
way  coerce  the  minority  and  protesting 
shareholders  into  another  and  differ- 
ent corporation,  owning  and  operating 
another  and  different  railroad,  under 
another  and  different  charter  imposing 
other  and  different  oljligations,  and 
governed  by  a  different  set  of  operators. 
To  so  hold  would  be  to  divest  them  of 
their  vested  rights  aud  force  them  into 
relations  and  subject  them  to  duties  and 
obligations  which  they  have  not,  and 
probably  would  not,  have  voluntarily 
assumed." 

231 


§  150  INTERCORPORATE    IlKLATIONS.  [PART   II. 

the  governing  statute  is  silent,  depends  upon  the  princij)les  of 
law,  already  considered,  applicable  to  private  corporations.^ 

Upon  principle,  however,  it  seems  the  better  view  that 
authority  granted  a  railroad  company  to  sell  its  road  and 
franchises  is  an  express  power  of  the  corporation  ;  and  that  it 
may  be  exercised,  unless  otherwise  provided,  in  the  same 
manner  that  other  primary  corporate  powers  are  exercised  — 
by  a  majority  vote  of  the  stockholders.^ 

Unquestionably,  the  assent  of  at  least  a  majority  of  the 
stockholders  is  essential.  Unless  the  power  is  distinctly 
conferred  by  statute  or  by  laws  upon  the  directors — they 
have  no  authority  to  sell  the  railroad  or  franchises  of  their 
corporation,  in  whole  or  in  part.^  Directors  arc  appointed 
to  manage  the  afl'airs  of  a  corporation,  and  not  to  transfer  its 
property  to  others. 

§  150.  Acquiescence  of  Stockholders. — The  assent  of  the 
stockholders  of  a  railroad  company  to  the  purchase  or  sale  of 
a  railroad  should,  regularly,  be  expressed  in  the  manner  pro- 
vided in  the  statute  authorizing  the  sale  ;  and,  in  the  absence 
of  other  statutory  provision,  by  their  votes  at  stockholders' 
meeting.  Acquiescence,  however,  is  an  implied  sanction  of  a 
sale.*  Stockholders  who  stand  by  and  take  no  action  until 
the  rights  of  third  persons  intervene  lose  their  right  to  ques- 
tion sales  of  railroads  made  without  their  approval.^     Stock- 

1  See  ante,  ch.  11,  suhdiv.  1  :  "Sales  others  the  power  which  h.as  been  in- 

of  Property  of  Private  Cor/'orations."  tni.sted  to  them,  is  clearly  iu  e.\cess  of 

^  See  post,  §  189:  "  Whether  Unani-  their  authority." 
mous  Consent  is  necessary  unless  other-  *  Boston,  etc.  R.  Co.  v.  New  York, 
wise  provided."  etc.  K.  Co.,  13  R.  I.  260(1881).  See 
*  See  ante,  §  112:  "Sale  of  Entire  also  an^e,  §  45  :  "  Assent  of  Stockholders, 
Corporate  Property  by  Directors."  how  manifested.  Acquiescence.  Estop- 
In  Martin  i*.  Continental  Passenger  pel."  Also  ante,  §  116:  "Defences  to 
R.  Co.,  14  Phila.  (Pa.)  10  (1880),  the  Stockholders' Actions.  Estoppel." 
Court  said:  "Boards  of  managers  are  ^  Dimpfel  v.  Ohio,  etc.  R.  Co., 
simply  the  agents  of  tlie  corporation  9  Biss.  (U  S.)  127  (1879),  (affirmed  110 
which,  like  natural  persons,  is  bound  U.  S.  209  (1884)) :  "  In  the  second  place, 
only  by  the  acts  and  contracts  of  its  even  if  the  right  did  not  clearly  exist 
agents,  done  within  the  scope  of  their  by  virtue  of  the  laws  of  Illinois,  after 
authority.  The  business  of  the  directors  the  lapse  of  so  long  a  time,  and  after  so 
of  a  railway  is  to  manage  the  business  many  rights  and  equities  have  been  ac- 
intrusted  to  their  charge.  To  give  it  quired  by  different  parties  under  the 
away  or  sell  it,  or  in  any  way  put  it  out  action  of  the  railway  company,  it  is  not 
of  their    control,  and  to    delegate   to  competent  for  tiie  plaintiff,  or  the  other 

232 


CHAP.    XIII.]       CONTRACT    OF   SALE   AND   ITS    EXECUTION.        §  151 

holders  who  participate  in  the  transaction  cannot,  after  its 
consummation,  question  its  validity,  although  their  formal 
votes  were  lacking.^ 

§  151.  Rights  and  Remedies  of  Dissenting  Stockholders.  —  It 
is  well  settled  that  equity  will  restrain,  at  the  instance  of  a 
single  stockholder,  a  majority  of  the  stockholders  of  a  cor- 
poration, acting  in  its  name,  from  entering  into  ultra  vires  or 
unlawful  contracts.  Minority  stockholders,  acting  with  due 
diligence,  may  sue  for  an  injunction  against  the  unauthorized 
sale  of  a  railroad  before  its  consummation,  and  for  the  cancel- 
lation of  the  contract  after  its  execution.^ 

A  distinction  has  been  drawn  between  the  right  of  a  dissen- 
tient stockholder  to  restrain  an  act  ultra  vires  the  corporation 
and  an  act  ultra  vires  the  majority.  Thus,  it  has  been  declared 
that  while  a  stockholder  might  have  an  unauthorized  sale  of  a 
railroad  declared  illegal  no  relief  could  be  granted  where  the 
prescribed  majority  sanctioned  the  sale,  although  made  for 
stock  in  the  purchasing  corporation.  Judge  Jackson,  in 
Farmers  Loan^  etc.  Co.  v.  Toledo,  etc.  R.  Co.^  said  :  "  The 
sale,  being  sanctioned  by  the  requisite  majority  of  stock- 
holders, and  made  by  the  corporation,  as  provided  and  au- 
thorized by  the  general  law  of  the  State  under  which  the 
company  was  organized,  invested  the  purchasing  company 
with  as  perfect  a  title  to  the  property  and  franchises  as  was 
vested  in  or  held  by  the  vendor  corporation,  and  operated  to 
make  the  purchasing  corporation  the  legal  successor  of  the 

stockholders  of  the  Ohio  and  Mississippi  who  failed  in  due  time,  by  some  proper 

Railway  Company,  any  more  than  for  proceeding,  to  question  its  validity  — 

tlie  company  itself  to  question  the  an-  were   estopped   to   raise   any  question, 

thority  under  which  the  contract  and  Hervey  v.  Illinois  Midland  Ry.  Co.,  28 

mortgage   were    executed.      The  ouly  Fed.  169  (1884). 

power  that  could  do  that  was  the  State  "^  See  ai^te,  §  46  :  "Rights  and  Reme- 

itself."  dies    of  Dissenting  Stockholders  "  (cou- 

1  Where  the  charter  of  a  railroad  solidation);    ante,    §  114:    "^  Remedies 

company  authorized  it  to  purchase  rail-  of  Dissenting    Stockholders  "    (sales   of 

roads  which  might  form  a  continuation  property). 

of  its  main  line ;  and  where  such  pur-         ^  Farmers  Loan,  etc.  Co.  v.  Toledo, 

chase    had    been   fully  executed,   and  etc.  R.  Co.,  54  Fed.  767  (1893).     See 

where  its  validity  had  never  been  ques-  also  Young  v.  Toledo,  etc.  R.  Co.,  76 

tioned   in   a   direct  proceeding,  it  was  Mich.  485  (1889),  (43  N.  W.  Rep.  632) 

held   the   parties   to   such   purchase  —  —  another  case  arisiug  out  of  the  same 

those  who  acquiesced  in   it,  and  those  transactions. 

233 


§  151  INTERCORPORATE   RELATIONS.  [PART   II. 

vendor  corj)oration.  It  would  be  paradoxical  to  hold  that 
such  a  sale  was  valid  as  to  the  corporation,  and  invalid  as  to 
one  of  its  stockholders  who  objected  thereto,  and  whose  assent 
was  not  necessary  to  give  validity  to  the  transaction.  It  would 
be  equally  inconsistent  to  hold  that  such  a  sale,  made  under 
and  in  pursuance  of  statutory  authority  in  force  at  the  organ- 
ization of  the  corporation  and  at  the  date  of  the  transaction, 
should  be  treated  as  only  binding  upon  the  corporation  and 
tlic  stockholders  assenting  thereto,  and  invalid  as  to  a  dis- 
senting shareholder  whose  consent  was  not  a  prerequisite  to 
its  validity." 

The  distinction  is  not  well  taken.  The  decision  assumes 
too  much.^  A  sale  authorized  by  the  requisite  majority  of  the 
stockholders,  according  to  the  statute,  docs  bind  the  minor- 
ity. But  an  exchange  of  property  for  stock  is  not  a  sale. 
The  prescribed  majority  have  no  more  power,  under  a  statute 
authorizing  a  sale,  to  make  an  excliange,  than  they  have  to 
make  a  donation.  A  transfer  of  property  for  stock  may  he 
ultra  vires  of  the  corporation.  It  is  ultra  vires  of  the  majority, 
and  may  be  restrained  at  the  suit  of  any  stockholder.^ 

^  In  the  case  referred  to  (Farmers  Jndge  Hammond  said  {p.  778):  "I 
Loan,  etc.  Co.  v.  Toledo,  etc.  II.  Co.,  54  do  not  think  that  any  corj)oration  can 
Fed.  77.5  (1893)),  Judge  Taft  said:  go  out  of  business,  and  sell  its  prop- 
"  Under  the  statute  of  Michigan  per-  erties  and  franchises  in  entirety  (out- 
mittiug  the  sale  of  an  uncompleted  side  of  sales  made  in  the  ordinary 
railroad  by  its  stockholders  to  another  course  of  business),  and  bind  a  minority 
road,  the  words  of  which  are  quoted  in  of  the  stockholders,  by  the  will  of  the 
the  foregoing  oj)iiiion,  there  is  no  power  majority,  to  such  a  sale,  upon  any  prin- 
in  two-thirds  in  interest  of  the  stock-  ciple  of  the  public  welfare  or  like  con- 
holders  to  bind  one-third  to  a  sale  for  sideration ;  certainly,  not  to  compel  the 
any  consideration  but  money  or  money  minority,  on  such  a  sale,  to  take  chips 
credit.  We  have  already  helil  in  this  and  whetstones  for  their  shares  of  stock, 
court,  in  the  case  of  Perin  v.  Megibben,  — that  is  to  say,  anything  else  than 
53  Fed.  Rep.  86  (1892),  that  a  statutory  money." 

power  to  sell  does  not  include  a  power  Tiie  decision  in  the  case,  however, 

'  to  exchange  for  shares  of  stock  in  a  finally  turned  upon  other  grounds, 

corporation.     Nor  do  I  understand  the  ^  Judge  Taft  also  said,  following  the 

Supreme  Court  of  Michigan  to  hold,  in  extract  from   his   opinion   in   the  last 

the  case  of  Young  v.  Railroad  Co.,  76  note:  "There  is  no  doubt  whatever  of 

Mich.  485  (1889),  (43  N.  \V.  Rep.  632),  the  proposition  urged  in  the  foregoing 

that  it  is  within  the  power  of  two-thirds  opinion,  —  that  a  minority  stockholder 

of  the  stockholders,  under  this  statute,  is  bound  by  the  acts  of  the  majority  so 

to  bind  a  minority  to  a  sale  for  anything  long  as  that  majority  acts  within   its 

but  money."  charter  powers,  —  nor  is  there  any  doubt 

234 


CHAP.  XIV.]    EFFECT  OF  EXECUTION  OF  CONTRACT  OF  SALE.     §  152 

CHAPTER  Xiy. 

EFFECT  OP  EXECUTION  OF  CONTRACT  OP  SALE. 

I.   Rights  and  Liabilities  of  Vendor  Corporation. 

§  152.  Sale  of  Railroad  and  Franchises  does  not  terminate  Corporate  Existence. 

§  153.  Rights  of  Vendor  Corporation  after  Authorized  Sale. 

§  154.  Liabilities  of  Vendor  Corporation  in  Case  of  Authorized  Sale. 

§  155.  Liabilities  of  Vendor  Corporation  in  Case  of  Unauthorized  Sale. 

§  156.  Quo  Warranto  and  other  Proceedings  against  Vendor  Corporation. 

II.   Rights  and  Liabilities  of  Vendee  Corporation. 

§  157.  Essential  Franchises  pass  upon  Sale  of  Railroad. 

§  158.  Rights  and  Powers  of  Vendee  Corporation  —  In  General. 

§  159.  Right  of  Eminent  Domain. 

§  160.  Exemptions  from  Taxation. 

§  161.  Right  to  fix  Rates  of  Fare.     Chartered  Rates. 

§  162.  Obligations  of  Vendee  Corporation  in  Respect  of  Public  Duties  of  Vendor. 

§  163.  Vendee  Corporation  not  liable  upon  Obligations  of  Vendor  unless  as- 
sumed or  imposed  by  Law. 

§  164.  Status  of  Foreign  Vendee  Corporation. 

I.    Rights  and  Liahilities  of  Vendor  Corporation. 

§  152.  Sale  of  Railroad  and  Franchises  does  not  terminate 
Corporate  Existence.  —  The  sale  of  all  the  property  of  a  cor- 
poration does  not  work  its  dissolution.^  The  sale  bj  a  rail- 
road company  of  its  road  and  franchises,  while  disabling  it 
from  the  performance  of  the  functions  for  which  it  was  cre- 

that  neither  the  majority  nor  the  entire  upon  two-thirds  of  the  stockholders  of 

body  of  stockholders  of  the  corporation  the  uncompleted  road.     The  sale  could 

can  do  a  corporate  act  which  its  charter  not  be  for  stock  in  another  company, 

forbids  ;  but  there   are  corporate  acts  against  the  objection  of  the  minority 

which  are  not  within  the  charter  power  stockholders.   No  such  power  was  vested 

of  the  majority  of  the  stockholders,  and  by  the  statute  in  the  two-thirds  major, 

yet  which  are  not  beyond  the  power  of  ity.     If,   however,    the    minority    con- 

the  corporation.     There  are  acts  of  the  seuted,  the   State,  the  grantor  of  the 

corporation,   which   the   State,   as  the  corporate  franchise,  had  no  interest  in 

grantor  of  the  corporate  franchise,  has  objecting  to  the  transaction  as  beyond 

no  interest  to  invalidate,  provided  all  the  corporate  power  of  the  company." 

the  stockholders  consent  thereto.   There  See  also  an^e,  §  114:  "  Remedies  of  Dis- 

are  acts  which,  if  done  by  a  majority,  senting  Stockholders  in  Case  of  Invalid 

only  infringe  upon  the  charter  rights  of  and  Unfair  Sales." 
the  minority.     In  this  case  the  power  to  i  See  ante  §  117  :  "  Effect  of  Sale  of 

sell  for  money  was  conferred  by  statute  Entire  Corporate  Property." 

235 


§153 


INTERCORPORATE  RELATIONS. 


[part  II. 


ated,  docs  not  terminate  its  corporate  existence.^  Its  dissolu- 
tion can  be  accomplished  only  by  the  surrender,  forfeiture  or 
repeal  of  its  charter. 

A  sale,  however,  in  pursuance  of  a  statute  authorizing  a 
railroad  company  to  sell  its  franchises,  including  the  franchise 
to  be  a  corporation,  is,  in  effect,  a  surrender  of  the  charter.^ 
Statutes  may  also  expressly  provide  that  a  sale  of  all  its  prop- 
erty shall  constitute  a  dissolution  of  a  corporation.^  But, 
under  such  a  statute,  an  illegal  or  fraudulent  sale  will  not 
effect  a  dissolution.* 

§  153.  Rights  of  Vendor  Corporation  after  Authorized  Sale.  — 
As  the  sale  of  the  railroad  and  fran(;hises  of  a  railroad  com- 
pany docs  not  ipso  facto  terminate  its  corporate  existence,  the 
corporation  necessarily  retains  the  formal  powers  essential  to 
a  nominal  existence,  to  the  winding  up  of  its  affairs  and  to  the 
performance  of  its  continuing  public  duties.  It  also  retains 
any  property  and  rights  not  included  in  the  deed  of  convey- 
ance, or  of  which  the  statute  does  not  authorize  the  sale. 
Tims,  for  example,  it  has  been  held  that  power  to  sell  a  rail- 
road does  not  authorize  the  sale  of  subscriptions  to  the  stock 
of  the  vendor  company.^ 


1  United  States :  United  States  v. 
Little  Miami,  etc.  R.  Co.,  1  Fed.  700 
(1880);  Swan  Land,  etc.  Co.  v.  Frank, 

39  Fed.  456  (1889). 

Aliabama :  Davis  r.  Memphis,  etc. 
R.  Co.,  87  Ala.  633  (1888),  (6  So.  Rep. 
140). 

Connecticut :  Saugutuck  Bridge  Co. 
V.  Town  of  Westport,  39  Conn.  337 
(1872). 

Delaware:  Iliggins  v.  Downward, 
SHoust.  227  (1888),  (32  AtL  Rep.  133, 

40  Am.  St.  Rep.  141). 

Illinois:  Brufett  v.  Great  Western 
R.  Co.,  25  111.  353  (1861)  ;  Reichwald 
V.  Commercial  Hotel  Co.,  106  111.  439 
(1883). 

Indiana:  DeCamp  v.  Alward,  52 
Ind.  468  (1876). 

loiva :  Muscatine  Western  R.  Co.  v. 
Horton,  38  Iowa,  33  (1873). 

Massncltttsetts :  Richardson  v.  Sib- 
lev,  11  Allen  (Mass.),  67  (1865). 

236 


Missouri:  Heath  v.  Missouri,  etc. 
R.  Co.,  83  Mo.  617  (1884). 

New  Jersey :  Sewell  v.  East  Cape 
May  Beach  Co.,  50  N.  J.  Eq.  717 
(1892),  (25  Atl.  Rep.  929). 

A^ew  York:  Troy,  etc.  R.  Co.,  v. 
Kerr.  17  Barb.  581  (1854). 

Texas :  Gulf,  etc.  R.  Co.  v.  Newell, 
73  Tex.  334  (1889),  (11  S.  W.  Rep.  342), 
(15  Am.  St.  Rep.  788). 

2  Snell  V.  City  of  Chicago,  133  111. 
413  (1890),  (24  N.  E.  Rep.  532)  ;  Rogers- 
ville,  etc.  R.  Co.  v.  Kyle,  9  Lea  (Tenn.), 
691  (1882)  ;  Reynolds  v.  Cridge,  11  Pa. 
Co.  Ct.  Rep.  306  (1892). 

3  Under  Pennsylvania  statute  of  1901 
(Laws  1901,  p.  53,  Act  No.  20),  upon 
filing  copy  of  agreement  in  office  of 
secretary  of  the  Commonwealth,  cor- 
porate existence  of  vendor  terminates. 

*  White  Mountains  R.  Co.  v.  White 
Mountains  R.  Co.,  50  N.  H.  50  (1870). 

*  In  Railroad   Co.  v.   Hinsdale,   45 


CHAP.  XIV.]    EFFECT  OF  EXECUTION  OF  CONTRACT  OF  SALE.    §  154 

§  154.  Liabilities  of  Vendor  Corporation  in  Case  of  Authorized 
Sale. — It  has  been  held  that  the  obligations  of  a  railroad 
company  to  the  public  can  only  be  discharged  by  a  sale  of  its 
franchises  to  another  company  under  a  legislative  enactment 
authorizing  the  sale  and  exempting  the  vendor  from  liability  ; 
that  legislative  consent  is  not  sufficient  —  a  legislative  release 
is  necessary.  Upon  this  doctrine,  the  Supreme  Court  of 
Nebraska  held  a  vendor  corporation,  after  an  authorized  sale, 
liable  for  the  torts  of  the  vendee  in  the  operation  of  the  road.^ 

Public  policy  is  declared  to  be  the  basis  of  the  doctrine,  and 
it  may  well  be  that,  unless  exempted,  a  vendor  corporation 
remains  liable  upon  its  primary  obligations  to  the  State.  But 
when  the  legislature  has  authorized  a  sale,  and  thereby  mani- 
fested the  policy  of  the  State  that  the  railroad  should  be  owned 
and  operated  by  the  vendee,  neither  principle  nor  policy  re- 
quires that  the  vendor  should  be  held  responsible  for  the  oper- 
ation of  the  road  of  another  by  persons  with  whom  it  has  no 
connection  and  over  whom  it  can  exercise  no  control.^ 


Ohio  St.  556  (1888),  (15  N.  E.  Rep. 
665),  where  a  person  subscribed  for 
stock  in  a  railroad  company  —  subscrip- 
tion payable  when  road  was  completed 
—  and  the  company  sold  its  uncom- 
pleted road  to  another  corporation 
which  completed  the  construction,  it 
was  held  that  the  Ohio  statutes  (Bates' 
Anno.  Stat.  3300  and  3409)  authorizing 
sales  of  railroads  did  not  confer  author- 
ity to  sell  stock  subscriptions ;  that  no 
ownership  in  the  subscription  passed  to 
the  purchaser  of  the  railroad,  and  that 
such  purchaser  could  not  fulfil  the  con- 
dition precedent  to  the  payment  of  the 
subscription  by  completing  the  road. 

Compare  Armstrong  i;.  Karschner, 
47  Ohio  St.  276  (1890),  (24  N.  E.  Rep. 
897),  where  it  was  held  that  a  statute 
authorizing  the  sale  of  a  railroad,  in 
force  at  the  time  of  a  stock  subscription, 
becomes  a  part  of  the  contract  of  sub- 
scription, and  that  a  sale  by  the  com- 
pany of  a  part  of  its  road  does  not 
release  a  subscriber.  Compare  also 
Havs  V.  Ottawa,  etc.  R.  Co.,  61  111.  422 
(1871). 


A  sale  by  a  corporation  of  its  prop- 
erty and  franchises  does  not  carry  with 
it  stock  in  its  treasury  which  it  has 
bought  in  and  has  not  re-issued.  Tu- 
lare Irr.  Dist.  v.  Kaweah  Canal,  etc. 
Co.  (1896.  Cal.),  44  Pac.  Rep.  662. 

One  railroad  corporation,  having 
merely  bought  the  road-bed  of  another, 
with  intent  to  complete  the  road,  has 
no  riglit  to  purchase  the  vendor's  stock 
subscriptions  and  enforce  them  against 
subscribers.  West  End,  etc.  R.  Co.  v. 
Dameron,  4  Mo.  App.  414  (1877). 

1  Cholette  v.  Omaha,  etc.  R.  Co.,  26 
Neb.  159  (1889),  (41  N.  W.  Rep.  1106). 
See  also  Acker  v.  Alexandria,  etc.  R. 
Co.,  84  Va.  648  (1888),  (5  S.  E.  Rep. 
688) ;  Naglee  v.  Alexandria,  etc.  R.  Co., 
83  Va.  707  (1887),  (3  S.  E.  Rep.  369). 

2  Pennison  v.  Chicago,  etc.  R.  Co., 
93  Wis.  344  (1896),  (67  N.  W.  Rep. 
702). 

For  full  consideration  of  this  ques- 
tion with  reference  to  the  liability  of 
a  lessor  corporation  see  post,  ch.  19: 
"  Rights  and  Liabilities  of  Lessor  Cor- 
poration." 

237 


§  156  INTERCORPORATE  RELATIONS.  [PART   II. 

§  155.  Liabilities  of  Vendor  Corporation  in  Case  of  Unauthor- 
ized Sale.  —  Whatever  question  there  may  be  as  to  the  lia- 
bility of  a  vendor  corporation  in  case  of  an  authorized  sale,  it 
is  indisputable  that  it  remains  liable  for  the  torts  of  the  vcncjee 
in  case  of  an  unauthorized  sale. 

A  railroad  company  cannot  absolve  itself  from  continued 
liability  for  negligence  by  transferring  its  franchises  to  another 
company  in  the  absence  of  a  statute  sanctioning  the  salc.^ 

§  156.  Quo  "Warranto  and  other  Proceedings  against  Vendor 
Corporation.  —  An  attempt  by  a  railroad  company  to  sell  its 
railroad  and  franchises  may  furnish  ground  for  the  forfeiture 
of  its  charter  in  quo  warranto  proceedings.^ 

Especially  is  this  true  where  a  corporation,  in  transferring 
its  property  and  franchises,  acts,  not  only  without  authority 
but  in  direct  violation  of  a  constitutional  provision  against  a 
sale  to  a  competing  company,  and  persists  in  tli€  non-user  of 
its  franchises.^ 

Of  the  power  of  the  State  to  reach  a  foreign  corporation  — 
party  to  such  an  unlawful  contract  —  the  Supreme  Court  of 
Texas,  in  East  Line^  etc.  R.  Co.  v.  Slate,^  said :  "  The  courts 
of  this  State  would  have  no  power  to  declare  a  forfeiture  of 
the  charter  of  that  corporation  granted  by  the  laws  of  the 
State  where  it  was  created,  but  would  have  power  to  withdraw 
the  franchise  here  granted,  whenever  the  facts  justified  it,  and, 
by  injunction  or  otherwise,  to  prevent  its  carrying  on  business 
in  this  State  in  violation  of  its  laws.  They  would  also  have 
power  to  place  property  controlled  by  it  and  situated  in  this 
State  in  the  hands  of  a  receiver,  and  to  adjust  the  rights  of 
such  persons  as  might  be  shown  to  have  valid  claims  against 
it,  or  even  to  avoid  a  valid  incorporation  in  this  State  by  those 
interested  in  property  acquired  by  it  in  an  unlawful  manner." 


1  East  Line,  etc.  R.  Co.  v.  Rushing,  forfeiture  of  its  charter  see  State  v. 
69  Tex.  306  (1887),  (6  S.  W.  Rep.  834).  Pawtuxet  Turnpike  Co.,  8  R.  L  521 
See  also  post,  oh.  19:   "  Rights  and  Lia-  (1867),  (94  Am.  Dec.  123). 

bilities  of  Lessor  Corporation."  ^  East  Line,  etc.  R.  Co.  v.  State,  75 

2  State  i;.  Minnesota  Central  R.  Co.,  Tex.  434  (1889),  (12  S.  W.  Rep.  690). 
36    Minn.  246   (1886),  (30  N.  W.  Rep.  *  East  Line,  etc.  R.  Co.  v.  State,  75 
816).     That   a   sale  of   its   road   by  a  Tex.  451  (1889),  (12  S.  W.  Rep.  690). 
turnpike  company  is  a  ground  for  the 

238 


OHAP.  XIV.]     EFFECT  OF  EXECUTION  OF  CONTRACT  OF  SALE,     §  158 


II.     Rights  and  Liabilities  of  Vendee  Corporation. 

§   157.    Essential  Franchises    pass  upon   Sale   of  Railroad.  — 

A  grant  of  authority  to  sell  a  railroad,  without  expressly 
including  its  franchises,  embraces,  by  implication,  the  right  to 
transfer  those  franchises  which  are  essential  to  the  main- 
tenance and  operation  of  the  railroad.  A  sale  of  a  railroad, 
under  statutory  authority,  carries  with  it  the  ordinary  fran- 
chises necessary  for  the  use  of  the  railroad  property  and  with- 
out which  it  would  be  useless.^ 

§  158.  Rights  and  Powers  of  Vendee  Corporation  —  In 
General.  —  A  grant  to  a  railroad  company  of  power  to  sell  its 
property  and  franchises,  without  limitation,  authorizes  the 
sale  of  all  its  property  and  franchises,^  except  the  franchise 
of  corporate  existence.^  The  vendee  corporation,  under  a  sale 
in  pursuance  of  such  authority,  may  enjoy  the  property  and 
exercise  the  franchises  as  freely  as  if  directly  granted  to  it. 

Statutes  authorizing  the  sale  of  a  railroad  and  franchises 
sometimes  define  the  status  of  the  vendee  corporation  and 
designate  the  rights  and  franchises  acquired  by  the  purchase.* 

1  United   States:  New  Orleans,  etc.  Terminal   E..  etc.  Co.  v.   Trust  Co.  of 

R.  Co.v.  Delamore,  lUU.  S.501  (1884),  North   America,   82  Fed.   124   (1897); 

(5Sup.Ct.  Rep.  1009) ;  Branch  v.  Jesup,  Threadgill  v.  Pumphrey,  87    Tex.  573 

106  U.  S.  468  (1883),  (1  Sup.  Ct.  Rep.  (1895),  (30  S.  W.  Rep.  356). 
495).     Contra  PuUan  v.  Cincinnati,  etc.  *  See  ante,  §  132  :  "  Transferability  of 

R.  Co.,  4  Biss.  (U.  S.)  35  (1865).  Franchise  of  Corporate  Existence." 

Alabama:  Meyer  y.  Johnston,  53  Ala.  *  In  Indiana  a  purchasing  company 

237  (1875).  may  mortgage  franchises  acquired  and 

Massachusetts:  East  Boston  Freight  issue  new  stock  and  bonds.     (Burns' R. 

R.  Co.  V.  Eastern  R.  Co.,  13  Allen,  422  S.  1901,  §  5215.) 
(1866).  In  Nebraska  the  purchasing  company 

Pennsylvania:    Gloninger    v.    Pitts-  is  vested  with  all  the  property  and  frau- 

burgh,  etc.  R.  Co.,  139  Pa.  St.  13  (1891),  chises  of  the  vendor,  and  may  receive 

(21  Atl.  Rep.  211).  municipal  aid,  etc.    (Comp.   Stat.  1901, 

Texas:    Compare    Missouri   Pac.    R.  §4018).    Foreign  purchasing  companies 

Co.  V.  Owens,  1  Texas  App.  Civ.  Cas.  have  all  the  powers  and  rights  of  domes- 

§  385  (1883).  tic  r.ailroad  companies  (lb.  §4024). 

Wisconsin  :  Pierce  v.  Milwaukee,  etc.  In  Nevada  foreign  purchasing  com- 

R.  Co.,  24  Wis.  551  (1869).  panics  may  hold  and  exercise  franchises 

England :  County  of  Gloucester  Bank  to  the  same  extent  as  if  domestic  cor- 

V.  Rudry  Merthyr,  etc.  Co.,  L.  R.  1  Ch.  porations  (Sess.  Laws  1901,  p.  51), 
629  (1895).  In    Ohio    the   purchasing   company 

^  Pierce  v.  Milwaukee,  etc.   R.  Co.,  acquires  all  the  rights,  privileges  and 

24  "Wis.  551  (1869).   See  also  Sioux  City  easements  of  the  vendor  (Bates'  Anno. 

239 


§159 


INTERCORPORATE   RELATIONS. 


[part  II. 


§  159.  Right  of  Eminent  Domain. — Probably  the  light  of 
eminent  domain  woukl  not  i)ass  by  implication,  as  an  essential 
franchise,  under  a  transfer  which  included  in  terms  only  a 
railroad.^  But  uhcn  the  conveyance,  in  pursuance  of  statu- 
tory authority,  embraces  a  railroad  and  franchises,  the  rij^ht  of 
eminent  domain  passes,  with  other  franchises,  to  the  purchas- 
ing corporation.^  Thus,  a  j)urchaser  who  acquires  the  property 
of  a  railroad  company  and  "  all  its  contracts,  franchises,  rights, 
privileges  and  immunities,"  acquires  the  right  of  eminent 
domain.^ 

Whore,  liowever,  a  railroad  is  sold  in  sections  to  different 
purchasers,  the  right  of  eminent  domain  belonging  to  the 
vendor  corporation  is  not  parcelled  out.*  A  purchasing  cor- 
j)oration  docs  not  succeed  to  a  right  of  eminent  domain  of 
a  peculiar  nature  granted  to  a  vendor  corporation  by  special 
statute.* 

A  ])urchasing  corporation  docs  not  acquire  the  right  to 
prosecute  condemnation  proceedings,  pending  at  the  time  of 
the  purchase.® 


Stat.  (1787-1902)  §§  3300,  3384  (d), 
3409). 

In  Oklahoma  a  foreign  purchasing 
company  possesses  all  the  "  rights, 
powers,  privileges  and  franchises  "  con- 
ferred upon  railroad  companies  by  the 
laws  of  tiiat  Territory  (Sess.  Laws  1901, 
art.  4,  ch.  11,  p.  86). 

In  Pcnnsi/lvania  all  rights,  property 
and  franchises  of  vendor  vest  in  acquir- 
ing corporation  (Laws  1901,  p.  53,  Act 
No.  20).  This  statute  is  of  limited 
application. 

In  Utah  the  purchasing  company  is 
vested  with  all  the  rights  and  franchises 
of  the  vendor  and  of  domestic  corpora- 
tions generally  ;  may  extend  its  lines  ; 
may  lease  or  purchase  connecting  lines; 
may  issue  bonds  and  mortgage  prop- 
erty, etc.  (Laws  1901,  ch.  26.  p.  21,  §  4). 

In  Wisco7isin  the  purchasing  com- 
pany takes  all  the  rights,  privileges  and 
immunities  of  the  vendor  (Stat.  1888, 
§  183-3,  as  amended  by  Laws  1899, 
ch.  191). 

1  In  Mayor  of  Worcester  v.  Norwich, 

240 


etc.  R.  Co.,  109  Mass.  103  (1871),  it  was 
held  that  autliority  to  lease  a  railroad 
would  not  confer,  by  imjilication,  the 
right  of  eminent  domain  ujxjn  tiic  les- 
see. Comjiare  New  Orleans,  etc.  K.  Co. 
V.  Delamore,  114  U.  S.  501  (1885), 
(5  Sup.  Ct.  Kep.  1009). 

2  Lawrence  v.  Morgan's  Louisiana, 
etc.  Co.,  39  La.  Ann.  427  (1887),  (2  So. 
Kep.  69,  4  Am.  St.  Hep.  265). 

In  Arkansas  (S.  &.  H.  Dig.  1894, 
§  6342),  Nevada  (Sess.  Laws  1901, 
p.  51)  and  Ohio  (Bates'  Anno.  Stat. 
(1787-1902),  §3300),  Wyoming  (R.  S. 
1899,  §  3206),  it  is  provided  by  statute 
that  a  purchasing  corporation  shall 
acquire  the  right  of  eminent  domain. 

3  North  Carolina,  etc.  R.  Co.  v. 
Carolina  Central  R.  Co.,  83  N.  C.  489 
(1880). 

*  State  V.  Morgan,  28  La.  Ann.  482 
(1876) 

5  Little  Rock,  etc.  R.  Co.  u.McGehee, 
41  Ark.  202  (1883). 

•^  Mahoney  v.  Spring  Valley  "Water 
Co  ,  52  Cal.  159  (1877). 


CHAP.  XIV.]     EFFECT  OF  EXECUTION  OF  CONTRACT  OF  SALE.     §  1(30 

§  160.  Exemptions  from  Taxation.  —  x\.ll  exemption  from 
taxation  is  a  personal  privilege  of  the  corporation  to  which  it 
is  granted.  It  cannot  be  transferred,  nnless  the  legislature,  in 
authorizing  a  sale,  uses  apt  words  to  describe  the  exemption, 
as  distinguished  from  other  privileges,  and  the  legislative 
intention  that  it  should  pass  is  clearly  apparent.^ 

In  3Iemphis,  etc.  R.  Co.  v.  Commissioners  ^  Mr.  Justice 
Matthews  said  :  "  Exemption  from  taxation  must  be  construed 
to  have  been  the  personal  privilege  of  the  very  corporation 
specifically  referred  to,  and  to  have  perished  with  that,  unless 
the  express  and  clear  intention  of  the  law  requires  the  ex- 
emption to  pass  as  a  continuing  franchise  to  a  successor. 
This  salutary  rule  of  interpretation  being  founded  upon  an 
obvious  public  policy  which  regards  such  exemptions  as  in 
derogation  of  the  sovereign  authority  and  of  common  right, 
and  therefore  not  to  be  extended  beyond  the  exact  and 
express  requirement  of  the  grants,  is  construed  strictissimi 
juris.'''' 

In  the  application  of  this  rule  the  words  "  rights,"  "  fran- 
chises "  and  "  privileges "  have  been  held  not  to  include  an 

1   United  States :  Yazoo,  etc.  R.  Co.  Commonwealth    v.   Nashville,    etc.    R. 

V.  Adams,  180  U.  S.  22  (1901),  (21  Sup.  Co.,  93  Ky.  430  (1892),  (20  S.  W.  Rep. 

Ct.  Rep.  240)  ;    Phoenix  Fire,  etc.  Ins.  383). 

Co.  V.  Tennessee,  161  U.  S.  174  (1896),  Minnesota:   Contra,  St.  Paul,  etc,  R. 

(16  Sup.  Ct.  Rep.  471) ;  Wilmington,  etc.  Co.  v.  Parcher,  14  Minn.  297  (1869). 

R.  Co.  y.  Alsbrook,  146U.  S.  279  (1892),  Missouri:  State   v.   Chicago,  etc.  R. 

(13  Sup.  Ct.  Rep.  72)  ;  Picard  v.  East  Co.,  89  Mo.  523  (1886),  (14  S.  W.  Rep. 

Tennessee,  etc.   R.  Co.,  130  U.  S.  637  522). 

(1889),  (9   Sup.  Ct.  Rep.  640)  ;  Cliesa-  New  Jersey:   Assessors    v.    Morris, 

peake,  etc.  R.  Co.  v.  Miller,  114  U.  S.  etc.   R.  Co.,  49   N.  J.  L.  193   (1888), 

176  (1885),  (5  Sup.  Ct.  Rep.  813) ;  Mem-  (7  Atl.  Rep.  826). 

phis,  etc.  R.  Co.  i'.  Commissioners,  112  South    Carolina:     Contra,    Hand   v. 

U.  S.  609  (1884),  (SSup.Ct.  Rep.  299);  Savannah,  etc.    R.  Co.,  17    S.  C.    280 

Railroad  Co.  v.  Palmes,  109  U.  S.   244  (1881). 

(1883),  (3  Sup.  Ct.  Rep.  193)  ;  East  Ten-  Tennessee  :  Wilson  v.  Gaines,  9  Baxt. 

nessee,  etc.  R.  Co.  v.  Hamblin  Co.,  102  546    (1877),  {affirmed    103  U.    S.  417), 

U.     S.    273    (1880);     Railroad    Co.   v.  (1880). 

Gaines,  97  U.  S.  697    (1878);  Morgan  See   also  ante,   §    Tl,.  "  Exemptions 

V.  Louisiana,  93  U.  S.  217  (1876).  from  Taxation"  (consolidation). 

Arkansas:  Arkansas, Midland R.  Co.  "  Memphis,  etc.  R.  Co.  v.  Commis- 

V.  Berrv,  44  Ark.  17  (1884).  sioners,  112  U.  S.  609  (1884),  (5  Sup. 

Kentucky  :  Evausville,  etc.  R.  Co.  v.  Ct.  Rep.  299). 
Commonwealth,  9   Bush,    438    (1872); 

16  241 


§101 


INTERCORPORATE   RELATIONS. 


[part    II. 


exemption  from  taxation ;  ^  while  the  contrary  has  been  held 
Avith  reference  to  the  word  "  immunities."  ^ 

5  161.  Right  to  fix  Rates  of  Fare.  Chartered  Rates.  —  It  has 
been  held  that  the  rates  prescribed  in  the  charter  of  a  railroad 
company  for  transportation  upon  its  railroad  follow  the  proj)- 
erty  when  sold,  and  attach  to  its  operation  by  a  purchasing 
company.3  Thus  in  Campbell  v.  Marietta,  etc.  R  Co.*  the 
Supreme  Court  of  Ohio  said  :  "  It  must  be  inferred  that  the 
legislature  intended  the  purchasing  company  to  succeed  to 


1  Thodocisiona  of  the  Supreme  Court 
of  the  Uiiitcil  States  are  irrt'n)iicili\lil<>. 
In  Railroail  Co.  i-.  Gaines,  1)7  U.  S. 
697  (1878),  it  was  held  that  an  exemp- 
tion from  taxation  was  not  carrieil  bv 
the  use  of  tlie  words  "  rights,  j>owers 
and  privileges."  In  Keokuk,  etc.  li. 
Co.  V.  Missouri,  1.52  U.  S.  301  (1894), 
(14  Sup.  Ct.  Hep.  592),  it  was  douhted 
whether,  under  tlio  name  "  franrhi.ses 
nnil  privileges,"  an  exemption  would 
pass.  In  Chesapeake,  etc.  11.  Co.  v. 
Miller,  114U.  S.  176  (1883).  (5  Sup.  Ct. 
Rep.  813),  it  was  decided  that  an  exemp- 
tion did  not  pass  to  the  purcha.ser  by 
the  use  of  the  words  "  franchises,  riglits 
and  privileges."  In  Morgan  v.  Louisi- 
ana, 93  U.  S.  217  (1876),  it  was  held 
that  the  words  "  francliisos,  rights  and 
privileges"  did  not,  necessarily,  include 
an  exemption  from  taxation.  See  also 
Phoenix,  etc.  Ins.  Co.  v.  Tennes.see,  161 
U.  S.  182  (1896),{16Sup.  Ct.  Rep.471); 
Wilmington,  etc.  R.  Co.  i;.  Alsbrook, 
146  U.  S.  279  (1892),  (13  Sup.  Ct.  Rep. 
72).  Also  Evansville,  etc.  R.  Co.  v. 
Commonwealth,  9  Bush  (Ky.),  438 
(1892).  On  the  other  hand,  in  Hum- 
phrey V.  Pegues,  16  Wall.  (U.  S.)  244 
(1872),  tlie  Supreme  Court  held  the 
words,  "  all  the  rights,  powers  and  privi- 
leges," to  include  an  exemption  from 
taxation.  Again  in  Tennessee  v.  Whit- 
worth,  117  U.  S.  139  (1886),  (6  Sup.  Ct. 
Rep.  649),  it  was  said  that  the  same 
words  included  the  right  of  exemption. 
Chief  Justice  Waite,  in  his  opinion, 
said  (p.  146)  :  "  As  has  already  been 
seen,    the    word    "  privilege,"    in    its 

242 


onlinary  meaning,  when  used  in  this 
conneition,  includes  an  exemption  from 
taxation."  See  also  Atlantic,  etc.  R. 
Co.  1-.  Allen,  15  Fla.  637  (1876) ;  Louis- 
ville, etc.  R.  Co.  f.  Gaines,  3  Fed.  266 
(1880). 

While  the  opinions  cannot  be  recon- 
ciled the  conclusion  to  be  drawn  from 
the  later  decisions  of  the  Supreme 
Court  of  the  United  States  is  that  there 
must  be  other  Innguage  than  the  words 
"  riglits,"  "  franchises  "  and  "  privi- 
leges "  or  other  provisions  sufficient 
to  remove  all  doubt  as  to  the  legislative 
intention  before  the  transfer  of  an  ex- 
emption from  taxation  can  take  jdace. 

Pho?nix  Ins.  Co.  v.  Tennessee,  161 
U.  S.  182  (1896),  (16  Sup.  Ct.  Rep.  471) ; 
Wilmington,  etc.  R.  Co.  i\  Alsbrook, 
146  U.  S.  279  (1892),  (13  Sup.  Ct!  Rep. 
72);  Picard  v.  East  Tennessee,  etc.  R. 
Co.,  130  U.  S.  637  (1889),  (9  Sup.  Ct. 
Rep.  640). 

2  Ph«cnix  Ins.  Co.  v.  Tennessee,  161 
U.  S.  177  (1896),(16Snp.  Ct.  Rep.  471); 
Louisville,  etc.  R.  Co.  v.  Palmes,  109 
U.  S.  2.")2  (1883),  (3  Sup.  Ct.  Rep.  193) ; 
Trask  c.  Magnire.  18  Wall.  (U.  S.)  391 
(1873)  ;  Nichols  v.  New  Haven,  etc.  R. 
Co.,  42  Conn.  103  (1875);  Common- 
wealth V.  Owensboro,  etc.  R.  Co.,  81 
Ky.  572  (1884) ;  State  i;.  Nashville,  etc. 
r!  Co,  12  Lea  (Tenn.),  583  (1883). 

8  Campbell  v.  Marietta,  etc.  R.  Co., 
23  Ohio  St.  168(1872);  Peters  v.  Rail- 
road Co.,  42  Ohio  St.  275  (1884). 

*  Campbell  i-.  Marietta,  etc.  R.  Co., 
23  Ohio  St.  168  (1872). 


CHAP.  XIV.]    EFFECT  OF  EXECUTION  OF  CONTRACT  OF  SALE.      §  162 

the  powers  and  privileges  of  the  vending  company,  and  to  none 
other.  .  .  .  The  intrinsic  as  well  as  the  market  value  of  such 
property  as  a  railroad  largely  depends  upon  the  rates  which 
may  be  charged  for  transportation  thereon.  Now,  if  the 
chartered  rates  follow  the  property,  the  contracting  parties 
stand  on  perfect  equality,  but  if  the  value,  or,  in  other  words, 
the  inducement  to  contract,  depends  upon  the  chartered  privi- 
lege of  the  purchaser,  the  equality  is  not  preserved,  and  espe- 
cially would  different  companies  with  different  charters  occupy 
unequal  grounds  as  biddersforandpurchasers  of  such  property." 

This  decision  is  too  broad.  It  may  be  that  restrictions  and 
limitations  upon  rates  of  fare  presumptively  attach  as  burdens 
to  railroads  when  sold  ;  but  the  converse  of  the  proposition  is 
not  true  that  the  chartered  rates  so  follow  the  property  as 
privileges.  In  the  absence  of  an  express  statutory  direction, 
the  right  to  fix  and  determine  rates  of  fare,  or  to  charge  a 
greater  rate  then  permitted  by  general  laws,  does  not  accom- 
pany a  railroad  in  its  transfer  to  a  purchaser.^ 

§  162.  Obligations  of  Vendee  Corporation  in  Respect  of  Pub- 
lic Duties  of  Vendor.  —  As  a  general  rule,  a  vendee  corporation, 
in  the  operation  of  a  purchased  railroad,  takes  the  place  of  the 
vendor  company  and  must  hold  and  operate  the  road  subject 
to  the  conditions  attaching  to  it  in  the  hands  of  the  vendor.* 

While  a  vendor  corporation  may  remain  liable  upon  its 
public  obligations  notwithstanding  a  sale  of  its  railroad,  it 
seems  clear  that  a  vendee  company,  in  purchasing  and  taking 
over  a  railroad  and  franchises,  assumes  and  is  bound  to 
perform  the  accompanying  obligations  to  the  State.^ 

1  St.  Louis,  etc.   R.  Co.  v.  Gill,   156  2  Daniels  v.  St.  Louis,  etc.   R.  Co., 

U.  S.  656  (1895),  (13  Sup.  Ct.  Rep.  484).  62  Mo.  43  (1876). 

In  Norfolk,  etc.  R.  Co.  v.  Peudletoii,  ^  A  railroad   company    which  pur- 

156  U.  S.  667  (1895),  (15  Sup.  Ct.  Rep.  chases  the  property  and  franchises  of 

48-i),  a ffir  in  in  g  86  Va.  1004(1890),   (11  any  other  company  pursuant  to  a  Mich- 

S.   E.  Rep.   1062),  it   was  held  that  a  igan  Statute  (Act  No.   10,  Laws  1889), 

right  to  fix  tolls,  conferred  upon  a  ven-  holds  subject  to  all  the  duties  and  obli- 

dor  corporation,  could  not  be  claimed  by  gatious  prescribed  by  the  general  rail- 

a  purchasing  company  organized  under  road  laws  of  the  State.    Thayer  i\  Flint, 

general  laws,  and,  therefore,  subject  to  etc.  R.  Co.,  93  Mich.  150  (1892),  (53  N. 

a  statute  fixing  rates  of  fare.     See  also  W.  Rep.  216). 
Dow  V.  Beidelman,  49  Ark.  325  (1887), 
(5  S.  W,  Rep.  297). 

243 


§  163  INTERCORPORATE   RELATIONS.  [I'AKT    II. 

§  1G3.  Vendee  Corporation  not  liable  upon  Obligations  of 
Vendor  unless  assumed  or  imposed  by  Law.  —  A  railroad  com- 
pany purchasing,  in  good  faith  and  for  vahic,  the  raih'oad  and 
franchises  of  another  company  is  not  liable  for  the  obli"-ations 
of  the  latter  company  which  are  not  liens  upon  the  property.^ 

The  reason  for  the  rule  and  its  qualifications  are  clearly 
stated  by  the  Supreme  Court  of  Ai-kansas  in  Sappington  v. 
Little  Rock^  etc.  R.  Co.:^  "  It  would  not,  as  a  matter  of  law, 
by  virtue  of  its  {)urchase  of  the  property  and  franchises  of 
the  consolidated  company,  become  bound  to  fulfil  its  personal 
obligations,  as  distinct  from  those  which  wei'c  liens  upon  the 
property.  If  the  purchasing  company  knew  of  any  equities 
against  the  other  in  favor  of  third  persons,  and  bought  sul)jcct 
to  them,  it  might  make  a  different  case,  and,  perhaps,  afford 
ground  for  some  appropriate  relief  in  chancery.  But  the  obli- 
gation is  not  transferred  ipso  facto  on  the  purchase.  Other- 
wise no  sale  could  ever  be  made  of  a  railroad,  from  fear  of 
coming  into  a  dainnosa  hacreditas." 

But  when  a  purchasing  corporation,  as  a  part  of  the  con- 
sideration for  the  transfer,  assumes  the  obligations  of  the 
vendor  company,  it  is,  manifestly,  liable  for  all  obligations 
whether  founded  in  contract  or  tort.^  It  has  been  held,  how- 
ever, that  before  such  a  purchaser  can  be  held  liable  for  a  tort 

^  Sappington  i'.  Little  Rock,  etc.  R.  iu  tlie  absence  of  some  reservation  in 

Co.,  37  Ark.  2.3  (1881).  the    cliartor    protecting    the   riglits  of 

In  Chesapeake,  etc.  R.  Co.  v.  Griost,  creditors." 
85  Ky.  625  (1887),  (4  S.  W.  Rep.  323),  See  also  Hammond  v.  Port  Royal, 
the  Supreme  Court  of  Kentucky  said:  etc.  U.  Co.,  15  S.  C.  10  (1881);  Te.xas 
"If  the  power  to  .sell  is  given  by  the  Cent.  R.  Co.  v.  Lyons  (Tex.  Civ.  App. 
terms  of  the  grant,  the  purchaser  for  1896),  34  S.  W.  Rep.  363.  Compare 
value  holds  the  property  as  if  it  liad  Cliicago,  etc.  R.  Co.  i*.  Chicago,  etc. 
been  an  individual  transaction.  There  Coal  Co.,  79  111.  121  (1875).  See  also 
is  no  reason  for  making  a  distinction,  ante,  §  123:  "  Liabilit//  of  Purchasing 
and  the  rule  iu  individual  transactions  Corporation  for  Debts  of  Vendor  Coin- 
should  apply   as  between  corporations  pani/." 

when  the  power  to  sell  and  purchase  is  -  Sappington  t\  Little  Rock,  etc.  R. 

conferred  by  charter.    Wliile  a  dissolu-  Co.,  37  Ark.  27  (1881). 

tion  of  a  corporation  would  entitle  the  '^  Chesapeake,  etc.  R.  Co.  v.  Griest,  85 

creditors  to  enforce  their  demands  in  a  Ky.  619  (1887),   (4   S.  W.   Rep.  323). 

court  of  equity,  or  where  there  is  a  con-  See    also   Union   Trust  Co.   v.   Illinois 

solidation  to  follow  the  assets  of  their  Mid.    R.  Co.,    117    U.  S.   434    (1886), 

debtor   in    the    consolidated    company,  (6  Sup.  Ct.  Rep.  809)  ;  Hervey  i-.  Illinois 

still,  where  there  is  a  sale  of  the  corpo-  Mid.  R.  Co.,  28  Fed.  169  (1884). 
rate  property,  it  passes  the  title  as  to  all, 

244 


CHAP,  XIV.]    EFFECT   OP   EXECUTION  OF  CONTRACT  OF  SALE.  §  lG-1 

committed  by  the  vendor  company  in  the  operation  of  the  road 
before  the  sale,  the  claim  must  be  reduced  to  judgment  in  an 
action  against  the  vendor.^ 

A  provision  in  the  charter  of  a  railroad  company  authoriz- 
ing it  to  purchase  the  railroad  of  another  company  and  stipu- 
lating that  the  sale  shall  in  no  way  affect  the  rights  of  the 
latter's  creditors,  protects  unsecured  creditors.^  The  word, 
"indebtedness,"  as  used  in  a  statute  providing  that  a  pur- 
chasing railroad  company  shall  assume  the  indebtedness  of 
its  vendor  embraces  all  debts  and  demands  —  claims  founded 
both  upon  tort  and  contract.^ 

§  164.  Status  of  Foreign  Vendee  Corporation.  —  The  legisla- 
ture, in  granting  to  a  foreign  corporation  power  to  purchase 
a  railroad  and  franchises  within  the  State,  may  prescribe  the 
terms  and  conditions  upon  which  the  purchase  may  be  made 
and  define  the  status,  within  the  State,  of  the  purchasing  cor- 
poration.* And,  in  Georgia,  it  has  been  held  that  where 
permission  to  a  foreign  corporation  to  purchase  a  domestic 
railroad  is  made  the  subject  of  an  original  and  direct  grant  by 
the  legislature,  the  purchasing  corporation,  upon  the  purchase, 
"  becomes  eo  instanti  the  offspring  of  the  legislative  will  of 
the  State.  "5 


^  Where  the  purchasing  corporation  1896,  §   1169    (as  amended   in    1899) 

undertook  to  pay "  all  current  indebted-  Arizona,   R.   S.    1901,   par.    864,   §    1 

ness  "  incurred  by  the  vendor   in  the  Arhansas,  S.  &.  H.  Dig.  1894,  §  6188 

operation   of  its  railroad,   it  was  held  C«///bniia,  Pomeroy's  Code  1901,  §494 

tliat,  even  if  the  contract  could  be  con-  Michigan,   Comp.  Laws   1897,  §   6328 

strued   to  render  the  purchaser  liable  JVdiraska,  Comp.    Stat.    1901,  §§  1769, 

for  a  tort  committed  by  the  vendor  in  40'20,   4024,  4026;    Xew  Jersey,   Laws 

the  operation  of  its  road,  tlie  claim  mu.st  1 900,  ch.  46,  p.  70  ;  Ohio,  Bates'  Anno, 

first  be  reduced  to  judgment  in  an  action  St.it.   (1787-1902),    §3300;    Wisconsin, 

against  the   vendor.     Chesapeake,  etc.  Stat.  1898,  §  1833  (as  amended  in  1989). 
R.  Co.  V.  Griest,    85    Ky.  619    (1887),  *  State  v.  Chicago,  etc.  R.   Co.,  89 

(4  S.  W.  Rep.  323).  '  Mo.  523  (1886),  (14  S.  W.  Rep.  522). 

2  Montgomery,  etc.  R.  Co.  v.  Branch,  *  Angier  r.  East  Tennessee,  etc.  R. 

59  Ala.  139  (1877).  Co.,  74  Ga.  640  (1885).    The  Court  said 

8  Chicago,  etc.  R.  Co.  v.  Lundstrom,  (p.  641):  "  The  truth  is  to  be  ascertained 

16  Neb.  254  (1884),   (20  N.    W.   Rep.  whether  the  State  intended  merely  to 

198).  license  a  foreigner  to  exercise  franchises 

The   following  statutes  provide,  in  and  buy  a  charter  she  granted  to  an- 

substance,  that  the  sale  of  a  railroad  other  without  assuming  all  the  liabilities 

as   therein  authorized   shall  not  affect  which  the  charter  it  bought  required, 

the  rights  of  creditors  :  Alabama,  Code  or  did  she  intend  it  to  be  a  domestic 

245 


§  1G4  INTERCORPORATE   RELATIONS.  [I'AUT    II. 

corporation  and  nndor  all  the  obliga-  must  be  that  she  intended,  and  exprosseil 

tious  of  corporate  ritizeusliip  ?     It  is  a  the  intention  in  jiluin  words,  to  substitute 

question  of  intention;  and  it  cannot  be  the  jjurchaaer  for  the  emit)-  she  allowed 

that  she  meant  to  make  any  such  con-  to  be  purchased  and  to  make  the  jmr- 

tract,  with  but  one  side  to  it,  with  any-  chaser  subject  to  her  control  within  lier 

body,    natural   or  artificial,  that  might  own  borders  as  fully  as  the  seller  of  the 

buy  the  charter  she  had   granted.     It  charter  had  been  before  the  sale." 


246 


CHAP.    XV.J       LEASES   OF   PROPERTY   AND    FRANCHISES.  §  165 


PART   III. 

CORPORATE   LEASES. 


ARTICLE   I. 
CHAPTER   XV. 

LEASES  OF  CORPORATE  PROPERTY  AND  FRANCHISES. 

I.    Leases  of  Property  of  Private  Corporations. 

§  165.  Power  to  lease  and  take  a  Lease  generally. 

§  166.  Lease  of  Entire  Property  of  Prosperous  Corporation. 

§  167.  Lease  of  Entire  Property  of  Losing  Corporation. 

§  168.  Voidable  Leases. 

§  169.  Remedies  of  Objecting  Stockholders. 

II.   Leases  of  Property  and  Franchises  of  Quasi-public  Corporations. 

§  170.  Distinction  between  Leases  of  Private  and  Qwasz-public  Corporations. 

§  171.  Leases  of  Indispensable  Property  of  Quasi'-public  Corporation. 

§  172.  Leases  of  Surplus  Property. 

§  173.  Leases  of  Franchises. 

§  174.  Railroad  Leases  typical  of  Leases  of  Quasi-public  Corporations. 

I.   Zease  of  FrojJerti/  of  Private  Corporations. 

§  165.  Povsrer  to  lease  and  take  a  Lease  generally.  —  Every 
corporation,  as  an  incident  to  its  existence,  has  power  to 
acquire  and  dispose  of  property.^  The  greater  power  to  sell 
and  purchase  includes  the  lesser  power  to  lease  and  take  a 
lease.2 

1  See  an^e,  §  108  :  " Power  to  purchase  corporation  to  sell  real  estate  not  re- 
and  sell  generally."  quired   for  its  use  did  not  authorize  a 

2  The  decision  in  Metropolitan  Con-  lease  thereof  for  a  term  of  years  cannot 
cert  Co.  V.  Abbey,  52  N.  Y.  Super.  Ct.  be  justified  upon  principle. 

97  (1885),  that  authority  granted  to  a 

247 


§1GG 


INTERCORPORATE   RELATIONS. 


[part  in. 


A  corporation  has  implied  power  to  lease  any  portion  of 
its  property  not  required  for  the  purposes  of  its  business  ;  ^ 
and  may  take  a  lease  of  property  for  the  purpose  of  promoting 
its  legitimate  interests,^  but  not  for  a  purpose  entirely  foreign 
thereto.^ 

§    160.    Lease   of  Entire  Property   of   Prosperous  Corporation. 

—  While  a  lease  of  a  ])urtioii  (jf  the  i)roj)frly  of  a  corporation 

—  not  iuii)airing  its  capacity  to  do  business  —  may  be  au- 
thorized by  its  directors  or  a  majority  of  its  stockholders,  they 
have  no  authority  to  lease  the  entire  property  and  business  of 
the  corporation.     A  lease  by  a  prosperous  corporation  of  all 


1  Indiana  :  Pliillips  v.  Aurora  Ixuh^e, 
87  Intl.  505  (1882). 

MdssachitS'tis :  Nye  v.  Storer,  lfi8 
Muss.  53  (1897),  (46*  N.  E.  Ut-p.  402). 
In  this  case  it  was  held  that  a  corpora- 
tion authorized  b_v  its  charter  to  holii 
property  might  lease  it  so  as  to  produce 
an  income,  for  purposes  entirely  difVeruiit 
from  its  own  objects  of  incorporation. 

Missouri:  Gillilautl  v.  Chicago,  etc. 
R.  Co.,  19  Mo.  App.  411  (1885). 

New  York:  Deniko  v.  New  York, 
etc.  Cement  Co..  80  N.  Y.  599  (1880)  ; 
Smith  V.  Berndt,  1  N.  Y.  Supp.  108 
(1888). 

Pennsylvania :  Ardcsco  Oil  Co.  v. 
North  American  Oil,  etc.  Co.,  66  Pa. 
St.  375  (1870). 

Tennessee :  Coal  Creek,  etc.  Co.  v. 
Tennessee  Coal,  etc.  Co.,  106  Tenn.  651 
(1901),  (62  S.  W.  Kcp.  162). 

England:  Fe.atherstouhaugh  v.  Lee 
Moor  Porcelain  Cl.ay  Co.,  L.  R.  1  Eq. 
318  (1865)  ;  Simpson  v.  Westminster, 
etc.  Hotel  Co.,  8  H.  L.  Cas.  712  (1860). 

Power  to  sell  land  includes  power  to 
lease  witli  an  option  of  purchase.  lie 
Female  Orphan  Asylum,  17  L.  T.  (x.s.) 
69  (1867). 

2  Abby  I'.  Billups,  35  Miss.  618 
(1858),  (72  Am.  Dec.  143);  Crawford 
r,  Lon<,'street,  43  N.  J.  L.  325  (1881). 
In  Jacksonville,  etc.  R.  Co.  v.  Hooper, 
160  U.  S.  514  (1896),  (16  Sup.  Ct.  Rep. 
379),  it  was  held  that  a  railroad  com- 
pany might  lease  and  maint.iin  a  hotel 
at    its    terminus.       The     Court    said 

248 


(p.  523):  "Courts  m.ay  be  permitted, 
wiicre  there  is  no  legislative  pruhibitioa 
shown,  to  put  a  favorable  construction 
upon  such  exercise  of  power  by  a  rail- 
ro.ad  company  as  is  suitable  to  promote 
the  success  of  the  conij)any,  within  its 
chartered  powers,  and  to  contril>ute  to 
the  comfort  of  those  who  travel  thereon. 
To  lea.sc  and  maintain  a  summer  hotel 
at  the  seaside  terminus  of  a  railroad 
might,  obviously,  increase  the  business  of 
the  company  and  the  comfort  of  its  p.os- 
scngcr.s,  an<l  be  within  the  provisions  of 
the  statute  of  Florida  above  cited,  where- 
by a  railroad  company  is  authorized  "  to 
sell,  lease,  or  buy  any  land  or  real 
estate  necessary  for  its  use,"  and  to 
"erect  and  maintain  all  convenient 
buildings  .  .  .  for  the  accommodation 
anil  use  of  their  pa.«sengers." 

A  foreign  corporation  has  power  to 
take  a  lease  of  property  necessary  for 
the  transaction  of  its  business.  North- 
ern Tr.iiisportation  Co.  i*.  Chicago, 
7  Biss.  (U.  S.),  45  (1874),  o/TFmerf  99 
U.  S.  635  (1878). 

'  Occum  Co.  V.  A.  &  W.  Spragne 
Mfg.  Co.,  34  Conn.  529  (1868).  In  this 
case  it  w.as  held  that  a  corporation, 
chartered  for  a  specific  purpose,  had  no 
power  to  take  a  lease  of  property  not 
needed  for  that  purpo.se,  with  the  in- 
tention and  for  the  object  of  harassing 
another  party  by  the  use,  under  the 
forms  of  law,  of  the  supposed  rights  thus 
obtained. 


CHAP.  XV.]   LEASES  OF  PROPERTY  AND  FRANCHISES.      §  166 


its  property  constitutes  such  a  departure  from  the  purpose 
for  which  it  was  organized  that,  in  the  absence  of  express 
statutory  authority,  it  can  be  authorized  only  by  the  unani- 
mous consent  of  its  stockholders.^ 

This  limitation  upon  the  power  of  the  majority  is  entirely 
apart  from  any  public  duty  the  corporation  may  owe.  It  is 
founded  upon  the  principle  that  every  stockholder  in  a  going 
concern  has  a  right  to  insist  that  its  affairs  be  administered 
by. its  own  officers.  He  is  entitled  to  participate  in  dictating 
the  policy  of  the  company  and  to  receive  a  proportion  of  the 
profits  of  the  enterprise  rather  than  a  share  of  a  fixed  rental. 


1  lu  Cass  V.  Manchester,  9  Fed.  642 
(1881),  Judge  McKennan  said:  "The 
change  proposed  here  is  not  organic,  it 
is  true,  but  it  is  thorough  and  funda- 
mental, as  it  affects  the  administration 
of  the  company's  affairs.  It  involves  a 
withdrawal,  from  the  control  and  man- 
agement of  the  stockholders,  of  the  en- 
tire property  of  the  corporation  for  a 
period  of  at  least  five  years ;  it  will 
preclude,  for  a  like  period,  the  exercise 
annually  by  the  stockholders  of  their 
judgment  as  to  the  particular  charac- 
ter and  method  of  conducting  the  busi- 
ness affairs  of  the  corporation." 

A  manufacturing  corporation  made  a 
lease  of  its  plant  and  all  its  property  to 
its  president  for  a  term  of  two  and  one- 
half  years  and  it  was  held  that  the  lease 
was  void  in  that  it  suspended  the  busi- 
ness of  the  corporation  for  more  than 
a  year,  and  that  it  amounted  to  a  sur- 
render of  the  charter  of  the  corporation, 
under  a  statute  providing  that  a  cor- 
poration, suspending  its  ordinary  busi- 
ness for  more  than  a  year,  should  be 
deemed  to  have  surrendered  its  charter. 
Conro  V.  Port  Henry  Iron  Co.,  12  Barb. 
(N.  Y.)  27  (1851).  See  also  Copeland 
V.  Citizens  Gaslight  Co.,  61  Barb. 
(N.  Y.)  60  (1871). 

It  has  been  held,  however,  that  when 
a  corporation  is  expressly  authorized  by 
its  charter  to  lease  its  property  it  may 
lease  its  entire  property,  although  it  is 
thereby  disabled  from  continuing  busi- 
ness.    Gubernator  v.  City  of  New  Or- 


leans, 20  La.  Ann.  106  (1868).  In  this 
case  the  Court  said  (p.  107):  "The 
power  to  lease,  granted  by  the  charter, 
is  unlimited  and  unrestricted ;  no  dis- 
tinction is  made  whether  or  not  it  be 
for  the  whole  or  a  part  of  the  property. 
How  can  we  discriminate  and  distin- 
guish when  the  law  does  not  ?  Ubi  lex 
non  distinguit,  nee  nos  distingnere  debe- 
mus.  Were  we  to  attempt  to  draw  a 
line  of  restriction  and  limitation,  where 
would  we  trace  it  1  It  would  be  an 
arbitrary  exercise  of  power  on  our  part, 
reprobated  by  law." 

In  Small  v.  Minneapolis,  etc.  Co.,  4.5 
Minn.  267  (1891),  (47  N.  W.  Rep.  797), 
the  Court  said :  "  We  need  not  inquire 
how  far,  or  under  what  circumstances, 
considerations  of  public  policy  and  of 
the  general  interests  of  the  State  may 
affect  the  right  of  a  corporation  to  dis- 
continue the  business  for  which  it  was 
created,  and  to  surrender  to  another 
corporation  its  property  and  the  con- 
duct of  such  business.  We  do  decide 
that  such  a  surrender  of  the  property, 
and,  so  far  as  possible,  of  the  functions 
of  a  corporation,  in  order  that,  while  it 
is  still  to  continue  in  existence,  its  busi- 
ness can  be  carried  on  by  another  cor- 
poration, to  which  such  transfer  is 
made,  would  violate  the  rights  of  a  non- 
assenting  stockholder  arising  from  a 
contract  implied,  if  not  expressed,  in 
the  creation  of  such  an  organization, 
and  he  would  be  entitled  to  have  such 
acts  restrained  by  injunction." 

249 


§167 


INTERCORPORATE   RELATIONS. 


[part    III. 


He  cuiuiot  be  compelled  to  accept  an  annuity  in  lieu  of  his 
share  in  the  profits. 

§  107.  Lease  of  Entire  Property  of  Losing  Corporation.  — 
When  a  corporation  is  in  a  position  where  it  cannot  further 
profitably  carry  on  its  business  and  is  a  losing  concern,  a 
majority  of  its  stockholders,  for  the  purpose  of  j)rotuctin<^  the 
whole  body  from  further  loss  and  as  a  method  of  windinj^  up 
the  affairs  of  the  corporation,  may  authorize  the  lease  of  its 
entire  property  and  business  to  another  corporation  or  per- 
son, provision  being  made  for  creditors.*  But  a  lease  —  which 
must  necessarily  occasion  delay  in  winding  up  the  alTairs  of 
a  corporation  and  in  distributing  its  assets  —  can  only  be  justi- 
fied, under  such  circumstances,  when  it  aj)pear8  to  be  the  best 
method  of  realizing  upon  the  assets  of  the  comj>any.  Its  term 
must  be  fixed  with  reference  to  the  fact  that  it  is  executed 
only  as  a  method  of  winding  up  the  affairs  of  the  corporation 
within  a  reasonable  time.  A  lease  for  a  long  term  of  years 
would  be  invalid  without  the  unanimous  consent  of  the  stock- 
holders.'* 


*  Deuike  v.  New  York,  etc.  Cement 
Co.,  80  N.  Y.  COS  (18S0):  "The  lessee 
by  the  terms  of  the  lease  was  to  carry 
on  the  business  of  manufacturing  and 
selling  ciMuent,  so  tliat  the  brand  of  the 
company  would  be  kept  before  the  pul>- 
lic.  I  do  not  understand  that  this  com- 
pany coulil  not  lawfully  temporarily 
lease  its  property  to  some  person  who 
would  carry  on  its  business  when  it 
could  not  jirofitalily  do  so." 

A  niaimfacturing  corporation,  for 
the  purpose  of  protecting  its  stock- 
holders from  further  loss,  may  discon- 
tinue the  business  and  sell  or  lease  its 
property.  Skinner  v.  Smith,  134  N.  Y. 
240  (1892),  (31  N.  E.  Rep.  911). 

The  directors  of  a  manufacturing 
company  which  has  been  unsuccessfully 
carrying  on  business  and  whose  finan- 
cial standing  is  impaired,  may, with  the 
consent  of  a  majority  of  the  stock- 
holders' lease  its  entire  plant  and  busi- 
ness to  another  corporation  for  ten 
years  with  the  privilege  of  purchase, 

250 


the  lease  being  the  beat  means  of  pre- 
venting insolvency  and  the  transaction 
being  in  good  faith.  IJartholouiew  v. 
Derby  Kubbcr  Co.,  09  Conn.  521  (1897), 
(3S  Atl.  Hep.  45).  See  ante,  §  11 1,  •'  6'(i/e 
of  Kntire  I'roperlif  of  Losing  Corporation 
by  Majority   Vote." 

*  In  an  Knglish  case,  however,  where 
wide  powers  were  given  by  the  clau.sca 
of  the  charter  of  a  porcelain  company 
to  a  two-thirds  vote  of  tiie  stockholders, 
it  was  held  that,  after  a  period  of  nine 
years  of  unsuccessful  working,  a  ma- 
jority of  two-thirds  of  the  shareholders 
in  general  meeting  were  empowered, 
under  such  clauses,  to  autliorize  tlie 
directors  to  make  a  valid  miuing  lease 
for  twenty-one  years  of  the  whole  of 
the  works  and  buildings  of  the  compauy. 
Semble,  the  clauses  would  not  authorize 
the  like  majority  to  engage  the  com- 
pany in  a  new  enterprise  wholly  un- 
connected with  their  original  purpose. 
Feathcrstonhaugh  v.  Lee  Moor  Porce- 
lain Clay  Co.,  L.  R.  1  Eq.  318  (1865). 


CHAP.    XV.]       LEASES    OP   PROPERTY   AND   FRANCHISES.  §  168 

It  has  been  held  that  even  a  long  term  lease  might  be  ex- 
ecuted if  provision  were  made  for  paying  dissenting  stock- 
holders, at  their  option,  the  cash  value  of  their  shares.^ 
Unless  so  provided  by  statute,  however,  the  scheme  is  open 
to  the  objection  that  it  gives  a  dissenting  stockholder  a  theo- 
retical distributive  share  instead  of  the  actual  share  of  the 
assets  to  which  he  is  entitled. '-^  If  such  a  method  be  pro- 
vided, it  can  only  be  followed  when  it  is  clear  that  the  cor- 
poration is  a  losing  concern.  It  can  never  be  adopted  for 
the  purpose  of  forcing  a  stockholder  in  a  prosperous  com- 
pany either  to  sell  out  or  consent  to  a  lease. 

§  168.  Voidable  Leases.  —  The  directors  of  a  corporation  are 
its  trustees.  They  cannot  deal  with  corporate  property  for  their 
personal  benefit.  A  lease  of  the  property  of  a  corporation 
to  another  corporation  in  which  a  director  is  interested  is 
voidable  at  the  option  of  either  corporation.^     When  the  cor- 


1  In  Black  v.  Delaware,  etc.  Canal 
Co.,  22  N.  J.  Eq.  415  (1871),  Chancellor 
Zabriskie  said  :  "  If  I  am  right  in  the 
conclusion  arrived  at  above,  that  the 
majority  of  corporators  under  a  charter, 
which  specifies  no  definite  time  for  its 
continuance,  have  a  right  to  abandon 
the  undertaking,  and  dispose  of  and 
divide  the  property,  the  proceeding  in 
this  case  is  valid  as  against  the  com- 
plainants as  a  lawful  way  of  accomplish- 
ing that  end  as  to  them.  Two-thirds  of 
these  corporators  have  determined  that 
they  do  not  desire  to  go  on  with  these 
enterprises,  under  the  charters,  an(]  that 
they  wish  to  abandon  them,  and  are 
willing  to  accept  as  their  share  of  the 
corporate  property  a  yearly  rent  or  an- 
nuity secured  by  a  provision  like  that 
contained  in  this  proposed  lease.  Some 
stockholders  are  not  willing ;  and  al- 
though the  majority  can  effect  the 
abandonment,  they  cannot  compel  the 
dissentients  to  accept  like  compensation 
for  their  stock;  it  might  be  compelling 
them  to  embark  in  a  new  enterprise. 
Provision  is,  therefore,  made  to  pay  or 
return  to  them  the  full  value  of  their 
share  of  the  whole  property  of  the  cor- 


poration. This  is  all  they  would  have 
if  the  works  were  sold  out.  The  pro- 
vision is  a  most  equitable  one,  and  with- 
out it  the  transaction,  even  if  valid  and 
legal,  would  not  be  equitable  and  just." 

2  See  ante,  §  121  :  "  Appraisal  of  Stock 
of  Dissenting  Stockholders." 

^  Where  a  trustee  of  a  corporation, 
whose  presence  is  necessary  to  make  a 
majority  for  the  transaction  of  corporate 
business,  is  interested  in  another  cor- 
poration to  which  the  board  vote  to 
lease  the  entire  property  of  the  cor- 
poration, the  lease,  executed  in  pur- 
suance of  such  authority,  is  voidable 
upon  the  complaint  of  any  stockholder. 
Parsons  v.  Tacoma  Smelting,  etc.  Co. 
(Wash.  1901),  65  Pac.  Rep.  765. 

A  lease  by  an  officer  of  a  corporation 
of  property  to  the  corporation  may  be 
binding  upon  the  company  when  made 
in  good  faith  and  ratified  by  it  by  tak- 
ing possession  and  paying  rent  for  a 
time  according  to  the  terms  of  the 
lease.  Louisville,  etc.  R.  Co.  v.  Car- 
son, 151  111.  444  (1894),  (38  N.  E.  Rep. 
140).  See  also  post,  §  248  :  "  Voidable 
Railroad  Leases." 

251 


§  109  INTERCORPORATE   RELATIONS.  [PART   III. 

poration  fails  to  act  a  court  of  equity  may  intervene  at  the 
instance  of  any  stockholder. 

The  niiiJDrity  of  the  stockholders  of  a  corporation  stand  in 
a  similar  liduciary  relation  towards  the  minority.  They  can 
authorize  the  lease  of  corporate  property  to  another  corpo- 
ration, controlled  hy  themselves,  only  when  they  act  in  the 
utmost  good  faith  towards  minority  stockholders.  In  Meeker 
V.  Winthrop  Iron  Co}  Judge  Ba.xter  in  declaring  void,  aa  a 
fraud  upon  minority  stockholders,  a  lease  of  a  mining  property 
authorized  by  a  majority  of  the  stockholders  of  a  corporation 
to  another  corporation  of  which  they  likewise  held  control, 
said:  "The  ownership  of  a  majority  of  the  capital  stock  of  a 
cor{)oration  invests  the  holders  thereof  with  many  and  valual)le 
incidental  rigiits.  They  may  legally  control  the  company's 
business,  prescribe  its  general  policy,  make  themselves  its 
agents,  and  take  reasonal)lc  compensation  for  their  services. 
But,  in  thus  assuming  control,  they  also  take  upon  themselves 
the  correlative  duty  of  diligence  and  good  faith.  They  cannot 
lawfully  manipulate  the  company's  business  in  their  own 
interests  to  the  injury  of  other  corjtorators." 

§  l(]l>.  Remedies  of  Objecting  Stockholders.  —  Any  stock- 
holder in  a  prosperous  corporation  who  objects  to  a  lease  of 
the  cntii'e  proi)erty  and  business  of  his  corporation  is  entitled 
to  an  injunction  to  restrain  its  execution.*  But  an  injunction 
will  not  be  granted  where  a  lease  of  only  a  part  of  the  property 
of  the  corporation,  insulTicient  to  interfere  with  the  continued 
prosecution  of  its  business,  is  contemplated.^ 

Courts  of  equity,  at  the  instance  of  stockholders,  will  also 

^  Meeker  v.  "Winthrop   Iron  Co.,  17  Rop.  797).     Also  Copeland  v.  Citizens 

Fed.  50  (1883).     See  also  cases  cited  in  Gaslight  Co.,  61  Barb  (N.  Y.)  60  (1871). 

notes  to  fiost,  §  248:  "  Voidable  Railroad  That  a  lease,  although  unlawful,  does 

Leases."  not  give  a  portion  of  the  stockhohlers  a 

*  A  stockholder  in  a  manufacturing  standing  inequity  to  ask  for  tlie  dissola- 

corporatiou  m.iv  enjoin  a  lease,  autlior-  tion  of  the  corporation,  see  Denike  v. 

ized  hy  a  majority  of  the  stockliolders,  New  York,  etc.  Cement  Co.,  80  N.  Y. 

of    all    its    pro])erty  and   bu.<ine.ss   for  .599    (1880).      See    also    ante,    §    114: 

twenty-five  years  at   a  rent.al  e<inal  to  "  Remedies  of  Dissentinfj  Stock-holders  in 

one-half  the    profits   derived    from  the  Case  of  Invalid  or  Unfair  Sales." 

business.      Small   v.   Minneapolis,   etc.  '  Small  v.  Minneapolis,  etc.  Co.,  H7 

Co.,  43  Minn.  264    (1891),    (47  N.  W.  Hun  (N.    Y.),    587    (1890),    (10   N.  Y. 

Supp.  4.)6). 


CHAP,    XV.]       LEASES   OF    PKOPERTY   AND    FRANCHISES.  §  172 

issue  injunctions  to  restrain  the  execution  of  leases  authorized 
by  directors  or  majority  stockholders  in  violation  of  their 
fiduciary  obligations.^ 


II.   Leases  of  Property  and  Franchises  of  Quasi-public 
Corporations. 

§  170.  Distinction  between  Leases  of  Private  and  Quasi- 
public  Corporations.  —  Leases  of  quasi-Y)ub\[c  corporations  vary 
from  those  executed  by  private  corporations,  owing  no  public 
duties,  in  their  need  of  the  approval  of  the  State,  in  the 
formalities  attending  their  execution,  and  in  their  essential 
nature.  A  lease  by  a  private  corporation  is  generally  an 
incident  to  its  business,  runs  for  a  limited  term  and  is  analo- 
gous to  a  lease  by  a  natural  person.  A  lease  by  a  quasi-puhWc 
corporation  of  its  property  and  franchises  requires  legislative 
sanction,  must  follow  the  conditions  of  the  legislative  grant, 
and  is,  when  executed  for  the  customary  periods  —  ninety- 
nine  or  nine-hundred  and  ninety-nine  years  —  substantially  a 
sale  in  consideration  of  an  annuity/.  While  the  relation  of  the 
parties  is  that  of  landlord  and  tenant,  and  the  lease  may  be  the 
subject  of  forfeiture,  for  practical  purposes,  based  upon  present 
and  future  control  of  the  franchises  and  property,  the  lessee 
stands  in  the  position  of  owner. 

S  171.  Leases  of  Indispensable  Property  of  Quasi-public  Cor- 
poration—  Upon  principles  already  considered,  property  neces- 
sary for  the  performance  of  the  public  duties  of  a  quasi-puhUc 
corporation  cannot  be  leased,  without  statutory  authority .^ 
The  test  of  indispensability  applicable  in  the  case  of  corporate 
sales  applies  in  the  case  of  corporate  leases.^ 

§  172.  Leases  of  Surplus  Property.  —  The  greater  power  to 
sell  and  absolutely  convey  the  surplus  property  of  a  quasi- 
public  corporation  includes  the  lesser  power  to  lease  it.^ 

1  Meeker  v.  Winthrop  Iron  Co.,  1 7  Property  cannot  be  alienated  or  tal-en  on 

Fed.    48    (1883);    Parsons   v.   Tacoma  Execution  witJioiU  Statutory  Authority." 
Smelting,  etc.  Co.  (Wash.  1901 ),  65  Pac.  »  See  ante,  §  128  :  "  Test  of  Indispen- 

Rep.  765.     See  also  cases  cited  in  notes  sahility." 

to   §    248,    post:    "Voidable    Railroad         *  See  ante,   §129:  Sales  of  Surplus 

Leases."  Property." 


2  See   ante,    §  127:     "Indispensable 


253 


INTERCORPORATE   RELATIONS. 


[part   III. 


In  the  absence  of  a  statutory  prohibition,  such  a  corporation 
may  lease  its  property,  real  and  personal,  not  necessary  to 
carry  on  the  business  for  which  it  was  cliartercd  nor  to  fulfil 
its  public  obligations,  in  the  same  manner  and  upon  the  same 
conditions  as  a  natural  person.^  Thus,  for  example,  a  railroad 
company  may  lease  its  outlying  lands  and  any  rolling  stock 
or  other  personal  property  not  required  in  the  use  and  opera- 
tion of  its  railroad .2  And  a  ferry  company  may  let  its  boats 
when  not  needed  in  its  business.^ 


'  Statutes  rcpulatinp  the  method 
ami  furin:ilitit'9  by  wliich  f/i((isi-pul>lic 
corporations  may  lease  their  projierty 
and  franchises  do  not  fipply  to  ordi- 
nary least's  of  proj)erty  not  necessary 
for  the  proper  discliarge  of  corporate 
duties.  Coal  Creek,  etc.  Co.  r.  Tennes- 
see, etc.  Co.,  lOG  Teun.  C51  (1901),  (C2 
S.  W.  Kep.  lf,2). 

'  In  Hartford  Ins.  Co.  r.  Chica£;o, 
etc.  U.  Co.,  175  U.  S.  99  (1899),  (20  Sup. 
Ct.  Hep.  .33),  Mr.  Justice  Gray  said  : 
"A  railroad  corporation  holds  its  sta- 
tion grounds,  railroad  tracks  and  rijjht 
of  way  for  the  pul)lic  use  for  w  hicli  it 
is  incorporated,  yet  as  its  private  prop- 
erty, and  to  he  occupied  by  it.self  or  by 
others,  in  tlie  manner  which  it  may  con- 
sider best  fitted  to  promote,  or  nut  to 
interfere  with,  the  public  use.  It  may, 
in  its  discretion,  permit  them  to  be 
occupied  by  others  with  structures  con- 
venient for  the  receiving  and  delivering 
of  freight  upon  its  railroad,  so  long  as 
a  free  and  safe  passage  is  left  for  the 
carriage  of  freii^lit  and  passengers.  .  .  . 
The  case  is  wholly  different  from  those 
cited  by  the  plaintiffs,  in  which  a  lease 
by  a  railroad  corporation,  transferring 
its  entire  property  and  franchises  to 
another  corporation,  and  thus  under- 
taking to  disable  itself  from  performing 
all  the  duties  to  the  public  imposed  upon 
it  by  its  charter,  has  been  held  to  be 
ultra  vires,  and  therefore  void." 

And  in  Union  Pacific  R.  Co.  v.  Chi- 
cago, etc.  R.  Co.,  51  Fed.  321  (1892), 
Judge  Sanborn  said  :  "  The  result  is  that 
it  is  not  beyond  the  powers  of  a  corpo- 
ration authorized  to  construct,  maintain 

254 


and  operate  a  railroad  and  its  appurte- 
nances to  let  l>y  contract  to  a  like  cor- 
poration its  surplus  rollingstock,  or  the 
surplus  use  of  its  terminal  tracks,  depots, 
and  bri<lges,  which  it  has  nece.s.sarily 
acipiired  for  the  purpose  of  its  incor- 
poration ;  provided,  always,  that  such 
contract  in  no  way  disables  it  from  the 
full  performance  of  its  obligations  and 
ilutics  to  the  State  and  the  public." 

In  Attorney-General  i'.  (Jreat  East- 
ern K.  Co.,  L.'U.  11  Ch.  440  (1879),  it 
was  held  that  the  letting  for  hire  by 
one  railroad  comj)any  to  another  whose 
line  was  connccteil  with  its  own,  and 
which  could  only  1)6  worked  profitably 
in  connection  with  it,  of  parts  of  its  sur- 
plus rolling  stock,  was  not  ultra  virea. 

A  railroad  company,  authorized  to 
construct  and  operate  a  telegraph  line 
as  well  as  a  railroad,  has  no  power  to 
lease  its  telegraph  line  without  statu- 
tory authorization.  Its  duties  are  the 
same  with  respect  to  the  telegraph  line 
as  to  the  railroad.  Atlantic,  etc.  Tel. 
Co.  V.  Union  Pacific  R.  Co.,  1  McCrary 
(U.  S.)  541  (1880),  1  Fed.  745. 

'  In  Brown  i-.  Winnisimmet  Co.,  11 
Allen  (Mass.)  326  (1865),  the  Court, 
after  referring  to  the  powers  of  ferry 
companies  and  to  their  right  to  own 
extra  boats,  said  (j).  333)  :  "  It  is  not 
necessary  that  such  extra  or  additional 
steamboats  should  be  kejtt  unemployed 
when  not  required  for  the  business  of 
the  ferry,  but  ...  it  is  competent  for 
the  defendants  to  use  them  or  to  let 
them  to  others  to  be  used  in  carrying  on 
any  legitimate  business." 

In  Forrest  v.  Manchester,  etc.  R.  Co  , 


CHAP.    XV.]       LEASES    OF   PROPERTY   AND    FRANCHISES.  §  174 

Analogous  to  this  principle  in  practical  results,  although 
based  upon  essentially  different  grounds  —  in  that  a  joint  use 
is  distinguishable  from  a  lease  —  is  the  principle  that  a  rail- 
road company  may  grant  to  another  corporation  the  surplus 
use  of  its  tracks.^ 

§  173.  Leases  of  Franchises.  —  The  principles  of  law  gov- 
erning leases  of  franchises  have  already  been  considered 
at  length  in  connection  with  the  subject  of  the  sale  of 
franchises.^ 

§  174.  Railroad  Leases  typical  of  Leases  of  Quasi-public  Corpo- 
rations. —  As  indicated  in  the  preliminary  part  of  this  treatise, 
railroad  companies  have  been  granted,  and  have  exercised,  the 
power  of  leasing  their  property  and  franchises  to  a  far  greater 
extent  than  other  corporations  of  a  similar  nature.  Legal 
principles  relating  to  leases  of  quasi-puhVic  corporations  have 
been  established,  almost  without  exception,  in  cases  involving 
railroad  leases. 

While,  therefore,  in  the  further  consideration  of  the  sub- 
ject special  reference  will  be  made  to  leases  of  railroads,  it 
must  be  borne  in  mind  that  the  principles  exemplified  are  of 
general  application  and  apply  alike  to  every  quasi-\mhliG  cor- 
poration —  to  turnpike,  canal,  telegraph,  telephone,  electric 
light,  gas,  water  and  other  public  utility  companies.^ 

30  Beav.  47  (1861),  the  Master  of  the  564  (1895).     See  post,  ch.  24:  "  Track- 

RoUs  said  :  "  What  are  tliey  to  do  with  age  Contracts." 

those  steamboats  at  other  times  when  2  gee  ante,  ch.  12:  "Sales  of  Corpo- 

unemployed    at    the  ferry  ?     Are  they  rate  Franchises." 

to  keep  them  idle  "?     I  am  of  opinion  ^  The  following  cases  relate  to  leases 

that  they  are  not ;  and  that  if  the  capi-  of  (7!<asi'-public  corporations  other  than 

tal  of  the  company  is  really  embarked  railroad  companies, 
for  the  purpose  of  the  ferry   and  not  Gas  and  Electric  Light  Companies : 

for  the  purpose  of  excursions,  when  the  Jersey  City  Gas  Co.  v.  United  Gas  Imp. 

steamboats   are  not    required   to  carry  Co.,  46  Fed.  264  (1891);  Visalia  Gas, 

over   the  persons  who  wish  to  use  the  etc.  Co.  v.  Sims,  104  Cal.  326  (1894), 

ferry,  they  are  at  liberty  to  use  them  as  (43  Am.   St.   Eep.  105,  37   Pac.  Rep. 

they  think  fit,  for  the  profit  of  the  com-  1042)  ;  Chicago  Gas  Light,  etc.  Co.  v. 

pany,  and  either  to  let  them  out  to  pri-  People's  Gas  Light,  etc.    Co.,  121  111. 

vate  parties  for  excursions,  or  to  carry  530  (1887),  (13  N.  E.  Rep.  169,  2  Am. 

excursion  parties  themselves."  St.   Rep.   124);  Brunswick  Gas   Light 

1  Chicago,  etc.  R.  Co.  i'.  Union  Pac.  Co.  v.  United  Gas,  etc.  Co.,  85  Me.  532 

R.  Co.,  47  Fed.  23  (1891),  affirmed  sub  (1893),  (35  Am.  St.  Rep.  385,   43  Am. 

worn.  Union  Pac.  R.  Co.  v.  Chicago,  etc.  &  Eng.   Corp.  Cas.  459,  27  Atl.  Rep. 

R.  Co.,  51  Fed.  321   (1892),  163  U.  S.  52.5);   Bath  Gas   Light  Co.   v.   Claffy, 

255 


§  175  INTERCORPORATE   RELATIONS.  [PART    III, 

ARTICLE    II. 

LEASES  OF  RAILROADS  (INCLUDING  TRACKAGE     CONTRACTS). 


CUAPTER   XVI. 

NATURE    AND    ADTnORIZATION    OF   CONTRACT   OF    LEASE. 

I.    Nature  of  Lease  of  Railroad. 

§  175.     What  constitates  a  Lea.se  of  a  Railroad. 

§  176.     Distinction  betwoon  Kolatiou  of  Lessor  and  Lessee  apd  other  Intercorpo- 
rate Uelatiuus. 

II.    Legislative  Authority  for  Lease  of  Railroad. 

§  177.  Lease  of  Railroad  invalid  without  Legislative  Authority. 

§  178.  Necessity  for  Legislative  .Vnthoriiy  to  take  a  Lease. 

§  179.  Legislative  Ratification  of  Unauthorized  Lease. 

§  180.  What  Railroads  may  be  le;ised.     Statutory  Provisions. 

§  181.  Rule  of  Construction  of  Statutes. 

§  182.  Construction  of  St.atutos.  —  (.\)  Provisions  authorizing  Lea-ses. 

§  18.3.  Construction  of  Statutes  —  (B)  Provisions  not  authorizing  Leases. 

§  184.  Construction  of  Statutes.  —  (C)  Power  to  lease  Unfinished  Hoad. 

§  185.  Con.struction  of  Statutes.  —  (D)  Leases  of  Connecting  Linos. 

§  186.  Constitutiimal  and  Statutory  Prohibitions    of   Leases  of  Competing  or 

Parallel  Lines. 

§  187.  Long  Term  Leases  not  prohibited  by  Statutes  against  Perpetuities. 

I.    Nature  of  Lease  of  Railroad. 

§  175.  What  constitutes  a  Lease  of  a  Railroad.  —  A  railroad 
lease  is  a  conveyance  by  a  railroad  company,  for  rent  reserved, 
of  its  railroad  for  any  terra  which  leaves  a  reversionary 
interest.^     It  necessarily  involves  a  transfer  of  an  estate  in 

151  N.  Y.  24  (1896),  (45  N.  E.  Rep.  Co.  v.  Western  Union  Tel.  Co.,  2  Fed. 
390).  417  (I SSI),  1  McCrary  (U.  S.),  551; 
Tekqraph  Companies :  Philadelphia  Reiff  r.  Western  Union  Tel.  Co.,  49  N. 
f.  Western  Union  Tel.  Co.,  11  Phila.  Y.  Super.  Ct.  441  (188.3). 
327  (1876);  Atlantic,  etc.  Tel.  Co.  v.  ^  A  grant  and  denii.se  by  one  rail- 
Union  Pacific  R.  Co.,  1  Fed.  745  (I8S0),  road  corporation  to  another  of  all  its 
1  McCrary  (U.  S.)  541  ;  VVestern  property,  real  and  personal,  and  all  its 
Union  Tel.  Co.  v.  Union  Pacific  R.  Co.,  privileges  and  franchi.ses  in  perpetuity, 
3  Fed.  1  (1880),  1  McCrarv  (U.  S.)  has  been  held  e<iuivaleut  to  an  absolute 
418  ;  Central  Branch  Union  Pacific  R.  conveyance.     Chicago,   etc.   R.   Co.  i-. 

256 


CHAP.    XYI.]      NATURE   AND    AUTHORIZATION   OF   LEASE.         §  175 

the  railroad  property  and  of  the  franchises  attaching  thereto. 
It  generally  involves  a  transfer  of  the  railroad  and  all  the 
franchises  of  the  vendor  corporation  for  a  long  term  of  years 
—  often  equivalent  to  a  grant  of  the  fee  in  consideration  of 
stated  payments.^ 


Boyd,  118  m.  73  (1886),  (7  N.  E.  Rep. 
487). 

See  also  Hazard  v.  Vermont,  etc.  R. 
Co.,  17  Fed.  753  (1883) ;  Vermont,  etc. 
R.  Co.  V.  Vermont  Cent.  11.  Co.,  34 
Vt.  1  (1861);  Town  of  Westbrook's 
Appeal  from  Commissioners,  57  Conn. 
95  (1889),  (17  Atl.  Rep.  368).  Compare 
State  V.  Housatonic  R.  Co.,  48  Conn.  44 
(1880). 

While  this  conclusion  may  be  correct 
where  no  right  of  re-entry  is  reserved  in 
a  lease,  it  is  not  well  founded,  as  a  mat- 
ter of  law,  Avhere  there  is  clause  of  re- 
entry. A  reservation  of  the  right  to 
re-enter  together  with  that  of  rent,  con- 
stitute a  revisionary  interest,  —  the 
essential  feature  of  a  lease  as  distin- 
guished from  an  absolute  conveyance. 

^  A  vote  by  a  railroad  company  to 
agree  with  another  company  to  take  a 
lease  of  a  railroad  to  be  constructed  by 
the  latter  and  to  pay  as  rent  a  stipulated 
percentage  upon  its  cost,  and  a  similar 
vote  of  the  latter  corporation,  to  lease 
its  railroad  to  the  former  upon  these 
terms,  are  merely  preliminary  and  do 
not  constitute  an  actual  lease;  Peters 
V.  Boston,  etc.  R.  Co.,  114  Ma)S».  127 
(1873). 

The  receiver  of  a  railroad,  the  earn- 
ings of  which  were  less  than  the  ex- 
pense of  operation,  entered  into  a 
contract  with  a  company  owning  a  con- 
necting line  by  which  the  latter  agreed 
to  operate  the  road,  keeping  the  ac- 
counts in  the  receiver's  name  and  charg- 
ing against  the  road  only  the  cost  of 
operation  and  necessary  repairs.  It 
was  held  that  the  contract  was  not  a 
lease,  but  one  under  which  the  latter 
company  operated  the  road  as  agent  of 
the  receiver.  South  Carolina,  etc.  R. 
Co.  V.  Carolina,  etc.  R.  Co.,  93  Fed.  543 
(1899). 

17 


A  railroad  company  agreed  to  sell 
to  another  company  and  the  latter 
agreed  to  buy,  part  of  its  road  at  a 
fi.xed  price.  The  contract,  however, 
recited  that  the  vendor  could  not,  at  the 
time,  make  a  clear  title  and  it  was, 
therefore,  stipulated  that,  in  the  mean- 
time, the  vendor  should  lease  the  road 
to  the  purchaser.  The  provisions  in 
relation  to  the  sale  and  to  the  lease 
were  kept  distinct  throughout  the  con- 
tract. It  was  held  that,  prior  to  the 
time  when  title  could  be  transferred, 
the  relations  of  the  corporations  were 
those  of  lessor  and  lessee,  and  that, 
even  if  the  contract  of  sale  was  ultra 
vires,  the  lease  was  valid.  United 
States  Trust  Co.  v.  Mercantile  Co., 
88  Fed.  140  (1898). 

A  written  agreement  by  which  one 
railroad  company  grants  to  another  the 
right,  for  a  term  of  years,  to  maintain 
its  track  across  the  right  of  way  of  the 
former,  upon  payment  of  a  nominal 
rental,  is  a  lease,  the  covenants  of  which 
run  with  the  land.  Louisville,  etc.  R. 
Co.  V.  Illinois,  etc.  R.  Co.,  174  111.  448 
(189«),  (51  N.  E.  Rep.  824). 

A  contract,  by  which  a  telegraph 
company  grants  to  another  the  privi- 
lege of  stringing  wires  on  its  telegraph 
poles,  is  not  a  lease  of  the  corporation's 
property,  within  the  meaning  of  a  stat- 
ute providing  that  leases  of  corporate 
property  can  be  made  only  when  sanc- 
tioned by  holders  of  three-fifths  of  the 
stock.  Farnsworth  v.  "Western  Union 
Tel.  Co.,  .53  Hun  (N.  Y.),  636  (1889), 
(6  N.  Y.  Supp.  735). 

As  to  whether  a  particular  agreement 
was  a  "  contract  "  or  lease,  see  Archer 
V.  Terre  Haute,  etc.  R.  Co.,  102  111.  492 
(1882),  (7  Am.  &.  Eng.  R.  Cas.  255). 
See  also  Wiggins  Ferry  Co.  v.  Ohio, 
etc.  R.  Co.,  142  U.   S.  396  (1891),  (12 

257 


§  177  INTERCORPORATE  RELATIONS.        [PART  HI. 

The  elements  essential  to  the  existence  of  a  valid  railroad 
lease  arc  as  follows  : 

(1)  A  grant  of  authority  by  the  State  to  both  lessor  and 
lessee  corporations. 

(2)  The  assent  of  the  stockholders  of  both  corporations. 

(3)  A  written  instrument  stating  the  term  and  rent. 

(4)  Its  formal  execution. 

§  176.  Distinction  beween  Relation  of  Lessor  and  Lessee  and 
other  Intercorporate  Relations.  —  The  distinction  between  a 
contract  of  lease  entert-d  into  by  railroad  corporations  and 
their  consolidation  has  already  l)ecn  pointed  out.*  The 
difference  between  the  relation  of  lessor  and  lessee  and  other 
intercorporate  relations  is,  generally,  obvious. 

Contracts  for  the  joint  use  of  railroad  property  are,  how- 
ever, analogous  to  leases  and  some  dilhculty  has  arisen  in 
distinguishing  between  them.  The  point  of  difference  is  that 
a  lease  conveys  an  estate  in,  and  the  possession  of,  the 
property  constituting  its  subject-matter,  while  a  trackage  con- 
tract or  terminal  privilege  carries  with  it  no  interest  in  the 
property  and  no  right  to  its  exclusive  possession.- 

II.    Legislative  Authority  for  Lease  of  Railroad. 

§  177.  Lease  of  Railroad  invalid  ■without  Legislative  Authority. 
—  Upon  principles  elsewhere  considered,  a  quasi-\)n\A\c  cor- 
poration cannot  transfer,  absolutely  or  for  a  limited  period,  its 
franchises,  or  the  property  necessary  for  the  performance  of 
its  public  duties,  without  legislative  authority.^  A  lease  of 
a  railroad,  in  the  absence  of  a  statute  authorizing  it,  is  ultra 
vires  and  against  public  policy.* 

Sup.    Ct.    Rep.    18S);    South  Carolina,  an<f,  §§  1.35-1.39  :  "  Legislative  Authority 

etc.  R.    Co.    V.   Augusta,   etc.    R.    Co ,  for  Sale  of  Franchises." 

107    Ga.    164    (1899),    (33    S.   E.    Rep.  ♦  I.   Cases  holding  Unauthorized  Rail- 

36).  road  Lease  invalid  because  ultra  vires. 

1  See  ante,  §  14:  "Distinction  be-  L'nited  States :  St.  Louis,  etc.  R.  Co. 
tween  Consolidation  and  Lease."  v.  Terre   Haute,  etc.    R.   Co.,  145  U.  S. 

2  See  po.^t,  §  255:  "Nature  of  a  393  (1892),  (12  Sup.  Ct.  Rep.  953); 
Trackage  Contract."  Central   Transp.  Co.    v.   Pullman    Car 

8  Seean/e,§§  17-18:  "  Necessity  for  Co.,  139  U.  S.  24  (1891),  (11  Sup.  Ct. 
Legislative  Authority  "  (consolidation) ;     Rep.  478) ;   Pittsburgh,  etc.  R.  Co.  v. 

258 


CHAP.    XVI.]      NATURE    AND  AUTHORIZATION    OF   LEASE.  §  177 


In    Pennsylvania   R.    Co.    v.    St.    Louis,  etc.  R.    Co}    Mr. 
Justice  Miller  thus  applied  the  principle  of  ultra  vires  to  rail- 


Keokuk  Bridge  Co.,  131  U.  S.  371 
(1889),  (9  Sup.  Ct.  Rep.  770);  Oregon 
R.,  etc.  Co.  V.  Oregonian  Co.,  130  U.  S. 
1  (1889),  (9  Sup.  Ct.  Rep.  409);  Penn- 
sylvania  R.  Co.  v.  St.  Louis,  etc.  R. 
Co.,  118  U.  S.  290  (1886),  (6  Sup.  Ct. 
Rep.  1094);  Thomas  v.  Railroad  Co., 
101  U.  S.  71  (1879),  (leading  case); 
Hamilton  v.  Savannah,  etc.  R.  Co.,  49 
Fed.  412  (1892). 

Alabama :  Memphis,  etc.  R.  Co.  v. 
Grayson,  88  Ala.  572  (1889),  (7  So.  Rep. 
122,"  43  Am.  &  Eng.  R.  Cas.  681). 

Indiana :  Commissioners  of  Tippe- 
canoe Co.  V.  Lafayette,  etc.  R.  Co.,  50 
Ind.  85  (1875). 

Massachusetts :  Middlesex  R.  Co.  v. 
Boston,  etc.  R.  Co.,  115  Mass.  347 
(1874). 

Montana :  State  v.  Montana  R.  Co., 
21  Mont.  221  (1898),  (53  Pac.  Rep. 
623). 

Nebraska :  State  v.  Atchison,  etc.  R. 
Co.,  24  Neb.  143  (1888),  (8  Am.  St.  Rep. 
164,  38  N.  W.  Rep.  43). 

New  Hampshire :  Dow  v.  Northern 
R.  Co.,  67  N.  H.  1  (1886),  (36  Atl.  Rep. 
510). 

Neio  Jersey :  Black  v.  Delaware,  etc 
Canal  Co.,  24  N.  J.  Eq.  454  (1873). 

New  York:  Abbott  v.  Johnstown, 
etc.  Horse  R.  Co.,  80  N.  Y.  27  (1880), 
(36  Am.  Rep.  572)  ;  Troy,  etc.  R.  Co.  v. 
Kerr,  17  Barb.  (N.  Y.)  581  (1854)  ;  Gere 
V.  New  York  Central,  etc.  R.  Co.,  19 
Abb.  N.  C.  193  (1885). 

England:  East  Anglian  R.  Co.  v. 
Eastern  Counties  R.  Co.,  11  C.  B.  (o.  s.) 
775  (1851);  Simpson  v.  Denison,  10 
Hare,  51  (1852),  (16  Jur.  828). 

II.  Cases  holding  Unauthorized  Rail- 
road Lease  invalid  because  against  Pub- 
lic Policy. 

United  States  :  Thomas  v.  Railroad 
Co.,  101  U.  S.  71  (1879);  Earle  v. 
Seattle,  etc.  R.  Co.,  56  Fed.  909  (1893). 


Compare,  however,  Pittsburgh,  etc.  R. 
Co.  I'.  Columbus,  etc.  R.  Co.,  8  Biss. 
456  (1879). 

Georgia :  Singleton  v.  Southwestern 
R.  Co.,  70  Ga.  464  (1883),  (48  Am.  Dec. 
574). 

Illinois :  Wabash,  etc.  R.  Co.  v.  Pay- 
son,  106  111.  534  (1883). 

Massachusetts  :  Braslin  v.  Somerville 
Horse  R.  Co.,  145  Mass.  64  (1887),  (13 
N.  E.  Rep.  65):  "The  general  rule  ia 
familiar,  that  neither  a  steam  nor  a 
street  railway  corporation  can  make  a 
valid  transfer,  either  by  way  of  abso- 
lute deed,  mortgage  or  lease,  of  its  fran- 
cliise,  or  of  its  railroad  and  bulk  of  its 
property,  or  relieve  itself  of  the  burdens 
imposed  upon  it  by  law,  or  by  its  char- 
ter, without  the  consent  of  the  State." 

Minnesota  :  Freeman  v.  Minneapolis, 
etc.  R.  Co.,  28  Minn.  443  (1881),  (10 
N.  W.  Rep.  594). 

New  Jersey :  A  corporation  created 
by  statute  possesses  no  rights,  and  can 
exercise  no  powers,  which  are  not  ex- 
pressly given  or  necessarily  implied. 
Such  a  corporation  cannot  lease  or  dis- 
pose of  any  franchise  needful  in  the  per- 
formance of  its  obligations  to  the  State, 
without  legislative  consent.  Stockton 
y.  Central  R.  Co.,50N.  J.Eq.  52(1892), 
(24  Atl.  Rep.  964).  Also  Mills  v.  Cen- 
tral R.Co.,  41  N.  J.  Eq.  1  (1886),  (2  Atl. 
Rep.  453)  ;  Black  v.  Delaware,  etc.  Canal 
Co.,  22  N.  J.  Eq.  130  (1871)  ;  s.  C.  24 
N.  J.  Eq.  454  (1873). 

Pennsylvania  :  Van  Steuben  v.  Cen- 
tral R.  Co.,  178  Pa.  St.  367  (1896),  (35 
Atl.  Rep.  992). 

South  Carolina :  Harmon  v.  Co- 
lumbia, etc.  R.  Co.,  28  S.  C.  401  (1887), 
(5  S.  E.  Rep.  835, 13  Am.  St.  Rep.  686). 

Texas :  International,  etc.  R.  Co.  v. 
Moody,  71  Tex.  614  (1888),  (9  S.  W. 
Rep.  465)  ;  Gulf,  etc.  R.  Co.  v.  Morris, 
67  Tex.  692  (1887),  (4  S.  W.  Rep.  156)  ; 


1  Pennsylvania  R.  Co. 
Ct.  Rep.  1094J. 


St.  Louis,  etc.  R.  Co.,  118  U.  S.  309  (1886),  (6  Sup. 
259 


§  177  INTERCORPORATE  RELATIONS.        [pART  III. 

road  leases  :  "  We  think  it  may  be  stated,  as  tlio  just  result 
of  these  cases  and  on  sound  principle,  that,  unless  specially 
authorized  by  its  charter  or  aided  by  some  other  legislative 
action,  a  railroad  company  cannot,  by  lease  or  any  other  con- 
tract, turn  over  to  another  company,  for  a  long  period  of  time, 
its  road  and  all  its  appurtenances,  the  use  of  its  franchises, 
and  the  exercise  of  its  powers  ;  nor  can  any  other  railroad 
company,  without  similar  authority,  make  a  contract  to  receive 
and  o|)erate  such  road,  franchises,  and  property  of  the  first 
corporation,  and  that  such  a  contract  is  not  among  the  ordi- 
nary powers  of  a  railroad  company,  and  is  not  to  be  presumed 
from  the  usual  grant  of  powers  in  a  railroad  charter." 

And  in  the  earlier  case  of  Tliomns  v.  Railroad  Co}  the  same 
Justice,  after  discussing  the  doctrine  of  ultra  vires,  said : 
"There  is  another  principle  of  equal  importance  and  equally 
conclusive  against  the  validity  of  this  c<jntract,  which,  if  not 
coming  exactly  within  the  doctrine  of  ultra  vires  as  we  have 
just  discussed  it,  shows  very  clearly  that  the  railroad  com})any 
was  without  the  ])owor  to  make  such  a  contract.  That 
principle  is  that  where  a  corj)oration,  like  a  railroad  com- 
pany, has  granted  to  it  by  charter  a  franchise  intended,  in 
large  measure,  to  be  exercised  for  the  public  good,  the  due 
performance  of  those  functions  being  the  consideration  of  the 
puV)lic  grant,  any  contract  which  disables  the  corporation  from 
performing  those  functions,  which  undertakes,  without   the 

Central,  etc.  R.  Co.  v.  Morris,  68  Tex.  ami  manngcment  of  the  road."    AliW) 

49  (1887),  (3  S.  W.  Hep.  457).  Fisolicr   i-.    West  Virginb    U.    Co..  39 

Vermont:  Nelson  v.  Vermont,  etc.  R.  W.  Va.  366  (1894),  (9  S.  E.  Rep.  578). 
Co.,  26  Vt.  717  (1854).  Eiujlmid  :    An     agreement    between 

I'lrginia:   Roper   v.    McWhorter,    77  two  railway  companies,  made  without 

Va.  214  (1883).  the  authority  of  the  legislature,  whereby 

West    Virginia:  Ricketta  v.   Chesa-  one  company  delepates  to  another  all 

peake,  etc.  R.  Co.,  33  W.  Va.  433  (1890),  the  powers  which  have  been  conferred 

(10   S.   K.    Rep.  801):    "We  think    it  upon  it  by  parli.iment,  is  an   unlawful 

may  be  stated,  as  tlie  just  result  of  the  attempt  to  effect  that  which  parliament 

decided  cases,  and  on  sound  principle,  alone  can  authorize,  and  is  against  pab- 

that  a  railroad  corporation  cannot,  with-  Ijc  policv.     Great  Northern   R.   Co.  i'. 

out    distinct    legislative    authority,    by  Eastern  Counties  R.  Co.,  12  Eng.  L.  & 

lease,  or  any  other  contract,  turn  over  Eq.  224  (1851),  9  Hare,  306. 
to   another  company  its  road   and  the  i  Thomas  r.  Railroad  Co.,  101  U.  S. 

use  of  its  franchises,  and  thereby  exempt  83  (1879). 
itself  from  responsibility  for  the  conduct 

260 


CHAP.  XVI.]   NATURE  AND  AUTHORIZATION  OF  LEASE.    §  179 

consent  of  the  State,  to  transfer  to  others  the  rights  and  powers 
conferred  by  the  charter,  and  to  relieve  the  grantees  of  the 
burden  which  it  imposes,  is  a  violation  of  the  contract  with 
the  State,  and  is  void  as  against  public  policy." 

§  178.  Necessity  for  Legislative  Authority  to  take  a  Lease. — 
Legislative  authority  is  as  necessary  to  take  as  to  make  a  lease. 
A  railroad  company,  unless  expressly  authorized,  has  no  power 
to  accept  a  lease  of  the  railroad  and  franchises  of  another 
corporation.  Such  an  act,  unauthorized,  is  both  ultra  vires 
and  opposed  to  public  policy.  One  corporation  cannot  as- 
sume the  performance  of  the  public  duties  of  another  unless 
the  State  approve. 

If  either  party  to  a  lease  of  a  railroad  is  acting  without 
authority,  it  is  void.  A  contract  beyond  the  powers  of  either 
is  as  invalid  as  if  beyond  the  powers  of  both.^ 

§  179.  Legislative  Ratification  of  Unauthorized  Lease. — 
While  legislative  authority  is  essential  to  the  validity  of  a 
lease  of  a  railroad  it  is  not  necessary  that  it  should  be  granted 
before  the  execution  of  the  lease.  The  legislature  may  cure 
invalidity  by  subsequent  ratification,  and  when  ratified,  a  con- 
tract stands  as  if  authorized  in  the  first  instance.^     Thus^  a 

1  St.   Louis,  etc.   R.    Co.   v.    Terre  following  ca.ses  of  mortgages  and  con- 

Haute,  etc.  R.  Co.,  145  U.  S.  404  (1892),  solidations    without     authority    made 

(12  Sup.  Ct.  Rep.  953)  ;  Central  Transp.  binding  by  subsequent  legislative  rati- 

Co.  V.  Pullman  Car  Co.,  139  U.  S.  24  fication  which  involve  principles  appli- 

(1891),  (11   Sup.  Ct.   Rep.  478);  Pitts-  cable  to  cases  of  leases, 
burgh,  etc.  R.  Co.  v.  Keokuk,  etc.  Bridge  United  States :  Graham   v.   Boston, 

Co.,   131   U.   S.  371  (1889),  (9  Sup.  Ct.  etc.    R.   Co.,    118    U.  S.    161     (1886), 

Rep.  770) ;  Oregon  R.,  etc.  Co.  v.  Ore-  (6  Sup.  Ct.   Rep.  1009)  ;  Gross  v.  U.  S. 

gonian    R.    Co.,  130  U.  S.   36   (1889);  Mortgage   Co.,  108   U.  S.  447    (1883), 

Pennsylvania  Co.  v.  St.  Louis,  etc.  R.  (2   Sup.   Ct.  Rep.  940) ;  Galveston  R. 

Co.,  118  U.  S.  310  (1886),  (6  Sup.  Ct.  Co.  v.  Cowdrey,  11  Wall.  (U.  S.)    459 

Rep.  1094);   Thomas  v.  Railroad  Co.,  (1870);    Whitewater,    etc.   Canal    Co. 

101  U.  S.  82  (1879)  ;  Rogers  v.  Nash-  i-.  Valette,  21  How.  (U.  S.)  414  (1858); 
ville,  etc.  R.  Co.,  91  Fed.  316  (1898).  Hall  v.  Sullivan  R.  Co.,  11  Fed.  Cas. 
Also  Louisville,  etc.  R.  Co.  ?'.  Kentucky,  257  (1857),  (2  Redfield  Am.  Ry.  Cas. 
161  U.  S.  691  (1896),  (16  Sup.  Ct.  Rep.  621,  21  Law  Rep.  138). 

714) ;  Winch  f.  Birkenhead,  etc.  R.  Co.,  Illinois:     U.    S.    Mortgage    Co.    v. 

16  Jur.    1035    (1835).      And   see  ante,  Gross,  93  111.  483  (1879),  (s.c.  108  U.  3. 

§  139:   '^Legislative  Aiithoriti/   essential  supra);  Mitchell  v.  Deeds,  49  111.  416 

to  Purchase  of  Franchises  ;"  ante,  §  144  :  (1867)  ;  Racine,  etc.  R.  Co.  v.  Farmers 

"Seller  must  have  Authority  to  sell  and  Loan,   etc.  R.  Co.,  49  111.  331   (1868); 

Buyer  tohuy."  Hatcher  v.  Toledo,  etc.  R.  Co,  62  111. 

'^  Terre  Haute,  etc.  R.  Co.  v.  Cox,  477  (1872),  (6  Am.  R.  Rep.  405). 

102  Fed.    825    (1900).     See    also  the  Maine:    Kennebec,   etc.   R.  Co.   v. 

261 


§180 


INTERCORPORATE    RELATIONS. 


[part    III. 


lease  of  a  railroad  and  franchises,  unauthorized  when  made 
either  hy  the  corporation's  articles  of  incorporation  or  by 
statute,  was  held  to  be  validated  by  an  act  of  the  le«,'i.slature, 
subsequently  passed,  conferring  such  authority,' 

Legislative  ratification  must  be  clearly  expressed.  A  refer- 
ence to  "  lessees,"  in  an  act  regulating  rates  of  fare  uj)on  a 
railroad  operated  under  an  unauthorized  lease,  does  not  vali- 
date it.  "  It  is  not  by  such  an  incidental  use  of  the  word 
'lessees '  .  .  .  that  a  contract,  unauthorized  by  the  charter 
and  forbidden  by  public  policy,  is  to  be  made  valid  and  ratified 
by  the  State."  '^ 

Hatification  by  the  legislature  must  be  distinguished  from 
ratification  by  stockholders.  The  stockholders  of  a  corpo- 
ration may  ratify  an  irregularity  in  the  exercise  of  granted 
powers ;  the  State  alone  can  make  good  an  act  beyond  the 
scope  of  those  powers.^ 

§  180.  'What  Railroads  may  be  leased.  Statutory  Provi- 
sions.  —  The     power    to    lease   railroads    is,    in    many    cases, 


l'..rtlan.l.  etc.  U.  Co..  VJ  Mo.  I  (l«:i); 
Slioplt'y  I'.  Atlniitio,  etc.  U.  Co.,  53  Mc. 
395  (I8G8). 

Massinhusetta :  Shaw  r.  Norfolk 
County    U.   Co.,  5   Gray    162   (I8:).'i). 

AVw  Hampshire:  Hichanl.s  r.  Mer- 
riinaik,  etc.  li.  Co.,  44  N.  H.  127 
(ISf,:'). 

See  ante,  §  20 :  "  Legislative  Sanction 
—  how  expresseti." 

1  Terre  Haute,  etc.  R.  Co.  v.  Cox, 
102  Fed.  82.5  (I'JOO).  In  this  ca.-je 
.Iu(lj;c  Grosiscup  ."aiii  :  "  From  the  mo- 
ment the  act  wa."<  passed  the  two  rail- 
way conipaiiie.s  had  the  power  to  enter 
into  a  le.x-*e  containinj;  provi.xions  .such 
a.1  are  licrc  snu<jht  to  be  cuforcol. 
Thenceforth  sndi  power  existed  under 
the  laws  of  Indiana.  Had  the  two 
companies,  at  any  time  thereafter,  for- 
mally adopted  the  lease,  under  the  act 
piviuj;  authority,  no  one  would  insist 
that  the  lease  was  ultra  vires.  An  ado]v 
tion  of  the  lease,  otherwise  unauthor- 
ized, under  an  act  conferrinp;  .authority, 
must  be  distinguished  from  au  at- 
tempted ratidcation  without  auv  new 

262 


statutory  authority.  In  the  one  ca.se 
the  law  is  chaii^od  8<>  that  tlie  ront<-m- 
plated  afjrcomenl  i»  no  ionijer  unlawful ; 
in  the  other  tlie  ct)ntemi>lated  ratifica- 
tion, if  held  valid,  would,  in  effect, 
oubstitute,  on  the  question  of  power, 
the  will  of  the  corporation  for  the  will 
of  the  legislature.  Hut  an  adoption  of 
the  agreement  embodie<l  in  the  lease, 
in  the  li;;ht  of  the  new  power  conferred, 
may  \ic  im{)lied  from  conduct,  as  well 
as  from  a  formal  act  of  readoption.  .  .  . 
It  is  not  an  attempted  overreaching  of 
the  law,  by  the  ratification  of  an  unau- 
tliori/ed  art ;  but  is,  in  effect,  a  read- 
justment of  the  companies'  relations  to 
the  p<iwers  conferred  bj  the  new  legis- 
lative authority." 

2  Thomas  r.  Railroad  Co.,  101  U.  S. 
85  (1879).  See  also  Oregon  R.,  etc. 
Co.  r.Oregoni.an  U.  Co.,  130  U.  S.  I 
(1889).  (9  Sup.  Ct.  Rep.  409). 

'  Louisville,  etc.  R.  Co.  r.  Louisville 
Trust  Co.,  174  U.  S.  552  (1899), 
(19  Sup.  Ct.  Rep.  817),  and  cases 
cited. 


CHAP,    XVI.]      NATURE    AND   AUTHORIZATION    OP   LEASE.  §  180 

granted  in  conjunction  with  a  grant  of  power  to  sell  them. 
Divers  statutes  of  this  character  are  included  in  the  summary 
printed  in  connection  with  the  subject  of  sales  of  railroads. 
Other  statutes  relating  only  to  railroad  leases  are  collected  in 
the  footnote.^ 


^  Alabama.  See  ante,  §  145  ("  Sales  ")• 
Arizona.  Code  1896,  §  1171  :  "Any 
railroad  company  incorporated  by  the 
laws  of  any  other  State  and  now  own- 
ing or  which  is  authorized  to  own  or 
operate,  by  lease  or  otherwise,  any 
railroad  in  this  State,"  may  "aid  any 
railroad  company  incorporated  under 
any  .  .  .  law  of  this  State  ...  by 
leasing  .  .  .  any  such  railroad,  on  such 
terms  as  may  be  agreed  upon  by  the 
respective  boards  of  directors."  See 
also  aiite,  §  145  ("  Sales"). 

Arkansas.  See  a7ite,  §  145  ("  Sales  "). 
California.  Pomeroy's  Code  1901, 
§  473  (a) :  "  Railroad  corporations  do- 
ing business  in  this  State,  and  organ- 
ized under  the  law  of  this  State,  or  of 
the  United  States,  or  any  other  State 
or  Territory  thereof,  have  power  to 
enter  into  contracts  with  one  another 
whereby  the  one  may  lease  of  the  other 
the  whole  or  any  part  of  its  railroad." 
Colorado.  See  ante,  §  145  ("  Sales  "). 
Connecticut.  G.  S.  1888,  §  3472: 
"  Any  railroad  company  may  make 
lawful  contracts  with  any  other  rail- 
road company  with  whose  railway  its 
tracks  may  connect  or  intersect  .  .  . 
and  may  take  a  lease  of  the  property 
or  franchises  of,  or  lease  its  property 
or  franchises  to,  any  such  railway  com- 
pany." 

Florida.     See  ante,  §  145  ("  Sales  "). 
Georgia.    See  ante,  §  145  ("  Sales  "). 
Idaho.     See  ante,  §  145  ("  Sales  "). 
Iowa.     See  ante,  §  145  ("Sales"). 
Kansas.     G.  S.   1897,  ch.  70,  §94: 
"  Any    railroad    company  shall    have 
power  to  lease   its   road  and   appurte- 
nances to  any  railroad  corporation  or- 
ganized under  the  laws  of  this  State, 
or  any  adjoining  State,  when  the  road 
so  leased  shall  thereby  become  on  the 
operation  thereof  a  continuation  and 


extension  of  the  road  of  the  company 
accepting  such  lease."  For  additional 
statutes  see  ante,  §  145  ("  Sales  "). 
Maine.  See  ante,  §  145  ("  Sales  "). 
Maryland.  See  ante,  §  145  ("  Sales  "). 
Massachusetts.  P.  S.  1882,  ch.  112, 
§  220:  "Two  railroad  corporations 
created  by  this  Commonwealth,  whose 
roads  enter  upon  or  connect  with  each 
other  ■  .  .  ;  and  any  such  corporation 
may  lease  its  road  to  any  other  such 
corporation."  This  section  does  not 
authorize  a  lease  between  two  corpo- 
rations, each  of  which  has  a  terminus 
in  Boston. 

lb.  §  221  :  "  The  roads  of  two  rail- 
way companies  shall  be  deemed  to 
enter  upon  or  connect  with  each  other 
...  if  one  of  such  roads  enters  upon, 
connects  with,  or  intersects  a  road 
leased  to  the  other,  or  operated  by  it 
under  a  contract. 

lb.  §  222  .  "  No  railroad  shall  lease 
...  its  road  for  a  period  of  more  than 
ninety-nine  years." 

Michigan.  See  ante,  §  145  ("  Sales  "). 

Minnesota.  Seeujite,  §  145  ("Sales"). 

Mississippi.  Code  1892,  §  3577: 
"  Every  railroad  corporation  organized 
under  the  provisions  of  this  chapter 
shall  have  and  exercise  the  following 
powers,  rights,  and  privileges,  viz  :  "  — 

(lb.  §  3588.)  "To  lease  its  rail- 
road and  all  its  property  and  fran- 
chises, rights,  powers,  privileges,  and 
immunities  then  owned  or  thereafter 
to  be  acquired,  or  to  lease  other  rail- 
roads, in  or  out  of  this  State,  not  in 
either  case  parallel  or  competing  lines, 
for  a  term  of  years." 

Missouri.  See  ante,  §  145  ("  Sales"). 

Montana.   See  ante,  §  145  ("  Sales  "). 

Nebraska.  See  ante,  §  145  ("Sales"). 

New  Hampshire.     Pub.  Stat.  &  Sess. 
Laws  1901,  ch.  156,  §  21,  p.  503 :  "Any 
263 


§180 


INTERCORPORATE   RELATIONS. 


[part    III. 


These  stntutcs,  as  a  general  rule,  limit  the  right  to  make 
ami  take  leases  to  railroad  companies  owning  or  operating 
connecting  lines. 

railroad     corporation     mixy     loaso    its  other   corjwration    formed   tinder   thi« 

railroad  ...  to     any     other     railroad  act  or   .   .   .    under    the   laws    of    an/ 

corporation  for  sutli   a  length  of  time  other  State  or  Territory,  with  the  road 

and  upon  snc-h  trrin«  an  may  Ij«  agreed  of  which  hi  road  nuiy  connect  and  form 

to   by   the    leiwor   and    lc«.so«   corpora-  a  continuoun    line  of  travel  and  tr.-in»- 

tions   at    incetin;j;s   of   their    re«|>octive  portntion."     (16)    "To   take    Icaac.i   of 

stockholders  ...  by  a  twothirda   vote  sucli    other  railroads  ...  as  are   mcn- 

of  nil  the  Htock  represented  aud  votiug  tionod    in    the    last   preceding   subdiri- 

at  such  nieetiuf^s."  siou  of  this  section." 

/i.  §  44,  p.    506:    Forcii^n   corpora-  For    additional    statutes,    see    ante, 

tions  oiKTatinj;  rouds  within  this  State  J  145  ("Sales"). 

shall  have  the  same  rii;ht,s  for  the  pur-  New  York.     U.  S.  1901    (Hirdsero's) 

jMwe  of  le.a.Hinj»  other  roads  as    if  cro-  Railrtiad    Ijiw,   §    78  :     "  Any    railroad 


atod  by  the  laws  of  this  State. 

iWir  Jfrsry.  G.  S.  1875,  par.  55, 
p.  26.')!  :  "  Any  corporation  incoqx*- 
ratod  under  this  act  or  under  any  of  tiio 
laws  of  this  State "  may  "  lease  its 
road  ...  to  any  other  corjv>nition  or  manner  . 
corporations    o/  this  or  amj  other  Slate,     contract 


cor|H<ration  or  any  corporatii>n  ownmg 
or  o|K«ri«tin>j  a  railroad  TDUto  within 
this  State  may  contract  witli  any  other 
such  cor[>oration  for  the  use  of  their 
rc.Hjtectivo  ruails  or  routes  ...  in  such 
.  as  pro<<cribed  ...  in  such 
.  and  if  such  contract  shall 


but  {ifi.  par.  312,  §  1,  p.  2709)  "no  he  a  lease  of  any  such  road,  and  for  a 
company  incorporated  under  the  act  longer  pcrioil  than  one  year,"  it  sliall 
entitled  '  An  act  to  authorize  the  for-  not  l)0  hindin;;  "  unless  ap;iroved  by  the 
m.ition  of  railroad  corporations  and  to  Totcs  of  stockholders  owninj^  at  lca.-*t 
ro;;uliito  the  same  ....  or  under  any  two-thirds  of  the  stock  of  each  corjiora- 
other  law  or  charter  enacted  or  grantc<l  tion  which  is  represented  and  voted 
by  the  Icf^islature  of  this  State,  shall  upon  in  person  or  by  proxy  at  a  meet- 
have  power  to  lca.se  its  road  or  fran-  ing  called  separately  for  that  purpose." 
chiscs  ...  to  any  forei;;n  corporation  North  Carolina.  Laws  188.'),  ch.  108, 
.  .  until  the  Consent  of  the  legislature  p.  159,  §  2:  "Any  railroail  .  .  .  may 
of  this  State  shall  have  been  first  ob-  lease  any  railroad  or  branch  railroad 
taincd."  ...  in  this  or  any  adjoining  State  con- 

Ib.  par.  .312,  §  2,  p.  2709  (as  amended  necting  with  it,  directly  or  inilirectly." 
by  ch.  l.}7,  p.  235,  Laws  1898).     If  cor-  North     Dakota.     See     ante,     §      145 

poration  desires  to  execute  lease  it  may  ("Sales"). 

execute  .  .  .  it  by  contract,  which  con-  Ohio.     Bates'     Anno.    Stat.     (1787- 

tract  shall   be   approved   by  two-thirds  1902),  §  3384   (a)  :    "  Any  consolidated 

of  the  .stockholders,  given    in   writing  company  .  .  .  of  this  State  or  any  other 

or  by  vote.     But  consent  of  legislature  State,  may  .  .  .  lease  .  .  .  any  railroad 

must  be  obtained.  ...  of  this  State  or  of  any  other  State, 

Laws  1898,  ch.   150,  p.  355,  provides  if  the  line  of  ro.id  covered  by  such  lease 

that  railroads  may  acquire  branch  lines  ...  is  connected  with  the  line  of  road 

to    manufactories,     (juarries,    etc.,    not  of  such  consolidated  railroad  company, 

exceeding  two  miles  in  length.  upon  such  terms  as  may  be  agreed  upon 

New    Mexico.      Comp.    Laws    1897,  between  the  companies." 
§  3847 :  Every  corporation  formed  un-  For     additional     statute,     see    ante, 

der  this    act  shall  have  the  following  §  145  ("  Sales  "). 

powers:    (15)  "To  lease  the  whole  or  Oklahoma.  Seean^e,§  145  ("  Sales"), 

any  portion  of  its  railroad  ...  to  any  Oregon.     See  an/e,  §  145  ("Sales"). 

264 


CHAP.  XYI.]   NATURE  AND  AUTHORIZATION  OF  LEASE.    §  180 


Power  to  take  a   lease  of  a  railroad  within   the  State  is 
generally  conferred  indiscriminately  upon  domestic  and  for- 


Pennsylvania.  Bright  Purd.  Dig. 
1894,  §  153,  p.  1810:  (Act  of  March  13, 
1847),  relates  to  the  running  of  cars  on 
connecting  railways. 

lb.  §  154,  p.  1810  :  The  act  of  March 
13,  1847,  "shall  be  so  construed  as  to 
authorize  companies  owning  any  con- 
necting railroads  in  the  State  of  Penn- 
sylvania to  enter  into  any  lease  .  .  . 
with  each  other." 

lb.  §  156,  p.  1810  :  "  It  shall  be  law- 
ful for  any  railroad  companies  to  enter 
into  contracts  for  the  use  or  lease  of  any 
other  railroads  upon  such  terms  as  may 
be  agreed  upon.  .  .  .  Provided,  that 
the  roads  of  the  companies  so  contract- 
ing or  leasing  shall  be  directly,  or  by 
means  of  intervening  railroads,  con- 
nected with  each  other." 

lb.  §  169,  p.  1812:  "Any  railroad 
company  or  companies  ...  of  this  Com- 
monwealth "  may  "lease  or  become  the 
lessees,  by  assignment  or  otherwise,  of 
any  railroad  or  railroads  .  .  .  whether 
the  road  or  roads  embraced  in  such 
lease  .  .  .  may  be  within  the  limits  of 
this  State,  or  created  by  or  existing 
under  the  laws  of  any  other  State  or 
States  .  .  .  Provided,  however,  that  the 
road  or  roads,  so  embraced  in  any  such 
lease  .  .  .  shall  be  connected,  either 
directly,  or  by  means  of  an  intervening 
line,  with  the  railroad  or  railroads  of 
said  company  or  companies  of  this  Com- 
monwealth so  entering  into  such  lease 
.  .  .  and  thus  forming  a  continuous 
route  or  routes  for  tlie  transportation 
of  persons  and  property." 

South  Carolina.  See  ante,  §  145 
("Sales"). 

South  Dakota.  See  ante,  §  145 
("  Sales  "). 

Tennessee.  Code  1896,  §  1.538: 
"  Any  railroad  company  owning  any 
main  line  may  contract  with  any  com- 
pany owning  a  railroad  connecting  with 
such  main  line  for  the  lease  thereof." 

For  additional  statutes,  see  ante, 
§  145  "(Sales"). 

Texas.    Sayles'  Civ.  Stat.  1897  (Supp. 


to  1900),  vol.  2,  ch,  15  a  (Acts  1899, 
p.  73)  :  "  Any  railroad  now  or  hereafter 
constructed,  not  exceeding  thirty  miles 
in  length,  connected  at  or  near  the  State 
line  with  any  other  railroad,  may  be 
leased  by  the  company  owning  such 
other  railroad  "  for  not  exceeding  ten 
years. 

Utah.  Laws  1901,  ch.  26,  p.  23,  §  7  : 
"Any  railroad  ...  of  this  State  may 
lease  and  operate.  .  .  a  railroad  owned 
by  any  other  company  within  or  without 
this  State ;  and  any  railroad  ...  of 
the  United  States,  or  of  any  State  or 
Territory,  may  lease  and  operate  .  .  . 
the  railroad  owned  by  a  company  of  this 
State." 

This  act  does  not  permit  leasing  of 
competing  lines. 

For  additional  statute,  see  ante,  §  145 
(Sales"). 

Vermont.  Stat.  1894,  §  3747  :  "  Rail- 
road companies  in  this  State  may  make 
contracts  and  arrangements  with  each 
other,  and  with  railroad  corporations 
...  of  other  of  the  United  States,  or 
...  of  the  Dominion  of  Canada,  for 
leasing  and  running  the  roads  of  the 
respective  corporations,  or  a  part 
thereof." 

Washington.  See  a7ite,  §  145 
("  Sales  "). 

West  Virginia.  Code  1899,  ch.  54, 
§  53  (as  amended  by  Acts  1901,  ch. 
108) :  Same  as  "  Consolidation  "  statute 
(ante,  §  22),  substituting  "lease"  for 
"  consolidate." 

lb.  §  82  a  :  "  Any  railroad  company 
may  .  .  .  lease  its  road  to  any  other 
railroad  within  this  State,"  but  not  to  a 
parallel  or  competing  line. 

Wisconsin.  See  ante,  §  145 
("Sales"). 

Wyoming.  See  ante,  §  145  ("  Sales  "). 
England.  "  The  Railway  Leasing 
Act,"  8  &  9  Vict.  c.  ae  (1845),  provides 
that  no  railway  company  shall  grant  or 
accept  a  lease  or  transfer  of  any  rail- 
way unless  under  a  distinct  provision  of 
an  Act  specifying  the  parties. 

265 


§181 


INTERCORPORATE   RELATIONS. 


[part  III. 


eigu  corporations ;  although  in  New  Jersey  a  lease  to  a  for- 
eign corporation  cannot  be  executed  until  the  consent  of  the 
legislature  has  been  obtained  and  in  Massachusetts  the  right 
is  limited  to  domestic  corporations. 

The  term  for  which  leases  of  railroads  may  be  taken  is 
generally  unlimited.  In  Massachusetts,  however,  it  cannot 
exceed  ninety-nine  years. 

The  English  "  Railway  Leasing  Act,"  which  forbids  the 
lease  of  any  railway  "  unless  under  a  distinct  provision  of  an 
Act  sj)ccifying  the  parties  "  seems  to  be  a  "  leasing  act  "  in 
the  negative. 

§  181.  Rule  of  Construction  of  Statutes.  —  A  statute  grant- 
ing powers  to  a  corporation  is  cunstrut-d  strictly,  against  the 
grantee  and  in  favor  of  the  public.  In  grants  by  the  public 
everything  must  be  expressed  ;  nothing  passes  by  implication.^ 
The  intention  of  the  legislature  to  autiiorize  a  railroad  com- 
pany to  lease  its  railroad  and  franchises  must  clearly  appear 
or  the  power  will  not  cxist.^     In  case  of  doubt,  a  construction 


1  Charles  River  Bridge  r.  Warren 
Britlge,  11  Pet.  (U.  S.)  420  (ia37)  ;  Du- 
buque, etc.  K.  Co.  I'.  Litclifieltl,  23 
How.  (U.  S.)  66  (1859);  Turnpike  Co. 
V.  Illinois,  96  U.  S.  63  (1877)  ;  Slidell  v. 
Grandji-an,  11 J  U.  S.  412  (1884),  (4  Sup. 
Ct.  Hep.  473) ;  Oregon  R.,  etc.  Co.  v. 
Oreponiau  R.  Co.,  130  U.  S.  1  (1889), 
(9  Sup.  Ct.  Rep.  409). 

In  Central  Transp.  Co.  i'.  Pullman 
Car  Co.,  139  U.  S.  24  (1891),  (11  Sup. 
Ct.  Rep.  478),  the  Supreme  Court  of  the 
United  States  said  :  "  By  a  familiar 
rule,  every  public  grant  of  property,  or 
of  privileges  or  franchises,  if  ambiguous, 
is  to  be  construed  against  the  grantee 
aud  in  f:ivor  of  the  public  ;  because  an 
intention,  on  the  part  of  the  govern- 
ment, to  grant  to  private  persons,  or  to 
a  particular  corporation,  property  or 
rights  in  which  the  whole  public  is  in- 
terested, cannot  be  presumed,  unless  un- 
equivocally expressed  or  necessarily  to 
be  implied  in  the  terms  of  the  grant, 
and  because  the  grant  is  supposed  to  be 
made  at  the  solicitation  of  the  grantee, 
aud  to  be  drawn  up  by  him  or  by  his 

266 


agents,  and  therefore  the  words  used 
are  to  l>e  treated  »-><  those  of  the  gran- 
tee ;  and  this  rule  of  construction  is  a 
wholesome  .safeguard  of  the  interests  of 
the  public  again.st  any  attempt  of  the 
grantet',  l>y  the  insertion  of  ambiguous 
language,  to  take  what  could  not  be  ob- 
tained in  clear  and  express  terms." 

^  United  Stales :  Central  Transpor- 
tation Co.  V.  Pullman  Car  Co.,  139 
U.  S.  24  ( 1 891 ),  ( 11  Sup.  Ct.  Rep.  478)  ; 
Oregon  R.,  etc.  Co.  v.  Orcgonian  R.  Co., 
130  U.  S.  1  (1889),  (9  Sup.  Ct.  Rep. 
409)  ;  Pennsylvania  Co.  v.  St.  Louis,  etc. 
R.  Co..  118  U.  S.  290  (1886),  (6  Sup.Ct. 
Rep.  1094). 

Xebmska  :  State  v.  Atchison,  etc.  R. 
Co.,  24  Neb.  143  (1888),  (38  N.  W.  Rep. 
43,  8  Am.  St.  Rep.  164). 

New  Jerseif :  In  Black  i'.  Delaware 
etc.  Canal  Co  ,  22  N.  J.  Eq.  130  (1871 ), 
the  Chancellor  di.stinguished  between  a 
primary  grant  of  franchises  and  an  act 
authorizing  the  transfer  of  existing 
franchises,  holding  that  the  latter  did 
not  require  the  same  strict  rule  of  con- 
struction applicable  in  the  case  of  the 


CHAP.    XVI.]       NATURE   AND    AUTHORIZATION    OF   LEASE.  §  182 

will  not  be  given  which  will  authorize  a  quasi-public  corpora- 
tion to  disable  itself  from  performing  the  duties  for  which  it 
was  created.  In  fact,  it  has  been  said  that  to  justify  a  rail- 
road company  in  claiming  authority  to  lease  its  railroad  to 
another  corporation  "  it  must  be  able  to  point  to  the  exact 
statute  granting  such  authority."  ^ 

The  correct  rule  is,  undoubtedly,  that  grants  are  to  be 
strictly  construed,  but  that  the  intention  of  the  legislature  is 
not  to  be  defeated  by  an  unreasonably  strict  construction.^ 

§  182.  Construction  of  Statutes  —  (A)  Provisions  Authorizing 
Leases. —An  Illinois  statute  ^  authorizing  domestic  railroad 
companies  to  make  "  contracts  and  arrangements  with  each 
other,  and  with  railroad  corporations  of  other  States,  for 
leasing  and  running  their  roads,  or  any  part  thereof,"  has 
been  held  by  the  Supreme  Court  of  the  United  States  to 
include,  by  the  use  of  the  words  "  their  roads,"  not  only  roads 
of  other  domestic  but  foreign  corporations  and  to  confer 
power  to  make,  as  well  as  to  take,  leases.'*  Power  to  construct 
a  branch  railroad  will  carry  with  it  by  implication  power  to 
lease  a  branch  already  constructed,  but  such  power  cannot  be 
exercised  after  the  right  to  construct  has  expired.     The  loss 


former.  Tliis  distinction,  however,  was  Authority  granted  to  a  railroad  cor- 
net approved  by  the  appellate  court,  and  poratiou  to  lease  a  railroad  connected 
cannot  be  justified  in  principle.  24  N.  J,  with  its  own  does  not  permit  it  to  lease 
Eq.  45.5  (1873).  its  own  road  to  another  company.  Mills 
Texas:  East  Line,  etc.  R.  Co.  v.  r.  Central  R.  Co.,  41  N.  J.  Eq.  1  (1886), 
State,  7.5  Tex.  434  (1889),  (12  S.  W.  Rep.  (2  Atl.  Rep.  4.53). 
690).                                                                       A  statute  conferring  authority  upon 

1  State  V.  Atchison,  etc.  R.  Co.,  24  a  railroad  company  to  lease  its  property 
Neb.  161  (1888),  (38  N.  W.  Rep.  43,  is  confined,  in  its  operation,  to  property 
8  Am.  St.  Rep.  164).  within  the  State.     Briscoe  v.  Southern 

2  See  ante,  §  27  :  "  General  Rule  of  Kansas  R.  Co.,  40  Fed.  273  (1889). 
Construction  "      (consolidation)  ;     ante,  A  Massachusetts  statute  autliorizing 
%  14:Q:"  Construction  of  Statutes"  {sales),  "any  railroad   corporation  created   by 

3  Illinois:  Statute  of  February  12,  this  State  "to  lease  its  road  to  another 
18,55;  Priv.  Laws  188.5,  p.  304;  Rev.  corporation  "  so  created  "  authorizes  the 
Stat.  1874,  ch.  114,  §  34.  making  of   a    lease  by   a    corporation 

*  St.   Louis,   etc.   R.    Co.    v.   Terre  formed  by  a  consolidation  of  a  domestic 

Haute  R.  Co.,  145  U.  S.  393  (1892),  (12  corporation  with  a  corporation   of  an- 

Sup.  Ct.  Rep.  953).     Compare  Black  v.  other  State;  the  consolidated  company 

Delaware,  etc.  Canal  Co.,  22  N.  J.  Eq.  being  in  Massachusetts  a  corporation  of 

130  (1871),  reversed  in  24  N.  J.  Eq.  455  that  State.     Peters  v.  Boston,  etc.   R. 

(1873).  Co.,  114  Mass.  127  (1873). 

267 


§   183  INTERCORPORATE    RELATION'S.  [pART    III. 

of  the  right  involves  the  deprivation  of  all  powers  flowing 
from  it.' 

Power  to  *'  farm  out "  the  right  of  transportation  has  hecn 
held  by  tiic  Supreme  Court  of  North  Carolina  to  bo  equivalent 
to  power  to  lease.*  This  is  incorrect.  The  phrase  "  to  farm 
out"  i.s  an  English  one  and,  as  applied  to  railroads,  nu-rely 
means  the  grant  of  running  privileges. 

When  a  corporation  is  autliori/.«'d  to  take  a  lease  of  a  rail- 
road and  franchises  it  may  acquire  the  same  through  an 
assignment  of  the  lea«c  from  an  existing  Icflscc' 

The  New  York  statute  of  1839*  providing  that  "  it  shall 
be  lawful  for  any  railroa<l  corjwration  to  c«»ntract  with  any 
other  railroad  corporation  for  the  use  of  their  resprctivo 
roads  and  thereafter  to  use  the  same  in  the  manner  prescribed 
in  said  contract"  has  been  rejwatedly  held  by  the  courts  of 
that  State  to  authorize  a  lease.  As  said  by  Judge  (J ray 
ill  litverulje  v.  New  York  EUvated  H  Co} :  "The  act  of 
1S:VJ  lias  njoro  than  once  been  construed  to  authorize  such  a 
lease.  The  power  therein  conferred  upon  a  railroad  corpora- 
tion to  contract  with  another  for  the  use  of  their  respective 
roads,  in  such  manner  as  the  contract  may  prescribe,  involves 
the  power  to  make  a  lease  for  a  term  of  years."' 

§  1  S3.  Construction  of  Statutes  —  (B)  Provisions  not  authorizing 
Leases.  —  In  contrast  to  the  construction  of  the  New  York 
statute  referred  to  in  the  last  section,  an  Indiana  statute^ 
authorizing  a  domestic  railroad  company  "  to  mako  such  con- 

1  ramilcn.  etr.  R.  Co.  r.  .May's  Ijiml-  r.   New  York  Central,    etc.    U.   Co.,  46 

ing,  ptc    U.  Co..  48  N.J.  L.  530(1886),  N.  Y.   f.44   (ISTI);   Gere  p.  New  York 

(7  Atl.  Uop.  h•l^).  Central,  etc.   R.  Co.,  19  Abb.   N.  C.  193 

'  State  »•.  Kichmond,  etc.  R.  Co.,  72  (18S5).     Comftnre  Troy,  etc.  R.  Co.  n. 

N.  C.  6.34  (1875).  Boston,  etc.  R.  Co..  86  N.  Y.  107  (1881), 

■  Stewart  v.  Long  Iiland  U.  Co.,  102  where  Jrnlpe  Danforth  •.iiM  cmiicrning 

N.  Y.  601  (1886).  (8  N.  K.  Rep.  200).  the  at-t  of    18.19:   "  A.-^suminjc  that  the 

*  I>;iws  of  18.19.  ch.  218.  utatute  permits  a  prant  of  the  exclu.^ire 
'  Beveriilge   r.  New  York   Elevated  ripht  to  use  a  road,  and  doe.s  not  con- 

R.  Co..  112  N.  Y.  21   (1889).  (19  N.  E.  templ.ite   a    mere    traffic  arranRcment, 

Rep.  489).  by  which  e.ich  of  two  comp.-inir.s  may 

•  See  also  Day  r.  Ogdenabarph.  etc.  nse  the  other'n  road,  is  the  instrument 
R.  Co..  107  N.  Y.  129  (1887),  (1.1  N.  E.  called  a  lease,  a  contract  for  '  a»e.' 
Rep.  765) ;  Woodruff  v.  Erie  R.  Co  .  93  within   its   meaning  ? "' 

N.  Y.  609  (18S3);    People    r.   Albany,  ^  /nc/ia;ia  Rev.  Stat.  (1881),  §  3973. 

etc.  R.  Co.,  77  N.  Y.  232  (1879) ;  Fisher 
268 


CHAP.    XVI.]       NATURE    AND    AUTHORIZATION   OF   LEASE.  §  183 

tracts  and  agreements "  with  a  connecting  railroad  in  an 
adjoining  State  "  for  the  transportation  of  freight  and  passen- 
gers, or  for  the  use  of  its  said  road,  as  to  the  board  of  directors 
may  seem  proper,"  was  held  by  the  Supreme  Court  of  the 
United  States  not  to  confer  authority  to  make  contracts  be- 
yond those  relating  to  forwarding  passengers  and  freight,  and, 
possibly,  to  the  use  of  the  road  of  the  one  company  by  the 
other  in  running  its  cars  to  their  destination.^  The  title  to 
this  act  included  the  clause,  "  to  connect  their  roads  with  the 
roads  of  other  companies,"  and  the  Supreme  Court  of  Indiana, 
in  construing  the  act,  said  :  "  To  connect  one  road  with  another 
does  not  fairly  mean  to  lease  or  sell  it  to  another."  ^ 

A  provision  in  the  charter  of  a  railroad  corporation  author- 
izing it  "  to  make  contracts  and  engagements  with  any  other 
corporation,  or  with  individuals,  for  transporting  or  convey- 
ing any  kinds  of  goods,  produce,  merchandise,  freight  or  pas- 
sengers," merely  authorizes  contracts  relating  to  the  carriage 
of  goods  or  passengers  and  cannot  be  construed  as  authorizing 
a  lease.^  A  statute  authorizing  a  corporation  to  contract  with 
other  corporations  "  for  the  leasing  or  hiring  and  transfer  to 

1  Pennsylvania  Co.  v.  St.  Lonis,  etc.  than  saying,  '  you  may  do  the  business 
R.  Co.,  118  U.  S.  311  (1886),  (6  Sup.  of  carrying  goods  and  passengers,  and 
Ct.  Rep.  1094)  ;  St.  Louis,  etc.  R.  Co.  may  make  contracts  for  doing  that  busi- 
V.  Terre  Haute  R.  Co.,  145  U.  S.  405  ness.  Such  contracts  you  may  make 
(1892),  (12  Sup.  Ct.  Rep.  593);  Com-  with  any  other  corporation  or  with  indi- 
missioners  of  Tippecanoe  County  v.  La-  viduals.'  No  doubt  a  contract  by  which 
fayette,  etc.  R.  Co.,  50  Ind.  85  (1875).  the    goods   received    from    railroad   or 

2  Commissioners  of  Tippecanoe  other  carrying  companies  should  be  car- 
County  V.  Lafayette,  etc.  R.  Co.,  50  ried  over  the  road  of  this  company,  or 
Ind.  110  (1875),  (per  Biddle,  J  ).  by  which  goods  or  passengers  from  this 

8  Thomas  v.  Railroad  Co.,  101  U.  S.  road  should   be   carried    by  other  rail- 

80  (1879):  roads,  whether  connecting  immediately 

"  The  authority  to  make  this  lease  is  with  them  or  not,  are  within  this  power, 
placed  by  counsel  primarily  in  the  fol-  and  are,  probably,  the  main  object  of  the 
lowing  language  of  the  thirteenth  sec-  clause.  But  it  is  impossible,  under  any 
tion  of  the  company's  charter :  '  Tliat  sound  rule  of  construction,  to  find  in 
it  shall  be  lawful  for  the  said  compan}',  the  language  used  a  permission  to  sell, 
at  any  time  during  the  continuance  of  lease,  or  transfer  to  others  the  entire 
its  charter,  to  make  contracts  and  en-  road  and  the  rights  and  franchises  of 
gagements  with  any  other  corporation,  the  corporation.  To  do  so  is  to  deprive 
or  with  individuals,  for  the  transport-  the  company  of  the  power  of  making 
ing  or  conveying  of  any  kinds  of  goods,  those  contracts  which  this  clause  con- 
produce,  merchandise,  freight,  or  pas-  fers  and  of  performing  the  duties  which 
sengers,  and  to  enforce  the  fulfilment  it  implies." 
of  such   contracts.'     This   is  no  more 

269 


§  183  INTERCORPORATE  RELATIONS.       [PART  III. 

them  "  of  its  "  railway  cars  and  other  personal  property  "  au- 
thorizes the  lease  of  such  cars  in  the  ret,'ular  course  of  I>u3i- 
ness  but  docs  not  warrant  the  corporation  in  making  a  long 
lease  to  a  single  corporation  of  its  entire  personal  property.* 

The  use  of  the  words  "  assigns  "  and  "  successors,"  in  con- 
nection with  the  powers  granted  to  railroad  companies  in  their 
charters,  or  in  general  laws,  docs  not  necessarily  imply  that 
they  may  transfer  all  their  property  by  lease.  The  use  of  such 
words  recognizes  the  possibility  of  a  transfer  under  statutory 
authority  but  does  not,  itself,  grant  the  authority.-  The 
phrase  "  passing  over,"  as  used  in  the  English  Railway  Clauses 
Act,3  does  not  refer  to  a  lease  but  means  ''  passing,  with  the 
incidents  which  ordinarily  attach  to  passing  over,  that  is  to 
say,  the  incidents  of  stop|)ing  and  of  tiiking  up,  at  the  points 
at  which  they  do  stop,  botli  passengers  and  goods."  * 

A  general  incorporation  act  authorizing  the  formation  of 
corporations  for  "  any  lawful  purpose  "does  not  authorize  a 
corporation  created  thereunder  to  assume  to  itself  the  power 
to  leasing  railroads,  because  of  the  mere  declaration  in  its 
articles  of  association  that  it  possesses  such  power.^  A  con- 
stitutional provision^  prohibiting  parallel  or  competing  roads 
from  being  consolidated  is  a  restriction  upon  the  powers  of 

*  Centrnl    Transp.    Co.   v.  Pullman  legislature.  Naturally,  we  would  look  for 

Palace  Car  Co.,  139  U.  S.    24   (1891),  the  authority  to  do  these  tilings  in  some 

(11  Sup.  Ct.  Rep.  478).  e.xpress  provision  of  law.      We  would 

2  Thomas  v.  Railroad  Co.,  101  U.  S.  suppose  that  if  the  legislature  saw  fit  to 

71  (1879) ;  Pennsylvania  Co.  f.  St.  Louis,  confer   such    rights  it  would  do  so  ia 

etc.  R.  Co.,  118  U.  S.  311  (1886),  (6  Sup.  terras   which   could   not  be   misunder- 

Ct.   Rep.    1094);   Briscoe   v.   Southern  stood.     To  infer,  on  the  contrary,  that 

Kan.  R.  Co.,  40  Fed.  278   (1889).     In  it  either  intended  to  confer  them  or  to 

Oregon  R.,etc.  Co.  v.  Oregonian  R.  Co.,  recognize  that  they  already  existed,  by 

130  U.  S.,  30  (1889),  (9  Sup.  Ct.  Rep.  the  simple    use  of  the  word  'assigns,' 

409),  Mr.  Justice  Miller  said  :  "  One  of  a  very  loose  and   indefinite  term,  is  a 

the  most  important  powers  with  which  stretch   of  the  power  of  the  court  in 

a  corporation   can    be   invested   is   the  making  implications  which  we  do  not 

right  to  sell  out  its  whole  property  to-  feel  to  be  justified." 

gether  with  the  franchises  under  which  8  g  Vict.  ch.  20. 

it  is  operated,  or  the  authority  to  lease  *  Simpson  v.  Denison,  10  Hare,  57 

its  property  for  a  long  term  of  years.  (1852),  (16  Jur.  828). 

In  the  case  of  a  railroad  company,  these  '  Oregon  R.,  etc.  Co.  v.  Oregonian 

privileges,  next  to  the  right  to  build  and  R.  Co.,  130  U.  S.  1  (1889),  (9  Sup.  Ct. 

operate  its  railroad,  would  be  the  most  Rep.  409). 

important  which  could  be  given  it,  and  *  Texas,  Const.  Art.  X.  §  5. 
this  idea  would  impress  itself  upon  the 

270 


CHAP.    XVI.]      NATURE    AND    AUTHORIZATION    OF   LEASE.  §  184 

the  corporations  owning  such  roads,  and  is  not  to  be  con- 
strued as  a  grant  of  authority  to  non-competing  corporations 
to  lease. ^ 

§  184.  Construction  of  Statutes  —  (C)  Power  to  lease  Un- 
finished Road.  —  Power  to  construct  does  not  give  power  to 
take  a  lease,  and  conversely,  power  to  take  a  lease  does  not  give 
power  to  construct.  2  Where,  therefore,  the  statute  authoriz- 
ing railroad  leases  is  inapplicable  to  roads  not  yet  con- 
structed, a  lease  by  a  railroad  company  of  its  road  and 
franchises,  before  its  road  is  completed,  is  invalid  and  the 
lessee  acquires  no  right  to  finish  the  work.^  Thus  it  was  held 
that  a  statute,  authorizing  the  leasing  of  a  railroad  and  con- 
ferring upon  the  lessee  power  "  to  run,  use  and  operate  "  the 
road,  implied  a  finished  road,  as  did  a  condition  that  the  leased 
roads  should  be  connected  ;  and  that,  under  such  authority, 
the  franchise  for  building  a  road  could  not  be  transferred.* 

While  power  to  construct  will  not  be  implied  from  a  grant 
of  power  to  take  a  lease,  power  to  enter  into  an  executory  con- 
tract for  leasing,  when  completed,  a  railroad  in  process  of 
construction,  may  fairly  be  implied  from  such  a  grant  of 
power.^  The  construction  of  a  railroad  requires  the  exercise 
of  powers  dissimilar  to  those  required  in  the  operation  of  a 
leased  road.  An  agreement  for  a  lease  —  or  a  lease  to  com- 
mence infuturo  —  involves  merely  the  exercise  in  an  uncom- 
mon form  of  the  power  conferred.  As  somewhat  broadly 
stated  by  the  Supreme  Court  of  New  Hampshire  in  Jones  v. 
Concord  R.  Co. :  ^  "  Whatever  may  be  the  practical  effect  of  a 
conveyance  or  lease  of  a  building  or  road  that  does  not  exist, 

1  Central,  etc.  R.  Co.  v.  Morris,  68  Hazard  v.  Vermont,  etc.  R.  Co.,  17  Fed. 
Tex.  49  (1887),  (3  S.  W.  Rep.  457).  753  (1883).     In   Day  v.   Ogdeusburgh, 

2  Oregon  R.,  etc.  Co.  v.  Oregonian  etc.  R.  Co.,  107  N.  Y.  129  (1887),  (13 
Co.,  130 U.  S.  1  (1889),  (9  Sup.  Ct.  Rep.  N.  E.  Rep.  765),  the  road  was  finished 
409).  in  performance  of  an  agreement  entered 

8  Wood    V.    Bedford,   etc.    R.    Co.,  into  at   the  same  time  the  lease  was 

8  Phila.  94  (1871);  Clarke  v.  Omaha,  agreed  upon,  and  it  was  held  that  the 

etc.  R.  Co.  4  Neb.  458  (1876),  (sale).  lease   was  valid  — that  the  parties  in- 

*  Wood    V.    Bedford,   etc.    R.    Co.,  tended   a   completed   road   and   before 

8  Phila.  94  (1871).  the   lease   was   executed  the  road  was 

5  Jones  V.  Concord  R.  Co.,  67  N.  H.  completed. 
234  (1892),  (30  Atl.  Rep.  614)  ;   March  ^  Jones  v.  Concord  R.  Co.,  67  N.  H. 

V.  Eastern  R.  Co.,  40  N.  H.  548  (1860);  243  (1892),  (30  Atl.  Rep.  614). 

271 


§  187  INTERCORPORATE   RELATIONS.  [PART    IM. 

the  corporate  power  of  liiring  a  road,  like  the  power  of  hiring 
a  passenger  or  freight  station,  includes  the  power  of  making 
an  executory  contract  for  a  lease  of  a  road  or  building  to  be 
constructed  within  a  time  or  in  a  place  or  manner  or  form, 
prescribed  by  the  contract." 

§  185.  Construction  of  Statutes  —  (D)  Leases  of  Connecting 
Lines.  —  As  already  shown,  statutes  authorizing  railroad  leases 
generally  provide  that  railroad  companies  may  lease  their  roads 
to  corporations  owning  roads  which  form  continuous  or  con- 
necting lines  with  their  own.*  The  construction  of  statutes  of 
this  character  has  been  the  subject  of  extended  consideration 
in  connection  with  similar  limitations  attached  to  the  right  to 
consolidate,  and  the  principles  there  shown  to  be  established 
apply  with  equal  force  to  statutes  authorizing  leases.* 

§  18G.  Constitutional  and  Statutory  Prohibitions  of  Leases  of 
Competing  or  Parallel  Lines.  —  The  Ica.sing  by  railroad  com- 
panies of  C()m[)('ting  or  parallel  lines  of  road  is  prohibited  by 
constitutional  and  statutory  provisions  in  many  States. 

The  same  and  similar  prohibitions,  the  considerations  of 
public  policy  which  induced  their  adoption,  and  their  construc- 
tion and  application,  have  already  been  examined  at  length  in 
the  consideration  of  the  subject  of  consolidation.^ 

§  187.  Long  Term  Leases  not  Prohibited  by  Statutes  against 
Perpetuities.  —  The  question  has  been  judicially  raised  whether 
a  lease  in  perpetuity  or  for  nine  hundred  and  ninety-nine  years 
comes  within  the  prohibition  of  statutes  against  perpetuities 
as  suspending  the  disposition  of  the  leased  property  longer 
than  the  periods  prescribed  in  such  statutes.  A  slight  ex- 
amination of  the  question,  however,  will  show  clearly  that  a 
lease  docs  not  create  a  perpetuity.  A  perpetuity  was  defined, 
in  the  early  case  of  Scattergood  v.  Edge^  to  be  an  estate 

1  Seean/e,  §  180  :  "  What  Railroads  The  constitutional  provisions  against 
ma>/  be  leased.     Statutory  Prorisions."  leases  of  competing  lines  —  as  well  as 

2  See  ante,  §  29  :  "  Construction  of  consolidation  and  sales  —  are  collected, 
Statutes  authorizing  Consolidation  of  and  many  statutes  referred  to,  in  note 
Railroads  —  Connecting  or  Continuous  to  §  32,  ante :  "  Constitutional  and  Stat- 
Lines."  utory  Provisions  against  Consolidation  of 

8  See    ante,    ch.    3  :    "  Constitutional     Competing  Railroads." 
and  Statutory    Restraints  upon  Consoli-  *  Scattergood  v.  Edge,  1   Salk.  229 

dation."  (1795) ;  In  Washburn  v.  Donnes,  1  Ch. 

272 


CHAP.   XVII.]     APPROVAL   AND   EXECUTION   OP   LEASE.  §  188 

"  inalienable  though  all  mankind  joined  in  the  conveyance." 
But  the  interests  of  lessor  and  lessee  may  generally  be  sepa- 
rately conveyed ;  and  they  can,  always,  by  uniting,  freely  and 
without  restraint  convey  the  entire  estate  —  the  fee  and  the 
leasehold  interest.^ 


CHAPTER  XYII. 

APPROVAL  AND   EXECUTION   OP  CONTRACT  OF  LEASE. 

I.  Assent  of  Stockholders  to  Railroad  Lease. 

§  188.    Necessity  for  Consent  of  Stockholders  to  Lease  of  Eailroad.    Power  of 

Directors. 
§  189.     Whether  Unanimous  Consent  is  necessary  unless  otherwise  prorided. 
§  190.     Requisite  Majority  prescribe  Terms  of  Lease. 
§  191.     Remedies  of  Dissenting  Stockholders. 
§  192.    Acquiescence  and  Laches  of  Stockholders. 

II.   Method  of  Approving  and  Executing  Railroad  Leases. 

§  193.    Statutory  Requirements. 

§  194.     Construction  of  Statutes  prescribing  Mode  of  Approving  and  Executing 

Leases. 
§  195.     Formalities  attending  Execution  of  Lease  of  Railroad. 
§  196.     Corporation   may   be  estopped  from  alleging  Irregular  Execution  of 

Lease. 

I.   Assent  of  Stockholders  to  Railroad  Lease. 

§  188.  Necessity  for  Consent  of  Stockholders  to  Lease  of 
Railroad.  Power  of  Directors.  —  The  New  York  Court  of  Ap- 
peals has  held  that  a  lease  by  one  railroad  corporation  to  an- 
other of  its  road,  property  and  franchises  for  a  term  of  years, 
under  a  statute  conferring  the  power  but  not  prescribing  its 
mode  of  exercise,  may  be  made  by  the  directors  of  the  cor- 
poration, and  that  the  concurrence  of  the  stockholders  is  not 
essential  to  its  validity .^     The  ground  upon  which  this  decision 

Cas.  23  (1671),  it  is  said:  "Aperpetu-  Co.,  58  Iowa,  205  (1882),  (12 N.  W.  Rep. 
ity  is,  wliere  if  all  that  have  interest  267,  7  Am.  &  Eng.  R.  Cas.  67),  where 
join  and  yet   cannot  bar  or  pass  the  the  question  stated  in  the  text  is  con- 
estate."  sidered. 
1  Todhunter  v.  Des  Moines,  etc.  R.  *  Beveridge  v.  New  York  Elevated 

18  273 


§188 


INTERCORPORATE   RELATIONS. 


[part   III. 


was  placed  was  that  all  powers  conferred  upon  a  corporation, 
unless  otherwise  expressly  prescribed,  must  be  exorcised  by 
its  directors,  who  are  constituted  by  the  law  as  the  agency 
for  the  purpose  ;  that  the  consent  of  stockholders  is  not  neces- 
sary to  the  validity  of  a  corporate  act,  unless  expressly  re- 
quired by  statute  or  the  by-laws  of  the  corporation.  This 
conclusion  is,  however,  opposed  by  other  authorities  and 
cannot  be  justified  upon  principle. 

The  directors  of  a  corporation  are  its  executive  agents  — 
the  corporation  acts  through  them  —  but  their  duties  are  to 
administer  its  affairs  in  furtherance  of  the  objects  of  its  creation.^ 
They  may  exercise  all  ordinary  and  incidental  corj»orate 
powers  without  the  approval  of  the  stockholders,  but  the  ex- 
traordinary power  of  leasing  the  corporate  property  and  fran- 
chises for  a  long  term  of  years  —  of  completely  changing  the 
control  of  the  property  and  the  administration  of  the  alTaira 
of  the  corporation  —  must  be  exercised  by  tlie  stockholders 
themselves,  unless  expressly  conferred  upon  the   directors.^ 


R.  Co.,  112  N.  Y.  1  (1889),  (19  N.  E. 
Rep.  489).  See  also  Conro  f.  Port 
Henry  Iron  Co.,  12  Barb.  (N.  Y.)  27 
(1851). 

1  The  directors  of  a  railroad  com- 
pany are  its  apents  with  limited  powers 
and  their  duties  are  to  so  conduct  its 
affairs  as  to  further  tlie  ends  of  its  cre- 
ation ;  they  have  no  power  to  destroy  it 
or  give  away  its  funds  or  deprive  it  of 
any  of  the  means  for  accomplishing  the 
purposes  for  which  it  was  chartered. 
Bedford  R.  Co.  i;.  Bowser,  48  Pa.  St. 
29  (1864). 

Where  an  increase  of  the  capital 
stock  of  a  corporation  was  authorized 
"  at  the  pleasure  of  the  said  corpora- 
tion "  and  its  charter  provided  that  "  all 
the  corporate  powers  of  the  said  corpo- 
ration shall  be  vested  in  and  exercised 
by  a  board  of  directors  "  it  was  held 
that  the  directors  had  no  authority 
to  increase  the  stock,  upon  the  ground 
that  "  the  general  power  to  perform  all 
corporate  acts  refers  to  the  ordinary 
business  transactions   of    the   corpora- 

274 


tion."     Railway    Co.  v.    Allerton,    18 
Wall.  (U.  S.)  234    (1873). 

2  United  Stales :  In  Ca.«s  v.  Man- 
chester, etc.  R.  Co.,  9  Fed.  642  (1881), 
Judge  McKeunan,  in  considering  the 
necessity  for  the  stockhoklers'  consent 
to  a  lease,  said  :  "  The  cliange  proposed 
here  is  not  organic,  it  is  true,  but  it  is 
thorough  and  fundamental,  as  it  affects 
the  aclministratiun  of  the  comj)any'8 
affairs.  It  involves  a  withdrawal  from 
the  control  and  management  of  the 
stockholders  of  the  entire  property  of 
the  corporation  for  a  period  of  at  least 
five  years ;  it  will  preclude  for  a  like 
period  the  exerci.^e  annually  by  the 
stockholders  of  their  judgment  as  to  the 
particular  character  and  metliod  of 
conducting  the  business  affairs  of  the 
corporation ;  and  it  denies  to  the  stock- 
holders any  right  of  suggestion  or  dis- 
approval of  the  conditions  upon  which 
a  relinquishment  of  important  corporate 
faculties  may  be  conceded.  Surely  a 
power  which  will  be  attended  with  such 
consequence   does    not   relate    '  to   the 


CHAP.    XVII.]      APPEOVAL   AND   EXECUTION   OF  LEASE.  §  189 


When  the  statute  conferring  power  to  lease  is  silent  as  to  the 
mode  of  its  exercise  a  lease  of  a  railroad  must  be  authorized, 
or,  what  is  equivalent,  ratified  by  the  stockholders. 

The  right  of  the  stockholders  to  authorize  a  lease,  and  the 
necessity  for  their  approval,  are  in  no  way  affected  by  the  fact 
that  the  directors  have  agreed  upon  the  terms  of  the  lease.^ 

§  189.  Whether  Unanimous  Consent  is  necessary  unless  other- 
wise provided.  — As  shown  in  another  section,  statutes  author- 
izing leases  of  railroads  nearly  always  prescribe  the  majority  of 
stockholders  whose  consent  is  necessary.     Where,  however, 

but  its  very  possessioD,  without  a  mo- 
ment's waruing.  A  board  of  directors 
are  elected  for  one  year,  to  manage  the 
business  and  affairs  of  the  corporation, 
such  business  being  the  operating  and 
maintaining  of  a  railroad.  At  the  time 
of  their  election,  the  shareholders  have 
no  intimation  that  anything  else  is  to  be 
done  by  the  directors,  and  the  expecta- 
tion is  that  such  directors,  at  the  end  of 
their  year  in  office,  will  turn  over  the 
property  committed  to  them  to  their 
successors  in  office,  with  an  account  of 
their  stewardship.  Can  it  be  possible 
that  this  board,  elected  for  only  one  year, 
without  any  notice  or  warning  has  the 
power  to  terminate  the  business  of  the 
corporation,  and  transfer  all  the  prop- 
erties to  another  corporation  ?  It  seems 
to  me  clearly  not.  This  is  not  the  man- 
agement of  the  business  of  the  corpora- 
tion. It  is  terminating  the  business  to 
carry  on  which  it  was  incorporated." 

PennsjjJvania  :  Kersey  Oil  Co.  v.  Oil 
Creek,  etc.  R.  Co.,  12  Phila.  374  (1877). 
Also  Martin  i;.  Continental  Pass.  R.  Co., 
14  Phila.  10  (1880). 

Virfjinia :  Stevens  r.  Davison,  18 
Gratt.819  (1868). 

See  also  ante,  §  112  :  "  Sale  of  Entire 
Corporate  Property  hy  Directors." 

It  has  been  held  that  the  consent  of 
stockholders,  necessary  for  the  authoriz- 
ation of  a  lease,  is  required  for  its  can- 
celation. Henry  v.  Pittsburgh,  etc.  R. 
Co.,  2  Ohio  N.  P.  118  (1895). 

1  Jones  V.  Concord,  etc.  R.  Co.,  67 
N.  H.  234  (1892),  (30  Atl,  Rep.  614). 


ordinary  business  transactions,'  nor 
'  to  the  orderly  and  proper  adminis- 
tration of  the  affairs,'  of  the  company, 
and  hence  cannot  be  exercised  by  the 
directors  without  express  authority  to 
them.'  " 

Rogers  v.  Nashville,  etc.  R.  Co.,  91 
Fed.  322  (1898):  "The  power  of 
leasing  out  a  railroad,  or  acquiring  an- 
other by  lease,  is  one  which  very  vitally 
affects  the  contract  between  share- 
holders. That  every  such  contract 
should  be  referred  to  the  shareholders 
is,  therefore,  most  reasonable ;  and  it 
should  not  be  lightly  presumed  that  the 
law-making  power  would,  when  dealing 
with  the  general  subject,  intend  to  pro- 
vide that  some  contracts  of  this  cliaracter 
should  be  submitted  to  the  shareholders 
for  their  approval,  while  others  just  as 
vital  might  be  made  without  their  con- 
sent." Also  Farmers  Loan,  etc.  Co.  v. 
St.  Joseph,  etc.  R.  Co.,  1  McCrary  247 
(1880). 

Indiana :  Commissioners  of  Tippi- 
canoe  County  v.  Lafayette,  etc.  R.  Co., 
50  Ind.  8.5  (1875). 

New  York  :  Metropolitan  El.  R.  Co. 
V.  Manhattan  El.  R.  Co.,  1 1  Daly  373 
(1884),  (15  Am.  &  Eng.  R.  Cas.  55,  14 
Abb.  N.  C.  103).  In  this  case  (decided 
before  the  Beveridge  case  supra)  the 
Court  said  :  "  If  the  board  of  directors 
have  the  power,  without  the  assent  of 
the  shareholders,  to  lease  the  properties 
of  the  corporation  for  all  time,  then  the 
shareholders  may  be  deprived  of,  not 
only  the  administration  of  their  prop- 
erty through  its  agents,  the  directors, 


275 


§  189  INTEBCOBPORATE   BELATIONS.  [PART   III. 

the  statute  contains  no  such  provision,  a  question  arises 
whether  the  unanimous  consent  of  the  stockholders  is  retiuired 
or  whether  the  consent  of  a  majority  is  sullicient.  Thus,  on 
the  one  hand,  it  has  hecn  held  that  a  lease  for  a  long  term  of 
years  works  such  a  complete  change  in  the  conduct  of  the 
affairs  of  a  corporation  and  the  custody  of  its  property  that  it 
can  he  brought  about  only  by  the  unanimous  consent  of  the 
stockholders.*  On  the  other  hand,  it  has  been  held  that  every 
stockholder,  in  joining  a  corporation,  impliedly  agrees  to  be 
bound  by  the  will  of  the  majority,  and  that  it  is  the  right  of 
the  majority  to  determine  whether  or  not  a  lease  —  which 
makes  no  organic  change  —  shall  be  made.'^  "  It  is  true  this 
doctrine,"  says  the  Supreme  Court  of  Maine,^  "  subjects 
minorities  to  the  will  of  majorities ;  but  it  is  equally  true  that 
the  contrary  doctrine  subjects  majorities  to  the  will  of  minor- 
ities ;  and  since  one  side  or  the  other  must  yield,  it  seems  to 
us  more  in  harmony  with  the  principles  of  natural  justice  that 
it  should  be  the  minority." 

Upon  principle,  it  seems  the  better  view  that,  where  authority 
to  make  or  take  a  lease  is  expressly  granted  to  an  existing 
railroad  company,  and,  a  fortiori,  where  it  appears  in  the  laws 
under  which  the  corporation  is  organized,  the  authority  be- 
comes a  power  of  the  corporation  which,  in  the  absence  of  a 
controlling  statutory  provision,  may  be  exercised  in  the  same 
manner  as  other  powers  requiring  action  by  the  stockholders 
—  by  a  majority  vote.* 

1  Mills  r.  Central  K.  Co.,  41  N.  J.  without  provision  for  "just  compensa- 

Eq.   1  (1886),  (2   All.    Rep.   453).     See  tion." 

also  Zabriskie  v.  Hackensack,  etc.    R.  *  Dickinson    v.    Consolidated   Trac- 

Co.,  18  N.  J.  Eq.  178  (1867).  tion  Co.,  114  Fed.   234  (1902;  Inhabi- 

In  Boston,  etc.  R.  Co.  r.  New  York,  tauts  of  Waldoborough    v.  Knox,  etc. 

etc.    R.    Co.,   13  R.    I.  260(1881),  the  R.  Co.,  84    Me.   469    (1892),    (24    Atl. 

Court  said :  "  Such  an  arbitrary  depriva-  Rep.  942)  (sale).    See  also  Durfee  v.  Old 

tion  of  property  it  cannot  be  within  the  Colony  R. Co., 3  Allen  (Ma.ss.) 230 (1862). 

power  of  a  majority  in  a  corporation  to  '  Inhabitants   of   Waldoborough    v. 

direct  or  of  a  legislature  to  ratify.    If  Knox,  etc.  R.  Co.,  84  Me.  469  (1892), 

this  could  be  upheld  no  investment  in  a  (24  Atl.  Rep.  942). 

corporation  would   be  secure,   for  any  *  Dady  v.  Georgia,  etc.  R.  Co.,  112 

minority  could    be    deprived    of    their  Fed.  842  (1901),  (case  of  consolidation), 

property  by  a  vote  of  a  majority   con-  See  ante,%  149  :  "  Assent  of  Stockholders. 

firmed  by  legislative    act,  without  the  Whetlier   Approval  of  Majority  is  suffi- 

requirement    of    public    necessity   and  cient." 

276 


CHAP.  XVII.]  APPROVAL  AND  EXECUTION  OF  LEASE. 


§190 


§  190.  Requisite  Majority  prescribe  Terms  of  Lease.  —  Where 
the  charter  of  a  corporation  or  a  general  law  authorizes  it, 
bj  a  vote  of  a  prescribed  majority  of  its  stockholders,  to  lease 
its  property  and  franchises,  and  contains  no  restrictions  as  to 
the  terms  of  the  lease  or  the  rent  to  be  reserved,  the  majority 
may  agree  upon  such  provisions  and  rental  as  they  see  fit,  and 
the  minority  stockholders  have  no  remedy,  except  in  case  of 
fraud. 

Thus,  where  the  charter  of  a  railroad  corporation  authorized 
it,  without  restriction,  by  a  vote  of  three-fourths  of  its  stock- 
holders, to  lease  its  railroad,  it  was  held  that  a  lease  so 
entered  into  for  ninety-nine  years,  at  a  rent  not  exceeding  the 
amount  needed  to  pay  fixed  charges  and  dividends  on  the  pre- 
ferred stock,  was,  in  the  absence  of  fraud,  valid,  although  the 
possibility  of  any  dividend  being  paid  on  the  common  stock 
was  thereby  excluded  for  the  entire  term.^ 

The  conclusion  reached  in  the  case  referred  to,  while  the 
logical  outcome  of  the  application  of  fixed  principles  to  the  pro- 
visions of  the  charter,  was  most  inequitable.  The  rule  that 
the  majority  may  prescribe  the  terms  and  conditions  of  a  lease 


1  Town  of  Middletown  v.  Boston, 
etc.  R.  Co.,  5.3  Conn.  3.58  (1885),  (5  Atl. 
Rep.  706),  where  Judge  Beardsley  said  : 
"  But  it  is  claimed  that  although  there 
is  no  restriction  in  the  language  of  the 
charter  as  to  the  term  for  which  the  com- 
pany may  lease  its  road,  or  as  to  the 
rent  to  be  received,  yet  it  is  unreasona- 
ble so  to  construe  it  as  to  enable  three- 
fourths  of  the  stockholders  to  make  a 
lease  which  deprives  the  other  fourth 
of  any  chance  for  dividends  for  so  long 
a  period,  and  hence  that  tlie  lease  in 
question  is  not  a  rightful  and  lawful 
exercise  of  the  power  given  by  the 
charter.  We  see  no  ground  for  this 
claim,  especially  in  view  of  tliefact  that 
leases  of  railroads  are,  and  from  the 
nature  of  the  case  must  generally  be, 
made  for  long  terms.  Railroads  are 
leased,  as  they  are  built,  with  a  view  to 
the  advantages  to  arise  in  the  distant 
future  from  the  development  of  popula- 
tion and  business  in  the  neighborhood 


by  the  facilities  for  transportation 
which  they  afford.  The  complaint  also 
charges  that,  by  the  provision  of  the 
lease,  the  entire  resources  of  the  defend- 
ant company  from  which  income  can  be 
derived  are  fraudulently  appropriated 
for  the  benefit  of  the  holders  of  the  pre- 
ferred stock.  This  is  not  a  charge  of 
fraudulent  conduct  or  intent  in  the 
making  of  the  lease,  but  only  that,  by 
its  operation,  the  income  will  be  fraudu- 
lently appropriated  for  the  benefit  of 
the  preferred  stockholders.  This  is 
simply  an  allegation  that  this  appropri- 
ation of  the  income  will  be  disastrous 
to  the  common  stockholders  and  wrong- 
ful ;  not  that  the  preferred  stockholders 
have  acted  fraudulently.  If  the  com- 
pany had  the  right,  as  it  clearly  had 
by  its  charter,  to  make  the  lease  upon 
a  three-fourths'  vote,  the  Court  cannot 
regard  the  effect  of  the  lease  as  wrong- 
ful, or  in  any  proper  sense  fraudulent." 

277 


§  191  INTERCORPORATE    RELATIONS.  [PART    III. 

is  founded  upon  an  elementary  principle  in  corporation  law, 
and,  where  there  is  only  one  class  of  stockholders,  works 
fairly.  But  that  preferred  stockholders,  interested  in  secur- 
ing a  certain  payment  of  their  limited  dividends,  may,  with 
the  :iid  of  a  minority  of  the  holders  of  the  common  stock,  oh- 
tain  a  j)er{)etual  guaranty  of  their  dividends  and  deprive  the 
common  stockholders  of  any  chance  of  return  from  the 
enchanccd  value  of  their  pro|)crty,  is  o[)posed  to  principles  of 
natural  justice.  A  rule  producing  such  result,  under  forma 
of  law,  should  be  the  subject  of  legislative  enactment.  Self- 
ishness may  work  as  grievous  wrongs  as  fraud. 

§191.  Remedies  of  Dissenting  Stockholders. — The  pro- 
tection of  the  interests  of  minority  stoekhttlders  from  the 
unauthorized  acts  of  the  majority,  and  of  the  interests  of 
every  stockholder  from  the  unlawful  acts  of  those  intrusted 
witii  the  management  of  the  affairs  of  a  corporation,  is  pecu- 
liarly within  the  province  of  equity.*  Upon  this  principle,  a 
court  of  equity,  at  the  instance  of  a  stockholder  in  a  corpo- 
ration which  has,  without  authority,  agreed  to  lease  its 
property  and  franchises,  or  which  has  agreed  to  accept  an 
unauthorized  lease  from  another  corporation,  will  grant  an 
injunction  against  both  corporations,  parties  to  the  agree- 
ment, restraining  the  execution  of  the  Icase.'^  Thus,  where 
the  directors  of  a  railroad  company,  without  the  approval  of 
its  stockholders  and  without  sanction  of  law,  made  a  lease  of 
its  railroad  for  ninety-nine  years,  it  was  held  that  such  lease 

1  In  Pond  i;.  Vermont  Valley  R.  Co.,  propriation  of  the  corporate  powers  or 

12  Blatch.  (U.  S.)  287  (1874),  apoii  a  property,    or   other  acts  prejudicial  to 

stockholder's  bill  to  restrain  an  unau-  the  stockholders,  amounting  toa  breach 

thorized    lease  of  a  railroad,   about    to  of  trust  on  the  part  of  the  managers." 
be   consummated    by  directors,   Judge  ^  Winch  v.  Birkenhead,  etc.  R.  Co., 

Woodruff  said  :  "  It  is  not  insisted,  and  5  I)e  Ge.\  &  Sm.    5C2  (1852),  (16  Jur. 

cannot  be  successfully  claimed,  that  the  1035,  H  Eng.  L.  &.  Eq.  506) ;  Commis- 

matters  complained  of  are  not  of  equity  sioners  of  Tippecanoe  County  v.  Lafay- 

cognizance ;  or  that  a  court,  having  gen-  ette,   etc.    R.    Co.,    50    Ind.  85  (1875); 

eral  jurisdiction  in  equity,  has  no  jurisdii'-  Mills  f.  Central  R.  Co.,  41  X.  J.  Eq.  1 

tion,  at  the  instance  of  stockholders,  to  (1886),    (2    Atl.  Rep.  45.3);  St.    Louis, 

restrain  a  corporation,  or  tliose  engaged  etc.  R.  Co.  v.  Terre  Haute,  etc.  R.  Co., 

in  the  control  and    management  of  its  33  Fed.  447  (1888),  9.  c.  on  appeal,  145 

affairs,  from  acts  tending  to  the  destruc-  U.   S.  393  (1892),    (12    Sup.    Ct.    Rep. 

tion  of  its   franchises,  or  violations  of  953). 
the  charter  or   from  misuse  or  misap- 

278 


CHAP.    XVII.]      APPROVAL    AND    EXECUTION   OP   LEASE. 


§192 


was  ultra  vires  and  void,  and  that  an  action  would  lie  in  behalf 
of  any  stockholder  against  both  corporations  for  an  injunction 
and  for  the  cancellation  of  the  lease,^ 

§  192.  Acquiescence  and  Laches  of  Stockholders.  —  Upon 
principles  similar  to  those  already  considered  in  connection 
with  the  subjects  of  consolidation  and  sale,  a  stockholder  by 
his  acquiescence  may  waive  irregularities  in  the  execution  of 
a  lease  of  a  railroad  and  may  be  estopped  by  his  laches  from 
taking  steps  to  have  it  set  aside.^  Statutes  providing  that  a 
prescribed  majority  of  stockholders  shall  assent  to  a  lease  in 
a  particular  manner,  and  other  provisions  of  a  similar  char- 
acter, are  enacted  in  the  interests  of  the  stockholders.  The 
compliance  with  these  regulations  may  be  a  condition  prec- 
edent to  the  validity  of  the  lease  as  against  a  stockholder, 
but  he  may  be  estopped  by  acquiescence  and  delay  from 
setting  up  the  invalidity.^     Thus  an  Illinois  statute  requir- 


1  Commissioners  of  Tippecanoe 
County  V.  Lafayette,  etc.  R.  Co.,  50 
Ind.  85  (1875). 

^  See  rtn^e,  §  49:  "Laches  of  Stock- 
holders;" ante,  §  116:  "Defences  to 
Stockholders'  Actions.  Estoppel ;"  ante, 
§  150  :  "  Acquiescence  of  Stockholders." 

Although  a  stockholder  in  a  railroad 
company,  by  voting  for  the  lease  of  its 
road  to  another  company,  is  estopped  — 
as  between  himself  and  his  corporation 
—  from  attacking  its  invalidity,  the  cor- 
poration is  not  estopped  to  proceed 
against  the  lessee  for  the  avoidance  of 
the  lease  ;  and  the  estoppel  against  the 
stockholder  does  not  prevent  him  from 
instituting  proceedings  for  such  purpose 
in  the  name  of  the  corporation  when  such 
procedure  is  otherwise  permissible. 
Memphis,  etc.  R.  Co.  v.  Grayson,  88 
Ala.  572  (1889),  (7  So.  Rep.  122,  16 
Am.  St.  Rep.  69). 

3  St.  Louis,  etc.  R.  Co.  v.  Terre 
Haute,  etc.  R.  Co.,  145  U.  S.  393 
(1892),  (12  Sup.  Ct.  Rep.  9.53),  (s.  c.33 
Fed.  447  (1888)).  Citing  Zabriskie  v. 
Cleveland,  etc.  R.  Co.,  23  How.  (U.  S.) 
381  (1859)  ;  CentralTransportation  Co. 
V.  Pullman  Car  Co.,  139  U.  S.  60 
(1891,)  (11   Sup.  Ct.  Rep.  478)  ;  Davis 


V.  Old  Colony  R.  Co.,  131  Mass.  258 
(1881)  ;  Beecher  v.  Marquette,  etc.,  R. 
Co.,  45  Mich.  103  (1881),  (7  N.  W.  Rep. 
695) ;  Thomas  v.  Citizens  R.  Co.,  104  111. 
462  (1882).  See  also  Taylor  v.  Railroad 
Co.,  4\Voods  (U.  S.),  575  (1 882).  In  the 
Terre  Haute  ca.se  supra  Mr.  Justice 
Gray  said  (p.  403) :  "  Although  this  stat- 
ute, in  terms,  declares  that  any  such 
lease,  made  without  the  written  consent 
of  the  Illinois  stockholders,  '  shall 
be  null  and  void,'  it  would  seem  to 
have  been  enacted  for  the  protection 
of  such  stockholders  alone,  and  intended 
to  be  availed  of  by  them  only.  It  did 
not  limit  the  scope  of  the  powers  con- 
ferred upon  the  corporation  by  law,  an 
excess  of  which  could  not  be  ratified  or 
be  made  good  by  estoppel ;  but  only 
prescribed  regulations  as  to  the  manner 
of  exerising  corporate  powers,  compli- 
ance with  which  the  stockholders  might 
waive,  or  the  corporation  might  be  es- 
topped, by  lapse  of  time,  or  otherwise, 
to  deny." 

A  delay  of  three  months  is  not 
laches.  Mills  i'.  Central  R.  Co.,  41 
N.J.  Eq.  1   (1886),  (2  Atl.  Rep.  453). 

As  to  what  constitutes  acquiescence, 
see  Kersey  Oil  Co.  v.  Oil  Creek,  etc.  R. 

279 


§193 


INTERCORPORATE   RELATIONS. 


[part   III. 


injr  the  written  consent  of  all  the  Illinois  stockholders  to  a 
lease  of  a  railroad  in  that  State  to  a  foreign  corporation, 
was  lield  to  be  for  the  personal  benefit  of  the  stockholders 
which  they  could  waive  by  acquiescence.  Judge  Gresham 
said':  ''The  silence  of  the  stockljolders  for  almost  twenty 
years  was  equivalent  to  their  written  consent.  Any  resi- 
dent stockholder  might  have  enjoined  the  execution  and 
performance  of  the  contract  by  a  suit  Ijrought  in  due  time, 
but  no  such  suits  could  be  maintained  after  an  acquies- 
cence for  the  period  stated,  and  no  one  but  a  stockholder 
could  object  to  the  contract  on  that  ground." 


II.    Method  of  approving  ami  erecuthvi  Railroad  Leaset. 


§103.  Statutory  Requirements. — The  tmiform  policy  In- 
dicated in  statutes  authorizing  leases  of  railroads  is  to  place 
restrictions  upon  the  exercise  of  the  power  granted,  to  require 
the  formal  approval  of  a  prescribed  majority  of  the  stock- 
holders of  the  contracting  corporations,  and  to  [)re8cribe  the 
method  to  be  followed  in  the  adoption  of  the  lease.^     Thus  it 


Co.,  12  riiila.  374  (18:7),  where  the 
Court  said  (p.  376)  :  "  It  is  further 
contended  that  the  contract  and  lease 
cannot  be  rescinded  because  the  plain- 
tiff company  is  estopped  by  its  ac- 
quiescence and  silence.  What  is 
acquiescence  ?  It  is  something  more 
than  non-resistance.  It  is  more  than 
mere  pas.siveness,  unless  the  passiveness 
induces  belief  in  error,  and  then  it 
becomes  an  act." 

See  also  Boston,  etc.  K.  Co.  r.  New 
York,  etc.  R.  Co.,  13  R.  I.  260  (1881). 

1  St.  Louis,  etc.  R.  Co.  v.  Terre 
Haute,  etc.  R.  Co.,  .33  Fed.  447  (1888), 
affirmed  145  U.  S.  393  (1892),  (12  Sup. 
Ct.  Rep.  9.=)3). 

2  Alabama.  Code  1896,§  1170:  Ap- 
proval of  proposed  lease  by  holders  of 
majority  in  valne  of  stock  of  both  cor- 
porations at  meetings  called  for  the 
purpose  required. 

Arizona.     R.  S.  1901,  par.  864  :    As- 

280 


sent  of  hidflers  of  two  thirds  of  entire 
capital  stock  of  each  corjtoration  —  by 
rote  or  in  writing — necessary  to  con- 
tract of  leaae. 

Arhmsnu.  San.  &  Hill's  Dig.  1894, 
§§  6321,  C328,  6332,  6.338,  6343  :  Pro- 
posed lea.^e  must  lie  a.*spnted  to  by 
holders  of  twfv-thirds  of  capital  stock  of 
each  corporation  after  conditi(jns  and 
terms  are  agreed  to  by  directors. 

Colorado.  .Mills'  Anno.  Stat.  1891, 
§  612  (as  amemled  by  Sess.  Laws  1899, 
p.  163)  :  Assent  of  holclt-rs  of  two-thirds 
of  capital  stock  of  each  company  re- 
quired to  proposed  lease. 

Connecticut.  G.  S.  1888,  §  3473: 
"No  lease  of  any  railroad  is  binding 
for  more  than  twelve  months  anlc.«s  ap- 
proved by  a  vote  of  two-thirds  of  the 
stock  represented  at  a  meeting  of  the 
stockholders  called  for  that  purpose." 

Gforrjia.  Code  1895,  §  2179,  p.  128  : 
Terms  of  lease  are  such  as  may   be 


CHAP.    XVII.]  ,    APPROVAL    AND    EXECUTION   OF   LEASE. 


§193 


is  generally  provided  that  the  proposed  lease  shall  not  become 
effective  nntil  it  shall  have  been  approved  by  a  vote  of  the 
holders  of  a  designated  majority  of  the  capital  stock  of  each 
corporation.  In  several  States,  hovrever,  formal  action  by  the 
stockholders  may  be  dispensed  with  if  the  specified  number  give 
their  assent  in  writing  and  certificates  showing  the  approval 
of  the  lease  are  filed  in  the  office  of  the  Secretary  of  State. 

Some  of  these  statutory  requirements  constitute  conditions 
precedent  to  the  validity  of  the  lease.    Others  are  directory  only. 


agreed  upon.  No  particular  method 
provided. 

Kansas.  G.  S.  1897,  §  95:  Terms 
and  conditions  of  lease  must  be  agreed 
to  by  directors  and  must  be  ratified  by 
vote  of  the  holders  of  two-thirds  of  cap- 
ital stock  of  each  company  or  approved 
by  such  holders  in  writing.  See  also  ib. 
ch.  70,  §  94. 

Massachusetts.  Pub.  Stat.  1882, 
ch.  112,  §  220,  p.  639  :  Directors  agree 
upon  the  terms  which  must  be  "  ap- 
proved by  a  majority  in  interest  of  the 
stockholders  of  both  corporations  at 
meetings  called  for  that  purpose." 

Michigan.  P.  A.  1901,  Act  No.  30, 
p.  50 :  "  Stockholders  owning  a  major- 
ity of  stock  of  said  companies  shall 
consent  thereto." 

Minnesota.  G.  S.  1894,  §§  2721, 2736  : 
Lease  must  be  assented  to  by  holders 
of  two-thirds  of  capital  stock  of  each 
company  at  meetings  called  for  the 
purpose. 

Missouri.  R.  S.  1899,  §  1060  :  Hold- 
ers of  a  majority  of  stock  of  each  com- 
pany must  assent  in  writing  to  lease 
proposed  by  directors  before  it  can  be 
perfected. 

Montana.  Code  1895,  §912  requires 
approval  of  three-fifths  of  stockholders. 
Ib.  §  923  requires  approval  by  majority 
vote  or  by  majority  in  writing.  These 
provisions  apply  to  leases  authorized  by 
different  statutes. 

Nebraska.  Comp.  Stat.  1901,  §  1769  : 
No  lease  shall  be  perfected  until  as- 
sented to  by  vote  of  holders  of  two- 
thirds  of  capital  stock  ;  {ib.  §  4026),  by 
vote  or  written  approval  of  like  number. 


Ib.  §§  4018.  4019,  authorize  approval  of 
certain  leases  by  majority  vote. 

Neiv  Hampshire.  See  statute  in  note 
to  §  180,  ante  :  "  What  Eailroads  may  be 
leased.     Statutory  Provisions." 

New  Jersey.  See  statutes  in  note  to 
§  180,  «n<e;  "  What  Railroads  may  be 
leased.     Statutory  Provisions." 

New  Mexico.  Comp.  Laws  1897, 
§  3891  :  Holders  of  at  least  two-thirds 
of  capital  stock  must  assent  to  proposed 
lease. 

Neiv  York.  See  statute  in  note  to 
§  180,  ante  :  "  What  Eailroads  may  be 
leased.     Statutory  Provisions." 

North  Dakota.  Rev.  Codes  1899, 
§  2954 :  Lease  must  be  approved  in 
same  manner  as  consolidation.  See  ante, 
§  52  :  "  Formal  Statutory  Requisites  " 
(consolidation). 

Ohio.  Bates'  Anno.  Stat.,  1787-1902, 
§  3301 :  Two-thirds  of  stockholders  must 
approve  proposed  lease  at  meeting 
called  by  each  corporation. 

South  Dakota.  Anno.  Stat.  1901, 
§  3906 :  Lease  must  be  approved  in 
same  manner  as  consolidation.  See 
ante,  §  52  :  "  Formal  Statutory  Requi- 
sites" (consolidation). 

Tennessee.  Code  1896,  §  1540:  Lease 
must  be  approved  by  votes  of  holders  of 
three-fourths  of  capital  stock. 

West  Virginia.  Code  1899,  ch.  54, 
§  82  a :  Lease  requires  approval  of  hold- 
ers of  two-thirds  of  capital  stock  at 
meeting  called  for  the  purpose. 

Wyoming.  R.  S.  1899,  §  3206  :  Lease 
must  be  approved  by  vote  of  holders  of 
a  majority  of  stock,  or  their  written 
approval  may  be  given. 

281 


§104 


INTERCOEPORATE    UKI,A TloN.-i. 


[fart    III. 


§  104.  Construction  of  Statutes  prcacribinj;  Mode  of  approving 
and  executing  Leases.  —  Statutt'S  |>rt.'scribin;^  tlic  luctlio"!  of 
approving  and  executing  leases  of  railroads  are,  in  theii* 
essential  elements,  mandatory  and  mnst  be  strictly  complied 
with. 

A  j)rovi.sion  that  no  lease  of  a  railroad  shall  be  perfected 
until  the  stockholders  of  the  contracting  corporations  shall 
have  approved  it  by  their  votc.>i  at  stockholders'  meotiiijrs 
roipiires  their  approval  in  that  form.  Their  consent  obtaiiud 
individually,  outside  of  the  meetings,  is  not  sufficient.  Delib- 
erate action  as  stockholders  i.s  necessary.*  Conversely,  a  pro- 
visi(jn  that  a  proposed  lease  may  be  executed  if  a  majority  of 
the  stockholders  have  assented  in  writing  is  notcomjdied  with 
by  the  casting  of  ballots  in  its  favor  by  a  majority  of  stock- 
holders at  a  meeting  where  it  has  been  the  subject  of  consider- 
ation. Ballots  do  not  contain  the  signatures  of  stockholders. 
They  arc  cast  to  accomplish  corporate,  and  not  individual, 
action.^ 


'  In  Potors  r.  Lincoln,  etc.  R.  Co., 
2  McCrary  27!i.  (12  Fed.  514)  (1881), 
.Juili;c  MrCrary  sni<l :  "The  lepislaturo 
Ili-s  seen  fit  to  provide  that  no  lease  of  a 
railroatl  in  tliis  State,  exeruteil  by  one 
railroad  ronipany  to  another,  shall  \ye 
completed  until  a  meetinf^  of  the  stock- 
holders of  lioth  companies  shall  have 
been  called  by  the  liirectors  thereof  or 
until  such  lease  ha.'*  been  a.ssented  to  by 
the  votes  of  at  least  two-tliinls  of  the 
stock  represented.  In  our  judgment 
the  stuckh(dders'  meeting  and  the  vote 
in  such  meeting  upon  the  (juestion  of 
assenting  to  the  proposed  lease  are 
matters  of  essence,  of  substance  and 
not  of  mere  form.  .  .  .  The  action  of 
stockholders  outside  of  such  meeting 
is  individual  action  only.  It  is  not 
such  action  as  the  law  requires.  It 
does  not  bind  the  corporation."  See 
also  same  case  upon  amended  biU,  14 
Fed.  319  (1882). 

In  Smith  i:  Hurd,  12  Met.  (Mass.) 
395  (1847),  Chief  Justice  Shaw  thus 
stated  the  relation  of  a  stockholder,  in 
his  iudiridual  capacity,  to  his  corpora- 

282 


tion  :  "  Shonld  all  the  stockholders  join 
in  a  power  of  attorney  to  any  one,  he 
could  not  take  {XJ-H-session  of  any  real  or 
pergonal  estate,  any  security  or  chose  in 
action  ;  could  not  collect  a  debt,  or  di»- 
charge  a  claim  or  release  damage  aris- 
ing from  any  default;  simply  because 
th<'y  are  not  the  legal  owners  of  the 
property,  and  damage  done  to  such 
property  is  not  an  injury  to  them. 
Their  rights  and  their  powers  are  lim- 
ited and  well  defined." 

See  also  Hninphreys  v.  McKissock, 
140  U.  S.  304  (I8i>l),  (11  Sup.  Ct.  Kep. 
779). 

•^  Humphreys  r.  St.  Louis,  etc.  R. 
Co.,  37  Fed.  313  (1889):  "No  vote  at 
any  meeting  was  recjuired  by  the  laws 
of  Missouri,  if  the  bidders  of  a  majority 
of  the  stock  assented  to  the  lease  in 
writing,  and  the  proper  certificates  were 
filed  in  the  office  of  the  Secretary  of 
State.  The  propositions  voted  upon 
were  in  writing,  and  the  voting  was 
by  written  ballots.  This  is  argued  to 
have  been  an  assent  in  writing  to  the 
lease;  but  the  ballots  were  not  signa- 


CHAP.    XVII.]      APPROVAL   AND    EXECUTION   OF   LEASE.  §  195 

Where  an  act  of  Parliament  authorized  one  railroad  com- 
pany to  grant,  and  another  railroad  company  to  accept,  a  lease 
of  a  railroad  upon  such  terms  as  should  be  agreed  upon,  but 
provided  that  the  power  should  not  be  exercised  until  the  Board 
of  Trade  had  certified  that  it  had  been  proved  to  its  satisfac- 
tion that  half  the  capital  of  the  leasing  company  had  been 
raised  and  applied  for  the  purposes  of  the  act,  it  was  held  that 
no  lease  or  binding  agreement  for  a  lease  could  be  made  be- 
fore the  certificate  had  been  obtained.^ 

Where  power  to  make  a  lease  is  vested  in  the  stockholders 
and  they  have  agreed  upon  its  terms  and  conditions,  the  direc- 
tors have  no  power,  without  the  consent  of  the  stock-holders, 
to  make  any  material  change  in  the  terms  agreed  upon.^ 

§  195.  Formalities  attending  Execution  of  Lease  of  Railroad. 
—  When  the  statutory  requirements  essential  to  the  authori- 
zation of  a  railroad  lease  have  been  complied  with,  the  matter 
of  its  formal  execution  is  governed  by  principles  applicable  to 
corporations  generally  in  the  execution  of  conveyances.^ 

1.  Place  of  Execution.  The  meeting  of  the  stockholders 
for  the  authorization  of  a  proposed  lease  must  be  held  within 
the  State  where  the  corporation  is  chartered.  When  the 
lease  is  authorized,  it  may  be  executed  by  the  proper  officers 
within  or  without  the  State.* 

tures,  and  were  cast  to  accomplish  cor-  R.  Co.  (Ont.),  13  Am.  &  Eng.  R.  Cas. 

porate,  and  not  individual,  action.   This  62(1883). 

does  not  seem  to  amount  to  the  assent  i  Kent  Coast,  etc.  R.  Co.  v.  London, 

in  writing  contemplated  by  the  statute."  etc.  R.  Co.,  L.  R.3  Ch,  App.  656  (1868). 
Under  a  New  York  statute,  however,  2  Met.   El.  R.  Co.  v.   Man.   El.   R. 

requiring  the  written   consent   of  two-  Co.,  11  Daly,  373  (1884),  (14  Abb.  N. 

thirds  of  the  stockholders  to  a  mort-  Cas.  103,  15  Am.  &  Eug.  R.  Cas.  51). 

gage,  it   was    held    that   a  resolution  Compare,  however.  People  v.  Met.  El. 

pas.sed  at  a  stockholders'  meeting  by  the  R.  Co.,  26  Hun,  82  ( 1 881 ). 
vote  of  stockholders  holding  two-thirds  ^  That  an  agreement  to  give  a  lease 

of  the  stock  amounted  to  the  written  does  not   require,  in  its  execution,  the 

assent   required.     Beebe   v.   Richmond  formalities  necessary  in  the  execution 

Light,  etc.  Co.,  13  Misc.  Rep.  737  (1895),  of  the  lease  itself,  and  that  a  decree  of 

(35N.  Y.  Supp.  1).    A  statute  authorized  specific    performance   may  be  entered 

a  railroad  company  to  enter   into  an  against   a  corporation,   see    Conant   v. 

agreement  for  a  lease  with  the  assent  of  Bellows  Falls  Canal   Co.,  29   Vt.  263 

two-thirds  of   its   shareholders.     Held,  (1857). 

that  holders  of  registered  bonds,  hav-  *  Pittsburgh,  etc.  R.  Co.  u.  Columbus, 

ing  voting  powers,  might  vote  upon  the  etc.  R.  Co.,  8  Biss.  (U.  S.)  456  (1879). 
question.      Hendrie   v.   Grand    Trunk         In  Wright  v.  Bundy,  11   Ind.  404 

283 


§105 


INTERCORPORATE    RELATION:?. 


[part  hi. 


2.  Authority  of  Offieert  or  Agentt.  Wliilc  the  authority  of 
the  ofTicora  or  aj^ents  of  a  corporation  to  execute  a  lease  must 
be  shown,  written  eviJonco  of  a  formal  vote  is  not  necessary, 
an*l  it  may  be  implied  from  facta  and  circumstances.  In  the 
absence  of  proof  to  the  contrary,  the  law  presumes  that  the 
actinj^  onicers  of  a  corporation  are  rii^htfuUy  in  ofTice,  and  it 
is  not  necessary  to  prove  their  election  to  establisli  the 
validity  of  their  acta.* 

8.  Seah.  A  seal  is  necessary  upon  a  written  lease  mndo 
by  a  corporation  only  when  it  is  required  upon  a  similar  lease 
made  by  a  natural  person.'  When  a  seal  ia  necessary,  and 
a  contract  purportiu'^  to  he  sealod  is  shown  t«)  have  been  duly 
signed  and  executed  by  the  proper  otVicers,  the  law  will  j)re- 
Bume  that  the  seal  was  afiixed  by  pro|)er  authority.' 


(1858).  the  Court  taid :  "The  more 
plnee  where  the  ucxUt  ao^rnta  of  »  cor- 
poration cntiT  into  a  runtrart  niu^t,  in 
gcncrnl,  In*  immfttoriiU.  The  imp«>rt«nt 
question  ari.«iii)(  mait  be  one  uf  [xiwer, 
not  of  plare.  The  cxerri«e  uf  the 
power  haa  n-latinn  to  the  plarc  of  their 
legal  e.itahli»hinent,  where  the  contract 
mny  bo  «uh<<oi|uently  artcii  under.  The 
meeting;!  of  the  directors  of  a  husincM 
corporation  are  not  nnalogouB  to  the  »e»- 
Bions  of  a  judicial  tribunal.  The  corpo- 
ration ifl  orjjani/ed  h\  the  election  of  di- 
rectors ;  but  the  mere  organization  of  the 
directors  into  a  cor|)oration  for  bn-nincM 
afterwards,  is  quite  a  different  thing." 

Where  the  pr^'iidcnt  of  a  railro.id 
company  operiUing  a  railroail  in  Ken- 
tucky a<knowle«lgcd  the  execution  of  a 
mortgage  thereof  in  Ohio  it  wan  held 
that  the  mortgage  was  properly  exe- 
cuted. Hoddcr  I'.  Kentucky,  etc.  R. 
Co.,  7  Fed.  793  (1881),  affirmed  sub  nom. 
Wright  r.  Kentucky,  etc.  R  Co.,  117 
U.  S.  72  (1886),  (6  Sup.  Ct.  Rep.  697). 

For  principle  applicable  to  interstate 
consolidated  corporation,  see  Graham 
V.  Boston,  etc.  R.  Co.,  U  Fed.  753 
{18S3),  ajfinned  118  U.S.  161  (1886), 
(6    Sup.  Ct.  Rep.  1009). 

1  lu  Union  Pacific  R.  Co.  v.  Chi- 
cago, etc.  R.  Co..  51  Fed.  327  (1892), 
ajfirmed  163  U.  S.  564  (1896),  (16  Sup. 

284 


Ct.  Rep.  1173).  Jadge  Sanborn  Mid: 
"  The  I'aciflc  Company  delivere<l  thia 
contract,  aigned  by  ita  preiiidenc  and 
accretary,  to  the  R<Kk  laland  Company. 
Thia  wai  prima  fiteie  cridcnce  that  it 
waa  executed  in  U-half  of  the  corpora- 
tion by  lawful  authority."  See  alw*  Sua- 
quchanua  Bridge,  etc.  Co.  v.  General 
Ina.  Co.,  3  Md.  305  (1852);  Jark.^on- 
ville,  etc.  R.  Co.  r.  Hooper,  160  U.  S. 
519  (1895).  (16  Sup.  Ct.  Rep.  379). 

Where  a  committee  of  three  direc- 
tom  were  given  discretionary  power  to 
execute  a  lease  of  corporate  property. 
it  waa  held  that  two  of  the  memlier* 
had  power  to  affix  the  corporate  .«eai.  the 
third  memU^r  l>eing  absent  but  having 
approved  the  execution  of  the  lea^e. 
Union  Bridge  Co.  v.  Troy,  etc.  R.  Co., 
7  Lans.  (N.  Y.)  240  (1872). 

Where,  however,  a  resolution  pro- 
rided  "  that  the  president  and  treasurer 
of  this  a.isociation  be,  and  they  are 
hereby  authorized  to  execute  and  de- 
liver .  .  .  alea.<e,"  it  waa  held  that  the 
authority  of  the  two  officers  was  joint, 
and  that  a  lease  executed  by  one  of 
them  alone  was  invalid.  Pond  r.  Ver- 
mont Valley  R.  Co.,  Fed.  Caa.  No. 
11,  263   (1876). 

2  United  States  Bank  tv  Dandridge, 
12  Wheat.  (U.  S.),  64  (1828). 

•  Fidelity     Insuraocc,    etc.    Co.    ». 


CHAP.  XVII.]      APPROVAL   AND   EXECUTION   OF   LEASE,  §  196 

4.  Acknowledgment,  Wit?iesses,  etc.  Statutory  provisions 
concerning  the  execution  of  a  lease  of  real  estate,  adopted  in 
the  State  where  the  railroad  is  situated,  prescribing  the 
number  of  witnesses,  form  of  acknowledgment,  etc.,  are, 
undoubtedly,  applicable  to  railroad  companies  in  the  execu- 
tion of  leases  of  their  roads.  Failure  to  comply  with  such 
provisions,  however,  does  not,  as  a  general  rule,  affect  the 
validity  of  the  lease  between  the  parties. 

5.  Record.  A  failure  to  record  the  lease  of  a  railroad  in 
the  office  of  the  Secretary  of  State  or  otherwise,  as  the  statute 
may  prescribe,  will  not,  unless  expressly  so  provided,  affect 
its  validity  as  between  the  parties.^ 

§  196.  Corporation  may  be  estopped  from  alleging  Irreg- 
ular Execution  of  Lease.  —  When  a  railroad  company,  acting 
within  the  scope  of  its  corporate  powers,  executes  a  lease  of 
its  railroad  to  another  corporation,  and  permits  the  lessee  to 
take  possession  of  the  leased  property  and  make  improve- 
ments thereon,  or  when  such  a  railroad  company  takes  a  lease 
and  assumes  control  of  the  leasehold  estate,  it  is  estopped  to 
allege  irregularities  in  its  own  execution  of  the  lease.^     In 

Shenandoah  Valley  R.  Co.,  32  "W.  Va.  the   State   under  lease  shall  have  the 

224  (1889),  (9  S.  E.  Rep.  180,  38  Am.  lease  recorded  is  not  iu valid  as  au  inter- 

&  Eng.  R.  Cas.  577).     Also  Jackson-  ference  with  interstate  commerce.   Com- 

ville,  etc.  R.  Co.  v.  Hooper,  160  U.  S.  mon wealth  v.  Chesapeake,  etc.  R.  Co., 

519  (1895),  (16  Sup.  Ct.  Rep.  379).  101    Ky.    159   (1897),  (40  S.   W.  Rep. 

1  The  general  principle  that  the  re-  250). 
cording  of  a  deed  or  lease  is  only  neces-  As   to  allegation  and  proof  of  exe- 

sary  for  the  purpose  of  giving  notice,  cution  of  lease  see  George  v.  Central 

and  that  an  unrecorded  lease  is  as  valid  R.,    etc.     Co.,     101  Ala.    607     (1893), 

between    the    lessor    and    lessee  as   if  (14   So.  Rep.  752).     See  also  Hawley 

recorded,  is  undoubtedly  as  applicable  v.  Gray   Bros.,   etc.  Co.,   106   Cal.  337 

to  leases  of  railroad  and  other  corpora-  (1895),  (39  Pac.  Rep.  609). 
tions  as  to  those  of   natural   persons.  ^  Union  Pacific  R.  Co.  v.  Chicago, 

The     following     cases     illustrate    this  etc.  R.  Co.,  51  Fed.  309  (1892),  aj^rmerf 

general  principle:  Coleson  v.  Blnnton,  163  U.  S.  564  (1896),  (16  Sup.  Ct.  Rep. 

3  Haywood  (Tenn.),  152    (1816);  Gal-  1173);  Humphreys  ;•.  St.  Louis,  etc.  R. 

pin    V.   Abbot,     6    Mich.    17    (1858);  Co.,  37  Fed.  307  (1889). 
Lawry  v.  W^illiams,  13  Me.  281  (1836) ;  In  Pittsburgh,  etc.  R.Co.  v.  Keokuk, 

Stearns  v.  Morse,  47  N.  H.  532  (1867);  etc.  Bridge  Co.,  131  U.  S.  381   (1889), 

Turner    v.    Stip.    1    Wash.   (Va.)   319  (9    Sup.    Ct.   Rep.  770),  the    Supreme 

(1794);    Cooper  v.  Day,   1    Rich.   Eq.  Court    of    the    United     States     said: 

Rep.  (S.  C.)  26(1844).  "When   a  contract   is    made   by   any 

A  State  statute  providing  that  every  agent  of  a  corporation  in  its  behalf,  and 

corporation  operating  a  railroad  within  for  a  purpose  authorized  by  its  charter, 

285 


§  197  INTERCORPORATE  RELATIONS.        [PART  III. 

Union  Pacific  R.  Co.  v.  Chicago.,  etc.  R.  Co.,^  Judge  Sanborn 
said  :  "  Under  these  circumstances,  to  permit  this  cumj)any 
now  to  repudiate  this  contract  would  violate  every  principle 
of  equity  and  fair  dealing.  Hy  its  presentation  to  the  Rock 
Island  Company  of  this  contract  and  this  resolution,  acts 
apparently  official,  by  its  acceptance  of  a  part  of  the  benefits 
of  the  contract,  by  its  silence  for  seven  months  while  this 
large  expenditure  of  money  was  being  made  in  reliance  on 
this  contract,  it  is  estopjted  to  declare  it  void,  either  because 
its  board  of  directors  failed  to  pass  a  formal  resolution  aj»prov- 
ing  it,  or  because  its  secretary  failed  to  state  in  its  calls  tiiat 
this  contract  would  be  considered  at  the  meetings  that  unani- 
mously authorized  and  ratified  it." 


CHAPTER  XVIII. 

TUE    CONTRACT   OF   LEASE. 


I.    Form  and  Conitruction  0/  Railroad  Leaiet. 

§  197.  Form  of  I.cxse. 

§  198.  ConsideratiDn. 

§  199.  Hull'  of  Coiiiitrnction  of  Lea.<<efl. 

§  200.  Construction  of  r.irticular  Leases. 

§  201.  Lease  for  Lonj^er  Term  than  Existence  of  Corporationa  may  be  valid. 

§  202.  Partial  Iiivaliiiity  of  Le.x^es.     Void  Kestrictious. 

§  203.  Depeudeut  and  Independent  Contracts. 

II.    Covenants  in  Railroad  Leases. 

§  204.  Covenant  to  pay  Rent.     Assumption  of  Interest  Payments. 

§  205.  Covenant  to  pay  'laxes. 

§  206.  Covenant  not  to  a.ssign. 

§  207.  Covenant  to  make  Repairs. 

§  208.  Covenant  to  pav  Damages  and  defend  Suits. 

§  209.  Miscellaneous  Covenants. 

I.    Form  and  Construction  of  Railroad  Leases. 

§  197.   Form  of  Lease. — The  formal  parts  of  a  lease,  exe- 
cuted by  a  railroad  company  of  its  road  and  franchises,  gener- 

and  the  corporation  receives  the  benefit  ^  Union   Pacific  R.  Co.  v.  Chicago, 

of  the   contract,  without    objection,  it  etc.  R.  Co.,  51  Fed.  328  (1892),aj^r7fte<f 

may  be  presumed  to  have   authorized  163  U.  S.  564  (1896),  (16  Sup.  Ct.  Rep. 

or  ratified  the  contract  of  its  agent."  1173). 

286 


CHAP.  XVIII.]  THE    CONTRACT   OP   LEASE.  §  198 

ally  and  properly  follow,  so  far  as  applicable,  the  form  of  a 
lease  of  real  estate. 

"While  any  form  expressing  the  intention  of  the  parties  may 
be  adopted,  there  is  an  advantage  in  the  use  of  the  ordinary 
covenants  and  conditions  in  that  they  have  acquired  a  recog- 
nized judicial  construction. 

A  lease  commences  with  the  premises,  the  object  of  which 
is  to  state  (1)  the  parties  —  the  corporations,  lessor  and 
lessee  —  (2)  the  grant  and  (3)  the  description  of  the  prop- 
erty leased  —  the  raih-oad,  franchises,  appurtenances  and  per- 
sonal property  —  which  may  be  particularly  set  forth  in  the 
lease  itself,  or  referred  to  in  an  attached  schedule. 

The  habendum  follows  the  premises,  the  object  of  which  is 
to  limit  the  grant. 

After  the  habendum  the  term  —  the  commencement  and 
duration  of  the  lease — is  stated,  and  lastly  the  reddendum, 
which  fixes  tlie  amount  of  rent  to  be  paid,  specifies  the  man- 
ner and  form  of  payment,  and  the  periods  at  which  the  pay- 
ments are  to  be  made. 

Following  these  formal  parts,  the  ordinary  covenants,  con- 
ditions and  provisions  of  leases,  so  far  as  applicable  to  rail- 
roads, are  inserted,  together  with  any  special  provisions  agreed 
upon  in  the  particular  case.^ 

§  198.  Consideration.  —  The  consideration  of  a  lease  is  the 
rent.  Tlie  rent  is  due_  primarily  to  the  lessee,  but,  in  the  case 
of  an  individual,  he  may  stipulate  that  it  be  paid  to  another 
person.  The  stipulation  does  not  affect  the  validity  of  the 
lease. 

The  only  reason  why  a  similar  contract  might  not  be  made 
by  the  officers  —  or  by  a  majority  of  the  stockholders  of  a  cor- 
poration—  is  that  they  are  trustees  for  the  whole  body  of 
stockholders,  and  may  not  alienate  corporate  property  unless 
the  accruing  benefit  enures  to  their  beneficiaries.  But  where 
one  railroad  company  owns  substantially  all  the  stock  and 
bonds  of  another  company,  a  lease  of  the  railroad  of  the  latter 
for  rent  to  be  paid  to  the  former  company  is  not  void  for  want 

^  As  to  form  of  railroad  lease  in  Clauses  Act  1845  (8  Vict.  ch.  20, 
England,  when  authorized,  see  Railway     §  112). 

287 


§  200  INTERCORPORATE   RELATIONS.  [PART    III. 

of  consideration.  In  such  a  case,  the  rent  is  paid  directly  to 
the  corporation  ultimately  entitled  to  it  —  the  real  owiier.^ 

§  199.  Rule  of  Construction  of  Leases.  —  Leases  of  railroads 
being  executed  in  pursuance  of  express  legislative  authority, 
receive  a  reasonably  strict  construction,  but  the  object  of  the 
construction,  as  in  the  case  of  other  leases  and  contracts,  is  to 
ascertain  and  efTectuate  the  intention  of  the  parties.  In  ascer- 
taining the  meaning  to  be  given  to  any  particular  clause  in  a 
lease  the  court,  as  said  by  Mr.  Justice  Brown  in  Chicago,  etc. 
R.  Co.  V.  Denver^  etc.  R.  Co.?  is  "  required  to  examine  the 
entire  contract,  and  may  also  consider  the  relations  of  the 
parties,  their  connection  with  the  subject-matter  of  the  con- 
tract, and  the  circumstances  under  which  it  was  signed." 

When  a  lease  consists  of  several  distinct  writings  the  differ- 
ent provisions  of  all  the  parts  must  be  considered  in  order  to 
ascertain  the  intention  of  the  parties  as  evidenced  by  the  in- 
strument as  a  whole.  Words  and  expressions  must  be  given 
plain  meanings  which  the  context  rcfjuires,  in  order  to  make, 
if  possible,  all  the  parts  consistent.^ 

In  case  of  ambiguity,  the  court  may  consider  the  practical 
construction  given  by  the  parties  to  the  particular  provisions 
in  question.* 

§  200.  Construction  of  Particular  Leases.  —  Where  a  lease  of 
a  railroad  provided  that  the  lessee  was  "  to  have  and  to  hold" 
the  demised  property  during  the  terra  "  paying  the  rents  and 
keeping  and  performing  the  covenants  "  therein  contained,  it 
was  held  that  any  agreements  and  stipulations,  the  keeping  of 
which  was  reasonably  essential  to  the  performance  by  the 
lessee  of  its  part  of  the  contract,  should  be  treated  as  "  cove- 
nants "  whether  so  designated  or  not.^ 

1  Union  Pacific  R.  Co.  v.  Chicago,  etc.  R.  Co.,  44  Ohio  St.  287  (1886), 
etc.  R.  Co.,  51  Fed.  309  (1892),  affirmed  (7  N.  E.  Rep.  139,  26  Am.  &  Eng.  R. 
163  U.  S.  564  (1896),  (16  Sup.  Ct.  Rep.     Cas.  615). 

1173).     Same  case  in  Circuit  Court,  47  *  Chicago,  etc.  R.  Co.  v.  Denver,  etc. 

Fed.  15(1891).  R.  Co.,  46  Fed.   145  (1890),  8.  c.  143 

2  Chicago,  etc.  R.  Co.  v.  Denver,  etc.  U.  S.  596  (1892),  (12  Sup.  Ct.  Rep.  479), 
R.  Co..  143  U.  S.  609  (1892),  (12  Sup.  45  Fed.  304  (1891). 

Ct.   Rep.  479),  affirming  45  Fed.  304  ^  South  Carolina,  etc.  R.  Co.  v.  Au- 

(1891).  gusta.etc.R.  Co.,  Ill  Ga.  420(1900). 

*  Cincinnati,  etc.  R.  Co.  v.  Indiana,  A  demise  of  a  street  railway  not  in 
288 


CHAP.  XVIII.]  THE    CONTRACT   OF   LEASE.  §  200 

A  provision  in  snch  a  lease  that  in  case  the  lessee  corpora- 
tion "shall  at  any  time  fail  to  pay  to  the  lessor  such  sums  of 
money  as  may  be  due  under  the  contract,  or  shall  fail  to  per- 
form any  other  covenant  herein,  and  such  default  or  failure  to 
perform  shall  continue  for  thirty  days  after  written  notice  re- 
quiring such  performance,  then  ...  it  shall  be  lawful  for  the 
[lessor],  at  its  option,  to  re-enter,"  gives  the  lessor,  upon  a 
breach  by  the  lessee  of  any  agreement  or  stipulation,  the  right 
to  enforce  the  forfeiture  of  the  lease. ^ 

Where  a  lease  provided  that,  upon  its  expiration,  the  lessee 
should  return  the  road  in  as  good  condition  as  when  received, 
and  where,  under  a  statute,  failure  to  operate  the  road  would 
work  a  forfeiture  of  the  lessor's  charter,  it  was  held  that  the 
lessee  was  bound  to  keep  the  road  in  operation.^ 

A  railroad  company  demised  its  railroad  and  railroad 
property  of  every  description  "  including"  its  railroad,  rights 
and  appurtenances ;  "  and  also "  all  buildings  and  equip- 
ment and  all  personal  property  belonging  to  it ;  "  and  also  " 
all  franchises,  etc.  It  was  held  that  the  words  "  and 
also "  related  back  to  the  words  of  demise  and  were  not 
restrained  by  the  word,  "  including,"  to  distinctively  railroad 
property.^ 

A  provision  in  a  lease  that  the  lessee  shall  pay  a  definite 
sum  for  the  expenses  of  keeping  up  the  organization  of  the 
lessor  imposes  an  obligation  of  a  specific  nature  which  the 
lessee  is  bound  to  perform,  and  against  which  it  cannot  set 
off  the  amount  of  a  judgment  which  it  holds  against  the 
lessor.* 

The  phrase  "  terminal  facilities,"  as  understood  by  persons 
operating  railroads,  includes  only  tracks  used  in  making  up 

existence   and   the   right   to   construct  R.  Co.    96   Va.  693  (1899),   (32    S.  E. 

which  depends  upon  the  ohtaining  of  Rep.  485,  44  L.  R.  A.  297.) 

cousents  from  abutting  proprietors  is  an  ^  Gray  u.  Massachusetts  Cent.  R.  Co., 

executor}^  contract.     Atlantic  Ave.  R.  171   Mass.    116   (1898),  (50  N.  E.  Rep. 

Co.  V.  Johnson,  134  N.  Y.  375  (1892),  549). 

(31  N.  E.  Rep.  903).  *  Louisville,  etc.  R.  Co.  v.  Cumber- 

1  South  Carolina,  etc.  R.  Co.  i-.  Au-  land,  etc.  R.  Co.,  21  Ky.  Law  Rep. 
gusta,  etc.  R.  Co.,  Ill  Ga.  420  (1900).  1126  (1900),  (54  S.  W.  Rep.  5) ;  rehear- 

2  Southern  R.  Co.  v.  Franklin,  etc.  ing  denied,  21  Ky.  Law  Rep.  140  (1900), 

(55.  S.  W.  Rep.  884). 

19  289 


§  202  INTERCORPORATE   RELATIONS.  [PART   III. 

trains.  A  lease  of  such  facilities  docs  not  include  a  track  used 
only  for  the  purpose  of  reaching  car  works. ^ 

§  201.  Lease  for  Longer  Term  than  Existence  of  Corporations 
may  be  valid.  —  A  lease  for  a  time  certain  j)r()vided  the  lessee 
live  so  long  is  valid,  and,  extending  this  princijde,  it  has  been 
held  that  a  lease  to  a  railroad  company  for  nine  hundred  and 
ninety-nine  years  is  not  invalid  although  the  charter  of  the 
corporation  will  expire  long  before  the  termination  of  the 
lease,  for  the  reason  that  the  existence  of  the  corporation  may 
be  prolonged  by  law  for  the  entire  term.  A  fortiori  is  this 
principle  applicable  in  a  case  where  the  lease  provides  that  it 
shall  bind  the  successors  and  assigns  of  the  parties  thereto 
and  the  charter  of  the  lessee  corporation  contains  a  provision 
for  its  continued  renewal.  As  said  by  Judge  Sanborn  in  Union 
Pacific  ]{.  Co.  V.  CJiicai/o,  etc.  It.  Co.^ :  "The  contingency  that 
this  corporation  will  cease  to  exist,  and  leave  neither  assigns 
nor  successors,  is  far  too  remote  to  have  any  influence  upon 
the  validity  of  this  contract." 

Upon  the  same  principle,  a  lease  hy  a  corporation  for  a 
longer  period  than  its  own  existence  is  not  void  where  the 
laws  of  the  State  creating  the  corporation  permit  an  extension 
of  its  charter.^ 

§  202.  Partial  Invalidity  of  Leases.  Void  Restrictions.  —  A 
conveyance  of  property  which  a  corporation  is  authorized  to 
make  is  not  rendered  wholly  void  by  including  therein  })rop- 
erty  and  franchises  which  the  corporation  is  without  authority 
to  alienate.  It  is  valid  as  to  the  former  property  and  invalid 
as  to  the  latter.'*     This  principle  is  applicable  to  leases. 

^  Jacksonville,  etc.  R.  Co.  i'.  Louis-         *  Gere  r.  New  York  Central,  etc.  R. 

ville,   etc.    R.   Co.,    47    111.   App.   414  Co.,  19  Abb.  N.  C.  193  (1885).     A  rail- 

(1893).  road  company  cannot  prolong  its  exist- 

2  Union  Pacific  R.  Co.  v.  Chicago,  ence,  wliich  depends  upon  tlie  u-se?- of  its 

etc.  R.  Co.,  51  Fed.  329  (1892).  Affirmed  franchises,  by  leasing  them  to  another 

163  U.  S.  592  (1895),  (16  Sup.  Ct.  Rep.  corporation  wiiich  uses  them  for  its  own 

1173),  where   the  language    of    Judge  benefit.     Re  Brooklyn,  etc.  R.  Co.,  81 

Sanborn  stated   in   the  text  is  quoted  N.  Y.  69  (1881). 

with  approval  by  Chief  Justice  Fuller.  *  Butler  r.  Rahen,  46  Md.  541  (1877); 

The  contract  denominated  a  "  lease  "  in  Hendee  v.  Pinkertou,  14  Allen  (Mass.) 

this  case  was  really  a  trackage  contract  381    (1807);  Gloninger   v.    Pittsburgh, 

but  the  principles  are  equally  applicable  etc.  R.  Co.,  139  Pa.  St.  13  (1891),  (21 

to  a  lease.  A;l.  Rep.  211). 

290 


CHAP.  XVIII.]  THE   CONTRACT    OF   LEASE.  §  203 

A  lessor  railroad  corporation  can  impose  upon  the  use  of  its 
railroad  bj  the  lessee  only  such  restrictions  as  are  consistent 
with  the  discharge  by  the  lessee  of  those  obligations,  which,  as 
common  carrier  and  otherwise,  it  owes  to  the  State  and  to  the 
public.  In  Jlctropolitan  Trust  Co.  v.  Columbus,  etc.  R.  Co.^ 
Judge  Taft  said :  "  Restrictions  in  the  nature  of  conditions 
subsequent,  which,  in  respect  to  the  demised  premises,  forbid 
the  lessee  to  do  its  public  duties  as  a  common  carrier,  would, 
if  enforced,  prevent  the  lessee  from  enjoying  the  demised  prem- 
ises at  all  in  a  lawful  manner,  and  are,  therefore,  repugnant 
to  the  grant  and  void.  When  one  takes  an  estate  upon  condi- 
tion subsequent,  which  is  void  as  against  public  policy,  or  for 
any  other  reason,  the  estate  continues  in  the  lessee  or  grantee, 
freed  from  the  condition."  ^ 

§  203.  Dependent  and  Independent  Contracts.  —  Where  a 
contract  of  lease  is  invalid,  the  question  whether  other  con- 
tracts, in  a  measure  connected  with  and  referring  to  it,  are 
also  void,  depends  upon  whether  such  contracts  are  dependent 
upon  the  lease  or  independent  of  it. 

While,  sometimes,  "  by  referring  in  a  document  signed  by 
the  party  to  another  document,  the  person  so  signing  in 
effect  signs  a  document  containing  the  terms  of  the  one 
referred  to  "  ^  and  a  contract  referring  to  an  invalid  lease 
may  fall  with  it,  such  is  not  always  the  case.  The  effect 
of  a  reference  depends  upon  the  language  of  the  instrument 
containing  it.  Thus,  a  lease  of  A.'s  railroad  to  B.  is  not 
made  dependent  upon  the  validity  and  continuing  existence 
of  a  lease  of  C.'s  road  to  B.  by  a  covenant  that  A.  shall 
receive  from  B.  a  monthly  statement  of  the  gross  receipts  of 
C.'s  road  and  shall  have  an  opportunity  to  inspect  its  books 
and  accounts,  which  are,  however,  important  only  in  case  B. 
seeks  a  reduction  of  the  rental  from  the  maximum  amount 
stated  in  the  lease.*     So,  it  was  held  that  a  bridge  contract. 


1  Metropolitan  Trust  Co.  v.  Colum-  ^  Fitzmaurice  v.  Bayley,  9  H.  L. 
bus,  etc.  R.  Co.,  95  Fed.  22  (1899).  Cas.  99  (1860). 

2  Railroad  Co.  v.  Mathers,  71  111.  *  Boston,  etc.  R.  Co.  v.  Boston,  etc, 
592  (1874);  1  Story  Eq.  Jur.  §  288;  R.  Co.,  65  N.  H.  393  (1888),  (23  Atl. 
2  Washb.  Real  Prop.  (Sth  ed.),  8.  Rep.    529),    where    Doe,  C.   J.,   said 

291, 


§  204  INTEUCORPOn.lTE   RELATIONS.  [PART    III. 

referring  to  certain  articles  in  a  lease  for  the  purpose  of 
delinini;  the  extent  of  liabilities  and  benefits  assumed,  did  not 
make  the  bridije  contract  a  part  of  the  lease.  The  validity 
of  the  contract  was  entirely  independent  of  the  validity  or 
invalidity  of  the  lease. ^ 

II.    Covenants  in  Railroad  Leases. 

§  204.  Covenant  to  pay  Rent.  Assumption  of  Interest  Pay- 
ments. —  A  lessee  is  liable  for  rent  during  his  occuj)ancy 
without  an  express  covenant  to  pay  it,  and,  therefore,  the 
special  covenant  to  pay  rent  may  be  termed  a  precautionary 
covenant,  since  its  oftice  is  to  prevent  a  les.sce  from  a.ssigning 
his  lease,  perhaps  to  an  irresjmnsible  person,  and  thereby 
releasing  himself  from  further  responsibility.  When  such 
special  covenant  appears  in  a  lease  a  lessor  has  double  secur- 
ity. There  is  privity  of  estate  between  him  and  the  assignee ; 
privity  of  contract  between  him  and  the  lessee. 

This  covenant  has  a  proper  [)lace  in  railroad  leases  and 
may  contain  provi.sions  for  the  payment  of  rent  in  various 
ways  and  forms.  It  may  stipulate  that  a  fixed  sum  shall  be 
paid  at  stated  intervals  ;  that  prescribed  dividends  on  the 
shares  of  the  lessor  corjioration  shall  be  provided  for ;  or  that 
a  portion  of  the  gross  or  net  earnings  arising  from  the  opcra- 

(p.  402)  :  "  There  has  been  no  breach  liave  been  cured  in  a  snit  for  the  refor- 

of  the  express  covenant  to  pay   rent,  mation  of  the  defective  instninicut.     In 

or  the  express  aj!jreement  to  render  to  the  lease  there  is  no  express  stipulation 

the  plaintiffs  a  statement  of  the  gross  of  that  kind,  and  no  evidence  on  which 

receipts  of  the  five  roads,  or  the  express  it  can  be  found  that  such  a  condition 

covenant  that  books  and  accounts  re-  (which  would  naturally  be  expresse<l  in 

lating  to  the  business  of  the  five  roads  direct  and  distinct  terms)  was  iutcntion- 

ahall  be  open  to  tiie  plaintiff's  inspec-  ally  left  to  be  implied  from  the  mode  in 

tion.     But  the  lease   of   the   Northern  which  the  les.sees  are  to  ascertain  and 

and  its  branches  to  the  defendants  lias  show  the  amount  of  rent  to  be  paid  if 

been  judicially  annulled  ;  and  the  plain-  they  seek  to  avoid  the  payment  of  the 

tiffs  contend  that  upon  the  validity  and  largest   .sum    named    in    the    contract, 

continuing  existence  of  that   lease  the  .  .  -  The  lea.se  of  the  Montreal  was  not 

Montreal   lease   was   made   dependent,  made  dependent  upon  the  validity  and 

If  the  parties  had  intendeil  this  lease  continuing  existence  of  the  lease  of  tlie 

should   terminate   in   case    the   Lowell  Northern." 

voluntarily   or   involuntarily  ceased    to  ^  llailway   Co.   v.    Keokuk    Bridge 

operate  or  control  the  Northern,  tlieir  Co.,  1-31   U.  S.  371  (18S9),  (9  Sup.  Ct. 

Accidental  failure  to  put  that  important  Hep.  770,  39  Am.  &  Eng.  li.  Cas.  213). 
art  of  their  contract  in  the  lease  could 

292 


CHAP.  XVIII.] 


THE    CONTRACT   OF   LEASE. 


204 


tioii  of  the  leased  railroad  shall  be  turned  over  to  the  lessee 
or  expended  in  its  behalf.  Thus,  under  a  statute  authorizing 
railroad  companies,  to  lease  and  operate  the  roads  of  other 
companies,  a  covenant  in  a  lease  by  which  the  lessee,  in  lieu 
of  directly  paying  rent,  guarantees  the  payment  of  interest 
accruing  upon  bonds  of  the  lessor  was  held  valid.^  Where 
such  a  covenant  takes  the  form  of  an  agreement  to  pay  to  the 
trustees  of  the  lessor's  mortgage  interest  thereon  as  it 
accrues,  the  lessee  corporation  is  directly  liable  to  the  mort- 
gagees therefor  although  they  are  not  parties  to  the  lease, 
since  the  agreement  shows  that  it  was  intended  for  their 
benefit.^ 


1  Eastern  Townships  Bank  v.  St. 
Johnsbury,  etc.  R.  Co.,  40  Fed.  424 
(1889).  Judge  Wheeler  said:  "The 
laws  of  Vermont,  under  which  the  de- 
fendant has  and  exercise.s  its  corporate 
powers,  provide  that  '  railroad  com- 
panies in  this  State  may  make  contracts 
and  arrangements  with  each  other, 
and  with  railroad  corporations  incor- 
porated under  the  laws  of  other  of  the 
United  States,  or  under  the  authority 
of  the  government  of  Canada,  for  leas- 
ing and  running  the  roads  of  the  re- 
spective corporations,  or  parts  thereof, 
by  either  of  their  respective  compa- 
nies.' K.  L.  Vt.  §  3303.  This  statute 
conferred  ample  power  upon  the  de- 
fendant corporation  to  take  the  lease, 
and  to  agree  to  pay  the  rent  as  it  should 
fall  due,  and  doubtless  to  arrange  for 
paying  the  rent,  by  paying  coupons  of 
the  same  amount  or  guarantying  their 
payment." 

2  Welden  Nat.  Bank  v.  Smith,  86 
Fed.  398  (1898),  S.  c.  sub  nom.  Grand 
Trunk  R.  Co.  v.  Central  Vermont  R. 
Co.,  78  Fed.  690  (1897).  In  this  case 
where  a  lessee  under  a  railroad  lease 
covenanted  to  pay  all  obligations  of  the 
lessor  incurred  "  as  common  carriers, 
warehousemen,  or  otherwise,"  and 
thereafter  to  pay  the  interest  on  certain 
mortgage  bonds  of  the  lessor,  it  was 
held,  that  "  or  otherwise  "  referred  only 
to  obligations  of  the  same  class  as  those 
enumerated,  and  that  earnings  accru- 


ing in  the  hands  of  receivers  of  the 
lessee  were  applicable  to  interest  on 
the  bonds,  rather  than  to  judgments  on 
claims  not  falling  within  that  class. 

In  Day  v.  Ogdensburgh,  etc.  R.  Co., 
107  N.  Y.  129  (1887),  (13  N.  E.  Rep. 
765),  an  agreement  between  two  rail- 
road companies  and  others  provided 
that  one  company  should  issue  so  many 
of  its  first  mortgage  bonds,  not  e.Kceed- 
ing  a  sum  specified,  as  should  be  suffi- 
cient to  construct  its  road ;  that  these 
should  be  purchased  by  the  parties  to 
the  agreement,  other  than  the  two 
corporations.  Defendant  corporation 
agreed  when  the  road  was  completed  to 
take  a  lease  of  it  on  terms  and  condi- 
tions specified.  After  the  completion 
of  the  road  a  lease  was  executed  as 
agreed  upon.  By  the  terms  of  the  lease 
defendant  agreed  to  maintain  and  oper- 
ate the  demised  road  as  a  part  of  its 
line,  to  pay  taxes  and  certain  other 
expenses,  and  to  pay  at  maturity  the 
principal  and  interest  of  the  bonds ; 
also,  that  the  gross  earnings  of  the  road 
should  be  applied,  first,  to  pay  the  inter- 
est accruing,  and  second,  for  the  creation 
of  a  sitiking  fund  for  the  payment  of 
the  principal  of  the  bonds.  It  was  held 
that  the  agreement  and  lease  were 
within  the  power  of  the  two  corpora- 
tions to  make  and  were  valid.  See  post, 
§  212  :  "Rights  of  Stockholders  when  Rent 
is  paijable  in  Form  of  Dividends." 

293 


§  205  INTERCORPORATE   RELATIONS.  [PART   III. 

§  205.  Covenant  to  pay  Taxes.  —  la  this  country,  as  distin- 
guished from  England,  lands  and  property  are  generally 
assessed  in  the  name  of  the  owner,  so  that  the  lessee  is  under 
no  obligation  to  pay  ta.xes  unless  he  assume  them  as  a  part 
of  the  rent.  Covenants  wherein  the  lessee  assumes  the  taxes 
are  not  uncommon  in  leases  of  real  estate  and  are  general  in 
leases  of  railroads,  although  the  systems  of  taxing  that  class 
of  property  vary  widely  in  the  different  States. 

Upon  the  principle  that  a  tax,  in  the  sense  in  which  the 
word  is  ordinarily  used,  is  "something  exacted  for  public 
service  and  not  by  way  of  compensation  for  benefits  conferred," 
it  is  held  that  a  covenant  to  pay  "  all  taxes"  does  not  include 
an  a.ssessment  for  benefits,  or  other  special  rates  of  a  similar 
nature.^  The  application  of  this  principle  is,  however,  readily 
and  commonly  avoiiled  by  the  use  of  the  j)hrase,  "all  taxes 
and  assessments." 

Where  a  railroad  lease  provided  that  the  lessee  should  pay  all 
taxes  and  assessments  imj)osed  during  the  term  by  any  govern- 
mental or  lawful  authority  on  the  railroad  and  leased  pro])erty, 
or  on  any  business,  earnings  or  income  of  the  same  or,  "  by 
reason  of  the  ownership  thereof,"  it  was  held  that  the  lessee 
was  bound  to  pay  a  tax  imposed  upon  the  franchise  of  tho 
lessor,  it  being  a  tax  imposed  "by  reason  of  the  ownership" 
of  the  road .2 

A  general  covenant  to  pay  all  taxes  relates  only  to  future 
taxes  imposed  during  the  term  of  the  lease  and  involves  no 
assumption  of  past  due  taxes.  Thus,  a  covenant  by  the 
lessee  in  a  railroad  lease  that  it  "  will  pay,  as  operating  ex- 
penses, all  taxes  and  assessments  .  .  .  which  may  be  law- 
fully levied  or  assessed  "  upon  the  demised  property,  is  not 
an  assumption  of  liability  for  taxes  already  assessed  and 
levied.^ 

1  "Wood's  Landlord  and  Tenant,  lessor  durino;  the  term  is  not  bound  to 
p.  685,   and  cases  there  cited.  pay  a  tax  levied  on  "  dividends."    Jer- 

2  Thomas  i-.  Cincinnati,  etc.  R.  Co.,  sey  City  Gas  Light  Co.  v.  United  Gas 
93  Fed.  587  (1899).  Imp.  Co.,  58  Fed.  323  (1893),  s.  c.  46 

A  lessee  corporation  which  covenants  Fed.  264  (1891). 
to   pay  all  taxes  assessed   upon   "  the         '  If  there  is  any  contract  implied  by 

real  and  personal  property,  franchises,  law   whereby    one    railri)ad    company, 

capital  stock  or  gross  receipts  "  of  the  acquiring  the  control  of  the  property, 

29-4 


CHAP.  XVIII.]  THE    CONTRACT   OF   LEASE,  §  206 

The  covenant  to  pay  taxes  and  assessments  is  for  the  sole 
benefit  of  the  lessor  corporation.  It  confers  no  right  of  action 
against  the  lessee  in  favor  of  the  municipality  levying  the 
assessment,  because  there  is  no  privity  between  them.^ 

§  206.  Covenant  not  to  assign.  — The  covenant  not  to  assign 
or  sublet  the  demised  premises  without  the  written  consent  of 
the  lessor,  used  in  ordinary  leases  of  real  estate,  is  generally 
inserted  in  railroad  leases,  and  is  of  the  utmost  importance 
when  so  employed,  in  safe-guarding  the  interests  of  the  lessor 
corporation.  As  observed  by  Judge  Clark  in  Boston,  etc.  B. 
Co.  V.  Boston,  etc.  R.  Co.:^  "The  lessor  had  the  right  to 
choose  its  tenant,  and,  whatever  may  have  been  its  purpose  in 
doing  it,  the  conclusion  is  irresistible  that  the  stipulation 
against  assigning,  underletting  or  parting  with  the  possession 
of  the  demised  premises,  was  inserted  in  the  lease  to  secure 
the  exercise  of  the  personal  integrity,  discretion,  and  judg- 
ment of  the  lessee,  in  shaping  the  policy  and  controlling  the 
management  and  operation  of  the  road." 

Therefore,  when  a  lessee  corporation  voluntarily  parts  with 
its  power  to  control  the  operation  of  the  railroad  leased,  and 
becomes  the  mere  agent  of  a  third  corporation  in  the  opera- 
tion of  the  road,  the  covenant  not  to  assign  is  broken  in  sub- 
stance and  the  estate  granted  by  the  lease  is  forfeited.^ 

income,  etc.,  of  another,  becomes  di-  extended  litigation,  was  sustained.  In 
rectly  liable  for  taxes  already  due,  and  the  meantime,  receivers  had  been  ap- 
coustitutiug  a  lien  thereon,  for  the  fis-  pointed  for  the  lessee,  and  tliey  took 
cal  year  then  current,  such  liability  is  posse.ssion  of  the  leased  line  and  paid 
only  in  proportion  to  the  part  of  the  other  taxes  through  the  issue  of  re- 
fiscal  year  remaining  after  tlie  assump-  ceiver's  certificates.  It  was  held  that 
tion  of  such  control.  Cleveland  v.  they  were  bound  to  repay  to  the  lessor 
Spencer,  73  Fed.  559  (1896).  the  proper  proportion  of  the  judgment 
A  railroad  company  leased  part  of  for  the  contested  taxes.  United  States 
its  road  to  another  company,  which  Trust  Co.  v.  Mercantile  Co.,  88  Fed. 
agreed  to  pay  all  taxes  assessed  against  1-4-0  (1898). 

the  leased  property.    Under  the  statute,  i  Chicago,   etc.    R.    Co.    v.    City  of 

taxes  on  the  leased  line  were  assessed  Ottumwa,   112    Iowa,  300    (1900),    (83 

against  the  lessor,  as  owner,  in  the  same  N.  W.  Rep.  1074,  51  L.  R.  A.  763). 
manner  as  the  taxes  upon  the  part  of  ^  Boston,  etc.  R.  Co.  v.  Boston,  etc. 

its  road  not  leased,  and  were  paid,  re-  R.   Co.,  65  N.  H.  448  (1888),  (23  AtL 

imbursement  being  made  by  the  les.'^ee.  Rep.  529). 

The  assessment  upon  the  property  of  the  ^  A  covenant  by  the  lessee  of  a  rail- 
lessor,  including  the  leased  line,  having  road  not  to  assign  the  lease  is  broken 
been  raised,  it  was  contested,  but,  after  by  its  assignment  of  the  future  gross 

295 


§  206  INTERCORPORATE   RELATIONS.  [PART    III. 

The  covenant  not  to  assign  as  usually  drawn,  howevor,  is, 
under  certain  conditions,  of  no  benefit  to  the  lessor  corpora- 
tion and  may  be  broken  by  indirection  without  incurring  a 
forfeiture.  Thus,  upon  the  principle  that  a  mortgage,  outside 
of  the  New  England  States,  is  not  a  transfer  of  the  legal  title  or 
possession,  it  is  held  that  the  giving  of  a  mortgage  of  a  lease- 
hold interest,  without  the  consent  of  the  lessor,  is  not  a  violation 
of  the  covenant  not  to  assign ;  and,  upon  the  further  principle 
that  an  assignment  or  transfer,  hy  operation  of  law^  docs  not 
constitute  a  breach  of  the  covenant,  it  is  held  that  a  sale  of  the 
leasehold  interest  in  foreclosure  proceedings  is  not  a  breach, 
because  it  is  in  invitum}  A  lessee  railroad  company  may, 
therefore,  mortgage  its  lease  and  the  leasehold  interest  may 
be  sold  to  a  corporation  objectionable  to  the  lessor,  without  a 
breach  of  the  covenant  not  to  assign.  The  position  of  the 
lessor  may  be  protected,  however,  by  providing  in  the  cove- 
nant that  the  leasehold  interest  shall  not  be  mortgaged  without 
the  lessor's  consent,  or  by  adding  a  provision  that  the  lessor 
may  terminate  the  lease  if  transferred  by  operation  of  law. 

The  general  rules  of  law  relating  to  this  covenant,  as,  for 
example,  that  where  consent  has  once  been  given  to  an  assign- 
ment the  restriction  is  gone  forever,  and  that  the  lessor  may 
waive  the  forfeiture  occasioned  by  a  breach  of  the  covenant  by 

earnings  of  the  road  to  a  third  person  the  lessor  corporation  as  required  by  its 

and  contracting  to  use  and  operate  it  terms.     Schmidt  v.  Louisville,  etc.  R. 

under    the   direction   of  the   assignee.  Co..    101  Ky.    441    (1897),   (41    S.    W. 

Boston,  etc.   K.    Co.  d.    Boston,   etc.  K.  Hep.  1015,  38  L.  R.  A.  800). 
Co.,  65  X.  II.  393  (1888),.  (23  Atl.  Rep.  i  Riggs   v.    Pur.sell,   66    N.    Y.  193 

529).  (1876).     This  decision  is  expressly  put 

A  contract  whereby  a  railroad  com-  upon  the  ground  (p.  200)  that  "  a  mort- 

pany  —  lessee   of    a  railroad — agrees  gage  in  tliis  State  of  land  is  not  a  trans- 

with  another  company  for  the  operation  fer  of  the  legal  title,  or  the  possession, 

of  the  leased  road,  the  latter  company  but   a   mere   security,"   citing   Triram 

receiving   the  income,  paying  the   ex-  v.  Marsh,  54  N.  Y.  599   (1874),  where 

penses  and  fixed  charges,  and  turning  the   New   York   rule,  as   distinguished 

over  the  surplus  to  the  former  company,  from  the  rule  in  England  and  the  New 

is   an   operating   contract   and  not  an  England  States,  is  discussed  at  leugth. 

assignment.     St.  Joseph,  etc.  R.  Co.  v.  It  may,  therefore,  be  doubtful  whether 

St.   Louis,   etc.   R.  Co.,    135    Mo.    173  a  mortgage  in  those  States  where  it  is 

(1896),  (36  S.  W.  Rep.  602).  regarded,  between  the  parties,  as  a  con- 

The  assignee  of  the  lease  of  a  rail-  veyance  of  the  fee,  would  not  constitute 

road  cannot  take  advantage  of  tlie  fact  a  breach  of  the  covenant  not  to  assign, 
tliat  the  lease  was  not  consented  to  by 

296 


CHAP.  XVIII.]  THE    CONTRACT   OF   LEASE.  §  208 

accepting  rcnt,^  are  applicable  to  leases  of  railroads  only  as 
they  apply  to  leases  in  general,  and  are  fully  considered  in 
treatises  upon  the  general  subject  of  the  relation  of  landlord 
and  tenant. 

§  207.  Covenant  tb  make  Repairs.  —  The  covenant  upon  the 
part  of  the  lessee  corporation  to  make  repairs  is  usually 
inserted  in  railroad  leases.  It  often  appears  in  conjunction 
with  the  covenant —  of  an  analogous  nature —  to  preserve  the 
leased  personal  property  and  to  substitute  new  for  old. 

A  covenant  in  a  railroad  lease  that  the  lessee  corporation 
shall  "  return  said  road  and  property,  both  real  and  personal, 
at  the  termination  of  this  lease,  in  as  good  condition  and 
repair  in  all  respects  as  it  is  now  in,  natural  wear  only  ex- 
cepted," binds  the  lessee  to  keep  the  road  in  good  running 
condition,  and  to  renew  all  structures  which,  by  decay  or  acci- 
dent, become  unsafe.^ 

Under  a  covenant  in  a  lease  to  make  "  necessary  repairs," 
it  has  been  held  that  a  lessee  is  obliged  only  to  make  such 
repairs  as  its  own  use  of  the  premises  requires.  In  so  holding 
the  Court  said  :  "  The  word  '  necessary '  applied  to  repairs, 
may  well  be  understood  to  denote  such  repairs  as  were 
necessary  to  the  defendants,  and  not  such  as  might  be  neces- 
sary for  some  future  or  different  use  of  the  property,  after 
their  lease  had  expired."  ^ 

§  208.  Covenant  to  pay  Damages  and  defend  Suits.  —  While, 
upon  considerations  of  public  policy,  the  courts  of  several 
States  hold  that  a  lessor  railroad  company  cannot,  by  leasing 
its  railroad,  even  with  legislative  sanction,  absolve  itself  from 
liability  to  third  persons  for  the  negligence  of  the  lessee  in  the 
operation  of  the  road,  and  while  it  is  unquestioned  that  the 
liability  of  the  lessor  for  the  proper  discharge  of  its  primary 
obligations  continues  after  a  lease  as  before,  yet,  as  between 

i  A  lessor  corporation  may  waive  a  ^  Sturges  v.  Knapp,  31  Vt.  1  (1858). 

breach  of  a  covenant  not  to  assign  or  See  also  Southern   R.  Co.  v.  Franklin, 

sublet,  by  acquiescing  and  by  failing  to  etc.  R.  Co.,  96  Va.  693  (1899),  (32  S.  E. 

object  within  a  reasonable  time  when  Kep.  485,  4-1  L.  R.  A.  297). 
the  leased  property  is  turned  over  to  '  White  v.  Albany  R.  Co.,  17   Hun 

another  without  its  consent.     "  The  El-  (N.  Y.),  98  (1879). 
evator  Case,"  17  Fed.  200  (1881). 

297 


§  209  INTERCORPORATE   RELATIONS.  [PART    III. 

themselves,  the  liability  to  pay  damages  and  the  obligation  to 
defend  suits,  may  be  the  subject  of  agreement  between  the 
lessor  and  lessee,  and  covenants  relating  thereto  are  usual  in 
railroad  leases.  "  Similar  provisions,"  said  Judge  Bravvley  in 
a  recent  case,^  "will  doubtless  be  found  in  every  contract 
whereby  one  railroad  company  undertakes  to  lease  or  operate 
another.  Suits,  actions,  or  damages  are  incidental  to  the 
operation  of  every  railroad,  and  provision  must  always  be 
made  whereby  one  or  the  other  of  the  contracting  corpora- 
tions assumes  such  burdens." 

As  the  corporations  —  lessor  and  lessee  —  stand  upon  the 
same  plane,  such  covenants  as  they  may  agree  upon  regarding 
the  assumption  of  liabilities  arc  not  oj)posed  to  public  policy, 
and  are  valid  and  enforceable. 

§  209.  Miscellaneous  Covenants.  —  In  addition  to  the  cove- 
nants already  considered,  the  contracting  parties  to  a  railroad 
lease,  authorized  by  legislative  authority,  have,  as  incident  to 
the  power  conferred,  the  right  to  include  in  the  lease  such 
other  covenants,  usual  in  leases,  as  may  be  agreed  upon  in  the 
particular  casc.^  Thus,  a  corporation  authorized  to  lease  a 
building  may  covenant  to  keep  it  insured  ;2  and  a  railroad 
company,  as  lessee,  may  properly  covenant  "  to  use  all  proper 
and  reasonable'  means  to  maintain  and  increase  the  business" 
of  the  leased  railroad.* 

1  South  Carolina,  etc.  R.  Co.  f.  Caro-  ^  Abbv   v.    Billups,    35    Miss.    618 

Una,  etc.  R.  Co.,  93   Fed.   .557    (1899).  (1858),  (72  Am.  Dec.  143). 

See  also  Stepheus  v.  Southern  Pacific  ^  A  corporation  with  power  to  lease 

Co.,  109  Cal.  86  (1895),  (41   Pac.  Rep.  a  building  may,  in  consideration  of  the 

783).  les.sor's  obligation  to  rebuild  in  case  the 

A  lease  by  a  railroad  company  of  a  building  should  be  burned  down,  cove- 
portion  of  its  right  of  way,  upon  condi-  nant  to  keep  the  same  insured.  Jack- 
tion  that  the  company  shall  not  be  liable  sonville,  etc.  H.  Co.  v.  Hooper,  160 
for  any  damage  to  buildings  or  personal  U.  S.  514  (1896),  (16  Sup.  Ct.  Rep. 
property  situated  thereon,  by  reason  of  379). 

fire  originating  from  its  locomotives,  or  *  Such  a  covenant  is  not  necessarily 

for  damages  resulting  from  the  negli-  broken  by  the  building  of  a  parallel 

gence  of  its  employees  or  agents,  is  not  line  by  the  lessee  ;    the  determination 

void,  as   against   public   policy,   either  of  the  question  depends  upon  all   the 

under  the  Iowa  decisions  or  upon  gen-  facts  and  circumstances  of  the  case,  in- 

eral  principles.     Hartford  Fire  Ins.  Co.  eluding  the  use  to  be  made  of  the  line 

V.   Chicago,   etc.  R.  Co.,  70  Fed.  201  so  built,  and  the  nature  and  amount  of 

ng95).  its  traffic.     Catawissa  R.  Co.  v.  Phila- 

298 


CHAP.  XIX.]       RIGHTS   AND   LIABILITIES   OP   LESSOR.  §  210 

CHAPTER   XIX. 

RIGHTS   AND   LIABILITIES   OF   LESSOR   CORPORATION. 

I.   Rights  and  Remedies  of  Lessor  Corporation. 

§210.    Lessor  Corporation  retains  Prerogative  Powers  —  Eight  of   Eminent 

Domain. 
§  211.     Rights  of  Lessor  when  entitled  to  Share  of  Earnings  — Equitable  Lien. 
§  212.     Rights  of  Stockholders  when  Rent  is  payable  in  Form  of  Dividends. 
§  213.     Mortgage  of  Rent  Charge. 
§  214.     Remedies  of  Lessor  Corporation. 

II.   Liabilities  of  Lessor  Corporation. 

§  215.     Obligations  of  Lessor  Corporation  to  State. 

§  216.     Lessor  Corporation  cannot  avoid  Statutory  Obligations  unless  exempted. 

§  217.     Lessor  cannot  avoid  Primary  Obligations  unless  exempted. 

§218.     Liability  of  Lessor  for  Negligent  Operation  of  Railroad — (A)  Under 

Unauthorized  Lease. 
§  219.     Liability  of   Lessor  for  Negligent  Operation  of  Railroad —  (B)   Under 

Authorized  Lease. 
§220.      Liability   of    Lessor    for  Negligent   Operation   of  Railroad  —  (C)   To 

Employees  of  Lessee. 
§  221.     Liability  of  Lessor  for  Negligent  Operation  of  Railroad —  (D)  When  it 

shares  in  Control. 
§  222.     Liability  of  Lessor  upon  Contracts  of  Lessee. 
§  223.     Liability  of  Lessor  for  Reconstruction  and  Repairs. 
§  224.     Taxation  of  Leased  Railroads. 

I.     Mights  and  Remedies  of  Lessor  Corporation. 

§  210.  Lessor  Corporation  retains  Prerogative  Powers  —  Right 
of  Eminent  Domain.  —  A  lease  of  a  railroad,  executed  with 
legislative  sanction,  carries  with  it  the  right  to  exercise  the 

delphia,   etc.    R.    Co.,   14  Pa.   Co.   Ct.  chase,  certain  connecting  lines  extend- 

Rep.  280  (1894).  ing  into  the  prohibited  territory,  which 

A  railroad   company  leased   to  an-  it  operated  in  connection  with  its  orig- 

other  company  the  right  to  use  a  portion  inal  road  for  nine  years,  without  ob- 

of  its  road  for  ninety-nine  years,  renew-  jection   from    the    lessor.      Held,   that 

able  forever.     The  lease  provided  that  conceding  the  provision  against  exten- 

the  lessee  should  not  extend  its  road  into  sion  to  have  been  valid,  it  was  waived 

certain  coal  territory,   or  receive  coal  by  the  lessor  by  acquiescence,  and  with 

for  transportation  from  any  connecting  it  the  right  to  object  to  the    transpor- 

liiies,  and  that,  in  case  of  violation  of  tation  by  the  lessee  of   coal   received 

such  conditions,  the  right  of  the  lessee  for   shipment   on   its   purchased   lines, 

to    use   the    demised    road    should    be  Metropolitan   Trust   Co.  v.   Columbus, 

suspended  during  its  continuance.    The  etc.  R.  Co,  95  Fed.  18(1899). 
successor  of  the  lessee  acquired,  by  pur- 

299 


§210 


INTERCORPORATE   RELATIONS. 


[part   III. 


franchises  necessary  for  its  maintenance  and  operation.^  Ex- 
traordinary powers  and  privileges  are,  however,  not  included 
unless  the  State  expressly  approve  their  transfer  and  the  lease 
clearly  embrace  them. 

As  a  general  rule,  a  lessor  corporation  retains  its  preroga- 
tive powers.  Thus,  the  lease  of  a  railroad  docs  not  divest  a 
lessor  corporation  of  the  right  of  eminent  domain.  The  same 
necessity  for  taking  lands  may  exist  when  a  railroad  is  in  the 
hands  of  a  lessee  as  when  in  the  hands  of  its  owner,  and  pend- 
ing condemnation  proceedings  arc  not  abrogated  by  a  lease 
but  may  be  continued  in  the  name  of  the  lessor.^ 

As  the  right  of  eminent  domain  remains  in  the  lessor,  it 
cannot,  manifestly,  be  exercised  by  the  lessee  in  its  own  name  ;^ 
but  the  lessee,  when  duly  authorized,  may  institute  and  prose- 
cute condemnation  j)rocecdings  in  the  name  of  the  lessor, 
but  for  its  own  benefit.'*     These  principles  do  not  prevent  a 


1  See  anff,  §  157:  "  Ksaential  Fran- 
chises pass  upon  Sale  of  Railroad." 

2  Kip  V.  New  Yorii,  etc.  li.  Co.,  67 
N.  Y.  229  (1876),  ;)pr  Clinrch,  J.:  "  In 
the  sui>plcinental  coni])laiiit  the  [)tain- 
tiffs  allege  the  leasing  of  tlie  defendiiiit's 
road  ami  i)ro])erty  to  the  New  York 
Central  and  Hud.son  River  Railroad 
Company  for  401  years,  and  claim  that 
such  lease  operated  to  abrogate  the 
pending  proceedings  to  condemn  the 
land  in  question,  and  terminated  and 
removed  all  necessity  for  the  acquisi- 
tion thereof  for  the  corporate  use  of 
tiie  defendant.  In  this  I  think  the 
learned  counsel  for  the  defendant  is 
mistaken.  The  lease  did  not  affect  the 
defendant  corporation  in  its  relation  to 
the  State.  The  same  necessity  existed 
for  the  land  proposed  to  be  condemned 
after  as  before  the  lease  for  the  pur- 
pose of  the  defendant  as  a  corporation." 

See  also  Matter  of  Petition  of  New 
York,  etc.  R.  Co.,  99  N.  Y.  21  (18S5) 
(I  N.  E.  Rep.  27). 

In  Chicago,  etc.  R.  Co.  v.  Illinois 
Central  R.  Co.,  113  111.  1.56  (1885),  it 
was  held  that  it  was  immaterial  that 
the  increase  of  the  right  of  way  for 
which  property  was  sought  to  be  con- 

300 


demned,  was  occasioned  by  the  use  of 
tlie  road  by  a  lessee ;  that  the  use  was 
a  public  use,  and  that  the  need  of  the 
lessee  was  that  of  the  lessor. 

3  Mayor,  etc.  of  Worcester  i-.  Nor- 
wich, etc.  R.  Co.,  109  Mass.  113(1871): 
"  None  of  these  leases  or  a.ssignment8 
can  be  construed  to  extend  to  the  les- 
sees or  assignees  the  puwer  to  exercise 
the  right  of  eminent  domain,  or  to  re- 
strict the  right  of  the  legislature  to 
alter  or  repeal  the  charters.  Their 
rights  are  subordinate  to  that  right ; 
and  if  the  Icgi.slature  shall  see  fit  to  ex- 
ercise it,  they  are  not  bound  to  give 
notice  to  any  of  these  parties.  .  .  .  The 
lease  by  the  Norwich  and  Worcester 
Railroad  Company  did  not  make  the 
lessees,  or  their  representatives,  parties 
to  the  grant  of  power  to  exercise  tlie 
right  of  eminent  domain.  That  right 
remained  in  the  original  corporation, 
and  the  legislature  might  properly  deal 
with  it  exclusively  in  amending  their 
charter." 

*  Chicago,  etc.  R.  Co.  v.  Illinois  Cen- 
tral R.  Co.,  113  111.  156  (1885). 

See  also  Kip  v.  New  York,  etc.  R. 
Co.,  67  N.  Y.  227  (1876);  Dietrichs  v. 
Lincoln,  etc.  R.  Co.,  13  Neb.  361  (1882), 


CHAP.  XIX.]      RIGHTS    AND    LIABILITIES    OF   LESSOR.  §  211 

lessee  corporation  from  exercising  in  its  own  name,  for  proper 
purposes,  the  power  of  eminent  domain  conferred  upon  it  by 
statute.  In  such  a  case,  it  exercises  an  original  and  not  a  de- 
rivative power  which  might  be  broad  enough  to  authorize  the 
condemnation  of  lands  connected  with  the  lessor's  road.^ 

§  211.  Rights  of  Lessor  ■when  entitled  to  Share  of  Earnings  — 
Equitable  Lien.  —  It  is  competent  for  two  railroad  corpora- 
tions, parties  to  a  lease  of  a  railroad,  to  agree  that  the  lessee 
company  shall  pay  a  fixed  rental  to  the  lessor  or  that  the 
earnings  of  the  leased  road,  gross  or  net,  shall  bo  divided  in 
prescribed  proportions  between  the  parties. 

Where  the  lease  expressly  provides  that  the  share  of  the 
earnings  payable  to  the  lessor  is  in  lieu  of  rent  —  a  measure  of 
the  rental  —  or  where  it  may  be  plainly  inferred  that  such  is 
the  case,  the  remedies  of  the  lessor  are  confined  to  the  enforce- 
ment of  the  covenants  of  the  lease.  Thus,  in  a  case  where  a 
lease  provided  that  "  as  rental  for  the  said  demised  premises  " 
the  lessee  company  should  pay  a  percentage  of  its  gross  earn- 
ings, in  excess  of  a  fixed  sum,  to  the  lessor,  Judge  Lurton 
said :  ^  "  Tlie  rental  is  determined  by  the  amount  of  gross 
earnings.  These  earnings  belong  to  the  lessee  company.  The 
complainant  has  no  right  to  any  specific  dollar  or  part  of  a 
dollar." 

Where,  however,  it  is  clear  from  the  language  of  the  lease 
that  a  division  of  earnings,  as  earnings.,  is  contemplated,  the 
duty  of  the  lessee  does  not  arise  from  its  mere  covenant,  but 
the  share  of  the  lessor  becomes,  in  equity,  its  property  im- 
mediately upon  its  receipt  by  the  lessee.  The  lessor  has  an 
equitable  lien  upon  such  share  and  it  is  held  in  trust  by  the 

(13   N.  W.    T?ep.    624);    Gottschalk   v.  with  its  own  line,  or  whether  such  right 

Lincoln,  etc.  E.  Co.,  14  Neb.  389  (1883),  must  be   exercised   by  the  lessor  coni- 

(15  N.  W.  Rep.  695).  pany,  —  quwre.     Chattanooga  Terminal 

A    Michigan    statute    (P.  A.    1901,  K.  Co.  v.  Felton,  69  Fed.  273  (1895). 
p.  117,  §  19  of  Act.  No.  80)  authorizes  It  is  provided  by  statute  in  Arkansas 

a  lessee  of  a  railroad  to  institute  con-  (S.  &  H.  Dig.  1894,  §  6342),  Ohio  (Bates' 

demnation  proceedings  with  the  consent,  Anno.  Stat.  (1787-1902),  §  3300),  Wy- 

and  in  the  name  of,  the  lessor.  oming  (R.  S.  1899,  §  3206),  that  a  lessee 

1  Whetlier  tlie   lessee  of  a  railroad  of  a  railroad  may  exercise  the  riglit  of 

can   exercise  the  riglit  of  eminent  do-  eminent  domain. 

main  to  build  switches  and  spur  tracks  2  j^^g^y  York,   etc.    R.    Co.    v.   New 

to  the  leased  line,  which  do  not  connect  York,  etc.  R.  Co.,  58  Fed.  282  (1893). 

301 


INTERCORPORATE  RELATIONS. 


[part  III. 


lessee  for  the  benefit  of  the  lessor  and  may  be  followed  in 
equity.^ 

In  case  of  the  appointment  of  a  receiver  for  the  lessee,  he 
may  be  compelled  to  restore  any  portion  of  the  earnings  due 
the  lessor  and  misapplied  by  the  lessee,  even  if  it  be  necessary 
to  appropriate  the  earnings  of  the  road  during  the  receivership 
for  that  purpose.^  Thus,  a  provision  in  a  railroad  lease  that 
the  "  lessee  shall,  in  each  and  every  year  of  the  term  demised, 
pay  or  cause  to  be  paid  to  said  [lessor]  in  the  manner  and  at 
the  times  hereinafter  specified,  thirty  per  centum  of  the  gross 
earnings,  of  the  demised  property,"  provides  for  a  division  of 
the  earnings,  as  such,  and  vests  in  the  lessor  the  equitable  title 
to  its  share  of  such  earnings  upon  their  receipt  by  the  lessee. 
Where  the  lessee,  under  such  a  lease,  has  failed  to  pay  over 
the  lessor's  share  of  the  earnings  and  has  mingled  the  same 
with  its  own  funds,  bondholders  of  the  lessor,  the  interest  on 
whose  bonds  is  required  by  the  terms  of  the  lease  to  be  paid 
from  such  share,  arc  entitled  to  have  the  amount,  so  misap- 
plied by  the  lessee,  restored  by  its  receiver.^ 


1  Terre  Haute,  etc.  R.  Co.  v.  Cox, 
102  Fed.  825  (1900). 

In  Bank  v.  Smith,  86  Fed.  398  (1898), 
where  the  lease  provided  that  "  all  gros3 
earnings,  income  and  receipts,"  should, 
in  each  year,  after  payment  of  expenses 
of  operation  be  expended,  among  other 
things,  fur  payment  of  interest  on  bonds 
of  the  lessor  comjiany,  Judge  Wallace 
said,  with  reference  to  the  covenant  to 
pay  the  interest  upon  the  bonds  (p.  401 )  : 
It  "  gave  to  the  bond  holders  an  equit- 
able lien  upon  the  earnings,  because  the 
trustee  could  have  compelled  the  lessee 
to  apply  the  earnings  to  the  payment  of 
the  interest." 

The  general  principle  upon  which 
the  rule  stated  is  based  is  thus  stated  in 
I'omeroy's  Equity  Jurisprudence  (vol. 
3  (2d  ed.),  §  1236):  "The  doctrine  is 
carried  still  further  and  applied  to  prop- 
erty not  yet  in  being  at  the  time  when 
tlie  contract  is  made.  It  is  well  settled 
that  an  agreement  to  charge,  or  to  as- 
si^^n,  or  to   give   security   upon,  or  to 

302 


effect  property  not  yet  in  existence,  or 
in  the  ownership  of  the  party  making 
the  contract,  or  property  to  be  acquired 
by  him  in  the  future,  although,  with  the 
exception  of  one  particular  species  of 
tilings,  it  creates  no  legal  estate  or 
interest  in  the  things  when  they  after- 
wards come  into  existence  or  are  ac- 
quired by  the  promisor,  does  constitute 
an  equitable  lien  upon  the  property  so 
existing  or  acquired  at  a  subsequent 
time,  w'hich  is  enforced  in  the  same 
manner  and  against  the  same  parties  as 
a  lien  upon  specific  things  existing  and 
owned  by  the  contracting  party  at  the 
date  of  the  contract." 

2  Terre  Haute,  etc.  R.  Co.  v.  Cox, 
102  Fed.  825  (1900). 

3  In  Terre  Haute,  etc.  R.  Co.  v.  Cox, 
102  Fed.  833  (1900),  Judge  Groscupp 
said :  "  There  is  no  word  respecting 
rentals ;  there  is  no  plain  inference  that 
the  thirty  per  centum  thus  agreed  upon 
shall  be  a  mere  measure  of  rentals.  It 
is,  as  indisputably  as  language  can  make 


CHAP.  XIX.]  RIGHTS    AND    LIABILITIES   OF  LESSOR, 


§212 


§  212.  Rights  of  Stockholders -when  Rent  is  payable  iu  Form  of 
Dividends.  —  A  distinct  provision  in  a  lease  that  the  lessee 
shall  pay,  directly,  to  the  stockholders  of  tlie  lessor  corporation, 
as  rental,  specified  dividends  upon  their  shares,  enures  to 
their  benefit  and  gives  them  individual  rights  of  action 
against  the  lessee.^  This  is  upon  the  principle  that  "  when 
one  person  makes  a  promise  to  another  for  the  benefit  of  a 
third  person,  that  person  may  maintain  an  action  based  on 
such  promise."  2 

It  is  essential,  however,  in  actions  depending  upon  this 
principle,  that  a  distinct  provision  for  the  direct  benefit  of  the 
third  person  be  shown.  An  agreement  wherein  a  lessee  cor- 
poration guarantees  the  lessor  a  specified  annual  dividend 
upon  its  capital  stock,  free  from  taxes,  payable  to  the  lessor, 
is  not  a  guarantee  to  the  stockholders  individually,  although 
evidently  intended  to  enable  the  lessor  corporation  to  make 
that  dividend  to  its  stockholders.^     Similarly,  a  provision  in  a 


it,  a  plain  division  of  the  earnings  be- 
tween tlae  parties  whose  properties, 
taken  together,  produce  the  earnings. 
Unless  an  arrangement  for  division  of 
earnings,  as  earnings,  is  in  law  an  impos- 
sibility, the  language  employed  can  bear 
no  interpretation,  other  than  a  contem- 
plated division  of  earnings,  as  earnings. 
...  It  is  clear  to  us,  then,  that,  in  the 
case  under  consideration,  the  duty  of 
the  Indianapolis  Company,  in  respect  to 
the  thirty  per  centum  of  gross  earnings, 
does  not  arise  out  of  its  mere  promise ; 
it  is  an  equity  growing  out  of  the  con- 
ditions from  which  the  unified  railway 
lines  arose.  The  division  of  the  earn- 
ings does  not  rest  in  an  intention 
merely  to  be  executed  in  the  future ;  it 
is  to  be  regarded,  in  equity,  as  a  present 
fact,  made  so  by  the  circumstances,  to- 
gether with  the  agreement  that  brought 
about  the  means  creating  such  earnings." 
1  It  does  not  follow  from  the  fact 
that  the  stockholders  as  the  parties  ben- 
eficially interested  may  maintain  an  ac- 
tion for  the  recovery  of  dividends  that 
tlie  lessor  corporation  —  the  party  to 
the  contract  —  may  not  likewise  bring 


suit  to  enforce  it.  In  fact  Judge  Nelson, 
in  Pacific  R.  Co.  v.  Atlantic,  etc.  R.  Co., 
20  Fed.  280  (1884),  said  that  the  lessor 
corporation  was  the  proper  party  to 
enforce  a  claim  for  unpaid  dividends 
payable  under  a  lease  directly  to  the 
stockholders.  This  decision,  however, 
in  so  far  as  it  seems  to  deny  any  right 
in  the  stockholders  to  sue  in  such  a  case, 
cannot  be  justified  upon  principle.  See 
cases  cited  in  note  2. 

2  Schemerhorn  v.  Vanderheyden, 
1  Johns.  (N.  Y.)  139  (1806).  See'  also 
Welden  National  Bank  v.  Smith,  86 
Fed.  402  (1898).  In  Austin  v.  Selig- 
man,  18  Fed.  522  (1883),  Judge  Wallace 
said  :  "  The  result  of  the  better-consid- 
ered decisions  is  that  a  third  person  may 
enforce  a  contract  made  by  others  for 
his  benefit,  whenever  it  is  manifest  from 
the  nature  or  terms  of  the  agreement 
that  the  parties  intended  to  treat  him  as 
the  person  primarily  interested."  See 
also  Mr.  Wharton's  elaborate  note  to 
this  case  for  full  consideration  of  the 
general  subject  and  citation  of  many 
authorities. 

3  In  Flagg  V.  Manhattan  R.  Co.,  10 

303 


§214 


INTERCORPORATE   RELATIONS. 


[fai:t  111. 


lease  that  the  lessee  corporation  shall  pay  to  the  lessor  a  sum 
equal  to  a  fixed  percentage  u[)on  its  capital  stock  is  an  agree- 
ment for  the  direct  benefit  of  the  corporation  and  gives  a 
stockholder  no  right  of  action.  The  rental  is  due  and  pavable 
to  the  corporation.  It  may  or  may  not  be  ai)propriated  for 
the  payment  of  dividends  to  stockholders.^ 

§  213.  Mortgage  of  Rent  Charge.  —  The  execution  of  a  lease 
of  a  railroad  for  a  limited  term  does  not  affect  the  right  of  the 
lessor  to  mortgage  the  remainder  estate.  But  a  perpetual 
lease,  without  a  clause  of  re-entry  for  non-fulfilment  of  its 
conditions,  leaves  nothing  in  the  lessor  corporation  but  a 
claim  agaiust  the  lessee  for  rent.-  This  rent  may  Ije  a  charge 
upon  the  income  of  the  leased  property.  In  such  a  case,  the 
lessor  may  mortgage  the  rout  charge.'^ 

§  214.  Remedies  of  Lessor  Corporation.  —  The  remedies  of 
a  railroad  company  to  enforce  its  demands  against  third  per- 


Fed.  430  ( 1881 ),  Judge  Rlatchford  said  : 
"  The  liuif!;iiai;e  of  article  '2  of  the  lease 
is  tliat  the  M:inli:ittaii  giiaraiiteea  to  the 
Metropolitan  an  annual  dividend  of  ten 
per  cent  on  the  capital  stock  of  the 
Metropolitan  .  .  .  There  is  no  agree- 
ment either  by  the  Manhattan  or  the 
Metropolitan  that  these  sums  shall  bo 
paid  to  the  stocklndders  of  the  Metropoli- 
tan. .  .  .  The  case,  tlicrefore,  is  not 
one  of  any  vested  right  in  the  stock- 
holders of  the  Metropolitan  to  the  ten 
per  cent  payments." 

1  In  Beveridge  v.  New  York  Elevated 
I{.  Co.,  112  N.  Y.  24  (1889),  (19  N.  IC. 
Rep.  489),  the  New  York  Court  of  Ap- 
peals said  {per  Gray,  J.)  :  "  Regarding 
then,  the  lca.<e  itself  and  the  so-called 
guaranty  which  is  contained  among  its 
provisions,  I  find  therein  no  contract 
made  with  individual  stockholders,  but 
only  one  made  with  the  New  York  Com- 
pany which  stipulates  for  the  payment 
of  a  sum  of  money  equal  to  ten  per  cent 
upon  the  capital  stock  of  tliat  company. 
There  is  no  contract  to  pay  ten  per  cent 
dividends  to  individual  stockholders 
upon  their  holdings  ;  nor  any  contract 
that  the  New  York  company  will  pay  it 
out  in  the  shape  of  ten  per  cent  divi- 

•304 


dcnds  to  its  stockholders.  Payments 
under  tliat  contract  are  to  and  for  the 
lessor  corporation  and  go  into  its  treas- 
ury, as  would  any  other  moneys  or 
revenues  derived  from,  or  produced  by, 
corporate  property."  See  also  Ilark- 
ne.ss  V.  Manhattan"  El.  R.  Co.,  54  N.  Y. 
Super.  Ct.  174  (1880). 

■^  Hazard  v.  Vermont,  etc.  R.  Co.,  17 
Fed.  753  (1883);  Vermont,  etc.  R.  Co. 
r.  Vermont  Cent.  R.Co.,34  Vt.  1(1801). 
See  also  Langdon  v.  Vermont,  etc.  R. 
Co.,  54  Vt.  593  (1882). 

^  In  Hazard  v.  Vermont,  etc.  R.  Co., 
17  Fed.  756  (1883),  Judge  Wheeler  .«aid  : 
"The  disposition  of  the  rent  and  tiie 
claim  for  it  in  future  is  the  princij>al 
tiling,  for  that  rejire.^ents  substantially 
the  corporate  a.ssets  of  tlie  Canada  com- 
pany, and  when  that  is  gone  the  trans- 
fer or  surrender  of  the  stock  would  lie  a 
mere  nominal  formality.  Power  to  deal 
with  the  rent  is  implied  in  the  power  to 
make  the  lease  and  reserve  tlie  rent, 
which  it  was  held  the  corporation  had. 
(Vermont,  etc.  R.  Co.  v.  Vermont  Cent. 
R.  Co.,  34  Vt.  1  (1861).  And  powers 
necessarily  implied  from  those  expressly 
granted  are  as  well  granted  as  the 
e.xpress  powers." 


CHAP.  XIX.]         RIGHTS    AND    LIABILITIES    OF   LESSOR.  §  214 

sons  are  in  no  way  affected  by  the  fact  that  it  has  leased  its 
raih'oad. 

The  remedies  of  a  railroad  company,  as  lessor,  against  its 
lessee,  to  recover  damages  for  breach  of  covenant  or  to  enforce 
a  forfeiture  are,  in  general,  those  vviiich  are  available  to  a  les- 
sor under  an  ordinary  lease  of  real  estate. 

Where  an  action  at  law  will  furnish  a  lessor  corporation 
adequate  relief,  resort  cannot  be  had  to  equity.^  Thus,  where 
a  legal  action  against  a  responsible  corporation  is  an  adequate 
remedy  for  neglect  to  keep  a  railroad  in  repair,  in  violation  of 
a  covenant,  the  remedy  of  a  receivership  will  be  denied.^ 

The  circumstances  may  be  such,  however,  that  a  remedy  at 
law  will  be  inadequate.  In  such  a  case  equity  will  afford  re- 
lief. Thus,  where  a  lessee  railroad  company  covenanted  to 
keep  the  line  in  as  good  repair  as  when  received,  and  where 
its  abandonment  of  the  road  before  the  expiration  of  the  lease 
would  result  in  loss  of  traffic,  deterioration  of  the  road  and, 
possibly,  forfeiture  of  the  lessor's  charter  for  non-user,  it  was 
held  that  the  lessor  was  entitled  to  an  injunction  preventing  a 
threatened  abandonment.^ 

A  lessor  corporation  has  a  right  to  re-enter  for  condition 
broken,  according  to  the  terms  of  the  lease.  It  may  also, 
under  such  conditions,  maintain  ejectment  and  similar  actions 
for  the  recovery  of  the  possession  of  the  leased  property. 

There  is  a  dictum  to  the  effect  that  "  when  either  party, 
lessor  or  lessee,  claims  that  acts  have  been  done  which  render 
the  continuing  of  the  relation  no  longer  proper,  such  party 
can  go  into  a  court  of  equity,  on  general  principles,  and  ask 

1  In  Boston,  etc.  R.  Co.  v.  Boston,  ^  Boston,  etc.  R.  Co.  v.  Boston,  etc. 

etc.  R.  Co.,  6.5  N.  H.  393  (1888),  (23  Alt.  R.  Co.,  65  N.  H.  393  (1888),  (23  Alt. 

Rep.  .529),  the  Court  said  :  "  In  this  suit  Rep.  529).     That  a  lessor  railroad  com- 

at  law  the  rights  of  the  parties  depend  pany  has  no  lien  upon  the  rolling  stock 

upon  no  general  or  special  question  of  of  the  lessee  under  the  Iowa  statute  re- 

an   equitable,  as  distinguished  from  a  lating  to  landlord's  liens,  sec  Trust  Co. 

legal,  character.     This  case  is  a  simple  of  North  America  v.  Manhattan  Trust 

one  of  breach  of  contract.     The  Lowell  Co.,  77  Fed.  82  (1896). 
agreed  that  if  it  transferred  the  plain-  ^  Southern  R.  Co.  v.  Franklin,  etc. 

tiff's  road  to  another  company  the  plain-  R-  Co.,  96  Va.  693  (1899),  (32  S.  E.  Rep. 

tiff  might  take  it  back ;  and  the  Lowell  485,  44  L.  R.  A.  297). 
has  made  the  transfer  it  agreed  not  to 
make." 

•20  305 


§  215  INTERCORPORATE   RELATIONS.  [PAUT    III. 

to  have  that  lease  set  aside,  cancelled  and  amended.  .  .  . 
And  tlie  cuurt  will  declare  the  agreement  at  an  end,  and  set 
aside,  and  cancelled,  and  will  make  such  orders  as  will  seem 
proper  and  right."  ^  Courts  of  equity  have  power,  within  well- 
defined  limits,  to  annul  written  instruiutnts,  but  that  they 
have  any  such  broad  power  as  stated  in  this  dictum  would 
probably  not  have  been  the  more  deliberate  opinion  of  the 
learned  judge  who  wrote  it. 

II.    Liabilities  of  Lessor  Corporation, 

§  215.  Obligationa  of  Lessor  Corporation  to  State. —  A  lease 
of  its  railroad  does  not  alTect  a  railroad  company  in  its  rela- 
tions with  the  State.  Its  duties  as  a  corporation  exist  after 
the  execution  of  a  lease  to  the  same  extent  as  before.  It 
must  fulfil  the  obligations  imposed  by  its  charter  and,  except 
when  relieved  by  the  State,  must  discliarge  all  the  duties  to 
the  State  required  of  railroad  companies  generally .^ 

The  right  of  the  State,  in  the  exercise  of  its  reserved  power, 
to  alter,  amend  or  repeal  the  charter  of  a  railroad  company, 
is  not  restricted  by  a  lease  of  its  railrond,  and  the  State  will 
deal  with  the  lessor  corporation,  exclusively,  in  withdraw- 
ing or  limiting  any  special  powers  or  privileges  theretofore 
granted.^ 

1  "The  Elevator  Case,"  17  Fed.  204  «  j^  Mayor. etc.  of  VTorccster u.  Nor- 

(1881).  wirh.  au:  U.  Co.,  109  Mass.  113  (1871), 

-  In   Xew  Hnmpshire  (Pab.   Stat.  &  the  Supreme  .Judicial  Court  of  Massa- 

Sess.  LawslOOl.ch    1.56,  §  45,  p.  .506),  chnsetts   said:    "As   the    right   of  the 

and  Terns  (Sayles'  Civ.  Stat.  (Sunp.  to  Ictrislature  to  alter,  amend  or  repeal  the 

1900),  vol    ii.,  eh.  15  a),   it  i.s  pr  fvilod  charters  of  these  corporations  is  abso- 

that  a  lease  shall   not  affect  the  public  lute,  and  not  dependent  upon  their  con- 

obiijrations  of  a  lessor  corporation.  sent,  it    is    immaterial    whetlif-r    such 

An   act  authoriziii^r  a  railroad  com-  consent   has   been   piven  or   not      Nor 

pany  to   Uase  its   railroad   to  another  was  notice  of  the  appointment  or  the 

corporation,  and  requiring  the  corpora-  proceedings  of  the  commissioners  neces- 

tion  lessee  to  be  liable  in  the  same  man-  sary  to  be  given  to  parties  not  specified 

ner  as  though  the  railway  belonged  to  in  the  act ;    the  terms  of  the  act  not 

it,  imposes  a   liability  as  to  its  leased  requiring   such   notice   .  .  .  All   these 

property  upon  the  lessee  while  operating  parties  have  derived  their  interests  from 

it,  but  does   not   discharge   the   lessor  the  oriirinal  corporations  to  whom  the 

corporation  from  its  corporate  liabilities,  power  to  exercise  the  right  of  eminent 

Chicago,  etc.  R.  Co.  '•    Cranf^.   11.3  domain    was   granted,    and    they   hold 

U.  S.  424  (1885),  (5  Sup.  Ct.  Rep.  578).  these  assigned   and  derivative  interests 

306 


CHAP.  XIX.]  RIGHTS    AND    LIABILITIES    OF   LESSOR. 


§216 


The  obligation  to  pay  taxes  upon  a  railroad  and  other  prop- 
erty, when  leased,  is  considered  in  another  section.^ 

§  216.  Lessor  Corporation  cannot  avoid  Statutory  Obliga- 
tions unless  exempted.  —  Statutes  imposing  obligations  upon 
railroad  companies  in  safeguarding  their  tracks  are  designed 
to  protect  the  interests  of  the  public.  Public  safety  demands 
their  observance. 

Statutes  of  this  character  are  generally  construed  to  apply 
as  well  to  the  lessor  as  to  the  lessee  corporation.  Especially 
is  the  lessor  liable  where  the  statute  imposing  the  obligation, 
expressly  or  by  necessary  inference,  refers  to  the  oiuner  of  the 
railroad.  The  owner  of  a  railroad  cannot  shift  the  burden  of 
such  obligations  by  lease,  unless  expressly  exempted  from 
further  liability.  Mere  legislative  consent  to  a  lease  is  not 
sufficient. 

Upon  these  principles,  statutes  providing  that  railroad  com- 
panies shall  fence  their  tracks  and  maintain  cattle  guards, 
are  generally  held  to  impose  the  duty  upon  the  lessor  corpora- 
tion, and  to  render  it  liable  for  all  damages  occasioned  by  a 
failure  to  comply  therewith.^     The  fact  that  the  lessee  corpo- 

under  expressed   or  implied   authority  Iowa  :  Clary  v.  Iowa  Midland  R.  Co., 

frraiitcd   to   those   corporations  by  the  37  Iowa,  344  (1873)  ;    Downing  v.  Ciii- 

legisiature."  cago,  etc.  It.  Co.,  43  Iowa,  96  (1876). 

1  See  post,  §  224  :  "  Taxation  of  Kansas :  St.  Louis,  etc.  II.  Co.  t*. 
Leased    Failroads."  Curl,  28   Kan.  622  (1882),   (11   Am.   & 

2  Uniti'd  States :  Ilayes  u.  Northern  Eng.  11.  Cas.  458);  Railroad  Co.  v. 
I'acific  R.  Co.,  74  Fed.  279  (1896).  Wood,   24  Kan.  625   (1880):    "A    dis- 

Califurnia  :  Fontaine  v.  Southern  tinciion  may  he  drawn  between  tliose 
Pacific    11.    Co.,    54    Cal.    645   (1880),     statutory  duties  wliicli  recjuire  constant 


(1  Am.  &  Eng.  R.   Cas.  159). 

Illinois:  East  St.  Louis,  etc.  R.  Co. 
v.  Gerber,  82  111.  632  (1876);   Toledo, 
etc.    R.    Co.  V.    Rumbidd,   40    111 
(1866). 


action  on  tlie  i)art  of  tiiosc  operating 
the  road,  such  as  ringing  the  bell  at 
every  crossing, and  those  which,  like  the 
143  one  in  question,  are  of  tiie  nature  of 
permanent  improvements." 


Indiana :    In  this  State,  by  statute,  In  this  ease  a  railroad  company  was 

when    the   lessee  operates  the  road  in  held  lialdc  for  an  injury  occasioned  by  a 

the  name  of  the  les.sor,  both  lessor  and  failure  to  fence  its  r(jatl,  although  the 

lessee  are  liable  for  live  stock  killed  on  injury   occurred  while   it   was    in    the 

unfenced  tracks,  but   when  the   lessee  hands  of  a  receiver. 


ojjerates  in  its  own  name  it  is  alone 
responsible.  Pittsburgh,  etc.  R.  Co.  r. 
Bolner,  57  Ind.  572  (1877);  Pittsl)urgh, 
etc.    R.    Co.    V.    Ilanon,    60    Ind.    417 


Maine  :  Wiiitney  v.  Atlantic,  etc.  R. 
Co.,  44  Me.  362  (1857). 

In  New  York,  however,  the  lessee  and 
not  the  lessor  has  been  held  liable  for 


(1878);   Cincinnati,  etc.  R.  Co.  v.   liun-     injuries  caused  by  failure  to  fence  the 


ncll,  61  Ind.  183  (1878). 


road  as  required  by  statute.     Ditchett 

307 


§  216  INTERCORPORATE   RELATIONS.  [PAUT    III. 

ration  may  also  be  liable  does  not  affect  tbo  responsibility  of 
the  lessor.  In  Toledo^  etc.  R.  Co.  v.  Ihimhohi^^  the  Sui)remc 
Court  of  Illinois  said  :  "  It  was  the  duty  of  appellants  to  have 
fenced  the  road,  and  public  safety  demands  that  they  should 
be  held  liable  for  all  damages  resulting  from  the  neglect  to 
fence  it.  And  the  same  policy  would  rcipiire  that  the  lessee 
should  be  responsible  for  presuming  to  use  the  road  of  another 
company,  fenceless  and  unprotected.  Either  company  would 
be  liable  for  the  injury." 

Upon  similar  principles  it  is  held  that  a  lessor  corporation 
—  as  the  owner  of  the  railroad  —  is  liable,  under  statutes,  for 
injuries  sustained  by  adjoining  proprietors  from  fires  commu- 
nicated by  engines  operated  by  the  lessee.^ 

The  lessor  corporation  is  responsible,  even  for  the  torts  of 
the  lessee  in  the  operation  of  the  road,  where  the  statute  author- 
izing the  lease  contains  a  provision  that  its  execution  shall  not 
exempt  the  lessor  from  any  liability  to  which  it  would  other- 
wise be  subject,  or  other  provision  evidencing  an  intention 
that  the  lessor  corporation  should  remain  responsibb  for  the 
proper  operation  of  the  leased  railroad.^ 

r.  Spuyten  Duyvil,  etc.  K.  Co.,  67  N.  Y.  bridge,  etc.  R.  Co.,  8  Allen,  438  (1864)  ; 

425  (1S76),  and  Tliorne  v.  Lohigli  Val-  Davis   v.  Providence,  etc.  II.   Co.,  121 

ley  U.  Co.,  88  Hun  (N.  Y.),   141  (1895),  Mass.  134  (1876). 

(34  N.  Y.  Supp.  525,  68  N.  Y.  St.  Rep.  Maine:    Beau  v.   Atlantic,   etc.    R. 

308).     Since  1890,  however,  both  lessor  Co.,  63  Me.  295  (1873). 

and  lessee  are  liable  by  statute.     Rail-         Missouri:    McCoy    v.   Kansas  City, 

road  Law  1890  and  1892,  §  32.  etc.  R.  Co.,  36  Mo.  App.  446  (1889). 

i  Toledo,  etc.  R.  Co.  v.  Rumbold,  40  North  Carolina :    Aycock  v.  Raleigh, 

111.  145  (1866).  etc.  R.  Co.,  89  N.  C.  32*1  (1883). 

-  Illinois.  A  railroad  company  which  In  South  Carolina,  however,  under  a 

has  leased  its  road  to  another  company,  statute    making    a   railroad    company 

under  statutory  authority,  for   ninety-  liable  for  damages  caused  by  fire  com- 

niue   years,   will    be  liable  for  the  de-  municated  by  "  its  locomotive  engine," 

struction  of  property  by  fire  caused  by  it  was  held  that  a  company  was  not  liable 

the  negligence   of  the  lessee,  notwith-  for  a  fire  communicated  by  the  engine 

standing  the  legislature  may  have  con-  of  its  lessee. 

ferred  upon  the  lessee  all  the  power  of  Hunter  i:  Columbia,  etc.   R.  Co.,  41 

the  lessor  company.     There  being   no  S.  C.  86  (1893),  (19  S.  E.   Rep.   197); 

clause  of  exemption  in  the  act  of  the  Lipfield   v.   Charlotte,    etc.   R.   Co.,  41 

legislature,  the   liability   of  the  lessor  S.  C.  285  (1893),  (19  S.  E.  Rep.  497). 
continues.     Balsiey  v.  St.  Louis,  etc.  R.  ^  Quested  v.  Newburyport,   etc.    R. 

Co.,  119   111.  68  (1886),  (8  N.  E.  Rep.  Co.,  127  Mass.   204  (1879);  Stearns  v. 

659).     See  also  Railway  Co.  v.  Camp-  Atlantic,  etc.  R.  Co.,  46  Me.  95  (1858) ; 

bell,  86  111.  443  (1877).  Fort  "Wayne,  etc.  R.Co.  v.  Heinebaugh, 

Massachusetts:     Ingersoll   v.   Stock-  43  Ind.  354  (1873). 

308 


CHAP.  XIX.]      RIGHTS   AND   LIABILITIES    OF   LESSOR. 


§217 


§  217.  Lessor  cannot  avoid  Primary  Obligations  unless  ex- 
empted. —  Analogous  to  the  rule  that  a  railroad  company, 
after  the  lease  of  its  road,  continues  liable  for  any  omission 
in  the  performance  of  duties  imposed  upon  it  by  statute,  is  the 
rule  that  a  lessor  corporation,  unless  exempted,  is  responsi- 
ble for  any  injury  caused  by  a  failure  to  fulfil  its  primary  and 
positive  obligations  to  the  public.  Thus,  the  duties  of  properly 
constructing  and  locating  its  railroad,  bridges,  and  station 
houses,  owed  by  the  lessor  corporation  in  the  first  instance, 
cannot  be  shifted  to  another  corporation  so  as  to  absolve  the 
lessor  from  liability,  unless  immunity  is  expressly  granted  by 
statute.^     As  said  by  the  Supreme  Court  of  Maine  in  Nugent 


Under  a  statute  providing  that  a 
lessor  railroad  company  should  remain 
liable  for  the  acts  of  the  lessee,  it  was 
held  that  the  lessor  was  liable  for  ])er- 
mitting  salt  to  remain  on  the  tracks 
wliicli  attracted  stock  thereon,  the  stock 
being  killed  by  a  passing  train.  Brown 
V.  Hannibal,  etc.  11.  Co.,  27  Mo.  App. 
394  (1887). 

In  California,  by  statute  the  lessor  is 
liable  for  personal  injuries  due  to  im- 
proper construction  of  road.  Lee  v. 
Southern  Pacific  R.  Co.,  116  Cal.  97 
(1897),  (47  Pac.  Kep.  932). 

In  Mahoney  i'.  Atlantic,  etc.  R.  Co., 
63  Me.  68  (1873),  it  was  held  that  a 
provision  that  the  lessor  should  not  be 
exonerated  by  the  lease  from  any  ex- 
isting liabilities  left  the  lessor  respon- 
sible for  the  torts,  but  not  the  contracts, 
of  the  lessee,  and  that  a  passenger  as- 
saulted by  the  lessee's  servants  upon  its 
train  had  no  right  of  action  against  the 
lessor  because  his  demand  was  founded 
in  contract. 

This  decision  is  not  well  founded  in 
principle,  for  the  passenger's  right  of 
action  against  the  lessee  for  breach  of 
its  duty  as  a  common  carrier  was  clearly 
founded  in  tort. 

Under  the  Arkansas  statute  (S.  &  H. 
Digest  1894,  §  6349),  providing  that 
"  all  railroads  which  are  now  or  may  bo 
hereafter  built  or  operated  in  whole  or 
in  part  in  this  State  shall  be  responsible 
for  all  damages  to  persons  and  property 


done  or  caused  by  the  running  of  trains 
in  this  State,"  one  who  has  obtained  a 
judgment  against  the  lessee  of  a  rail- 
road can  enforce  payment  by  seizure 
and  sale  of  the  road  itself.  Little  Rock, 
etc.  R.  Co.  V.  Daniels,  68  Ark.  171, 
(1900),  (,56  S.  W.  Rep.  874).  For  an- 
other Arkansas  statute  upon  this  sub- 
ject, see  S.  &  H.  Dig.  1894,  §  6334. 

In  Ohio  (Bates'  Anno.  Stat.  (1787- 
1902,)  §  3305),  and  Texas  (Sayles'  Civ. 
Stat.  1897  (Supp.  to  1900)  vol.  ii. 
ch.  15  a),  it  is  provided  that  the  lessor 
corporation  shall  remain  liable  as  if  it 
operated  the  road. 

1  United  States  :  In  Hayes  i'.  North- 
ern Pacific  R.  Co.,  74  Fed.  282  (1896), 
Judge  Jenkins  said :  "  When  there  is 
due  authority  of  law  for  the  leasing  of 
a  railway,  the  company  cannot,  by  leas- 
ing its  line,  discharge  itself  of  those  re- 
sponsibilities which  are  imposed  upon  it 
by  the  law  of  its  incorporation,  and  can- 
not relieve  itself  from  liability  in  the 
discharge  of  those  positive  duties  which 
it  owes  to  the  public,  and  have  been 
specially  imposed  by  its  charter."  See 
also  Arrowsmith  v.  Nashville,  etc.  R. 
Co.,  57  Fed.  177  (1893). 

Kansas  :  In  St.  Louis,  etc.  R.  Co.  v. 
Curl,  28  Kan.  622  (1882),  (11  Am.  & 
Eng.  R.  Cas.  458),  Mr.  Justice  Brewer, 
then  Judge  of  the  Supreme  Court  of 
Kansas,  said  :  "  When  the  injury  results 
from  the  omission  of  some  duty,  which 
the  lessor  itself  owes  to  the  public  in  the 

309 


§217 


INTERCORPORATE    RELATION'S. 


[part    III. 


V.  Uailrond  Co.'^:  "For  nn  injury  resulting  from  tlio  ncirli- 
gent  omission  of  some  duty  owed  to  the  public,  such  ns  the 
proper  construction  (tf  its  road,  station  houses,  etc.,  the  char- 
ter company  cannot,  in  tlie  absence  of  statutory  exemption, 
discharge  itself  of  legal  responsibility." 

This  rule  is  based  upon  considerations  of  public  policy  which 
disregard  the  lease  in  fixing  liability.  Like  the  rule  respect- 
ing statutory  duties,  it  relates  to  the  direct  obligations  of  the 
lessor  corporation.  The  lessor  is  held  responsible,  under  both 
rules,  for  its  own  omissions.^  It  is  chargeable  with  the  neg- 
lect of  the  lessee  only  as  such  neglect  constitutes  its  own 
default.  Whether  the  lease  is  authorized  or  unauthorized 
is  immaterial. 

The  result  of  the  operation  of  either  rule  may,  moreover, 
under  certain  conditions,  be  obtained  by  the  application  of 
another  and  distinct  principle.  When  the  failure  to  fulfil 
a  statutory  obligation,  or  perform  a  public  duty,  results  in  a 
miii<tinc(\  the  lessor,  as  well  as  the  lessee,  may  be  held  re- 
sponsible. The  general  principle  of  the  law  of  landlord  and 
tenant  apj)lies  that  both  may  be  liable  for  a  nuisance  —  the 
one  for  creating  and  the  other  for  continuing  it.-"^  Thus,  two 
railroad  companies  —  lessor  and  lessee  —  have  been  held  lia- 

first   instance,  —  something   connected  v.  Detroit,   etc.    R.  Co.,  71    Mich.  64.5 

with  the  building  of  the  roail,  — then  (1888),  (40  N.  W.  Rep.  00). 

we  think  tiie  coniji.'\ny   .i.-s-suniing   the  Pennsi/lrantn  :    Kearney  v.  Cent.  R. 

francliise  cannot  ilivest  itself  of  the  re-  Co.,  1G7  Pa.  St.  362  (1895).  (.Tl  Atl.  Rep. 

sponsihility  by  leasing  its  track  to  some  637). 

other  company."     See  al.«o  Railway  Co.  *  Nugent  v.  Railroad  Co.,  80  Me.  76 

V.  Wood,  24  Kan.  619  (1880).  (1888),  (12  Atl.  Rep.  797,  38  Am.  &  Kng. 

Maine  :    Nugent  v.  Railroad  Co.,  80  R.  Cas.  52). 
Me.  62(1888),  (12  Atl.  Kep.  797,  38  Am.  2  gt    Louis,  etc.  R.  Co.  r.  Curl,  28 

&  Eug.  R.  Cas.  52).  Kan.  622   (1882),  (11    Am.  &  Eng.  R. 

Mirhiqan:  A  lessor  is  liable  for  .an  Cas.  45S):  "The  injury  resulted  directly 

additional  servitude  imposed  upon  land  from  its  own  wrong,  and  not  from  any 

bv   a  lessee.     Thus,  where   a   railroad  mere    negligence    on   the   part   of   tlie 

company  condemned  a  right  of  way  for  [lessee]   company.     It    cannot    relieve 

the  passing  of  trains  over  private  prop-  itself  by  contracting  with   some  other 

erty  and  leased  the  same  to  a  lessee  who  party  to  discharge  its  statutory  duties." 
used  it  not  only  for  that  ])urpose  but  for  8  ^Xn-owsmith   v.   Nasliville,  etc.   R. 

switching  purposes,  thus  causing  addi-  Co.,   57    Fed.    165   (1893);    Swords  ?•. 

tional  damage  to  the  adjoining  property,  Edgar,  .59  N.  Y.  28  (1874).     Compare 

it  was  held  that  the  owner  of  such  prop-  Ditchett    r.   Spuyten    Duyvil    R.    Co., 

erty  was  entitled  to  recover  additional  67  N.  Y.  425  (1876),  Taylor's  Landlord 

compensation  from  the  lessor.     Backus  and  Tenant,  §  175. 

310 


CHAP.  XIX.]       RIGHTS    AND   LIABILITIES    OP   LESSOR, 


§218 


ble  for  an  unlawful  change  of  grade  in  the  streets  of  a  city,  made 
before  the  lease  and  continued  thereafter  by  the  lessee;^  and 
the  same  principle  may  be  applicable  where,  notwithstanding 
statutes  requiring  fences,  railroads  are  leased  in  an  unfenced 
condition  and  are  permitted  to  remain  so.^ 

§  218.  Liability  of  Lessor  for  Negligent  Operation  of  Railroad 
—  (A)  Under  Unauthorized  Lease.  —  As  a  corollary  to  the  con- 
clusion that  a  railroad  corporation  cannot  lease  its  railroad 
and  franchises  without  statutory  authority,  it  follows  that  a 
lease  executed  without  such  authority  is  void.  A  lessor  cor- 
poration, under  an  unauthorized  lease,  continues  liable  for  all 
the  negligence  of  the  lessee  affecting  the  public.  In  respect 
to  third  persons,  the  lessee  stands  in  the  relation  of  an  agent 
to  the  lessor.  The  lessor  is  bound  by  its  acts  and  responsible 
for  its  omissions.^ 


^  Railroad  Co.  v.  Hambleton,  40  Ohio 
St.  496  (1884). 

The  lessor  corporation,  as  well  as 
the  lessee,  is  liable  for  an  injury  done 
by  the  lessor  in  building  its  track  so  as 
to  cut  off  ingress  to  adjoining  property 
and  by  the  lessee  subsequently  using 
the  same.  Stickley  v.  Chesapeake,  etc. 
R.  Co.,  93  Ky.  323  (1892),  (20  S.  W.  Rep. 
261). 

A  lessor  of  a  railroad  is  not  liable  for 
damages  to  adjacent  land  caused  by  the 
erection  of  an  embankment  in  filling  in 
a  trestle,  it  not  appearing  that  tlie  tres- 
tle was  insufficient  at  the  time  of  the 
lease.  Miller  v.  New  York,  etc.  R.  Co., 
125  N.  Y.  118  (1890),  (26  N.  E.  Rep.  35). 

2  Arrowsmith  v.  Nashville,  etc. 
R.  Co.,  57  Fed.  165  (1893).  In  St. 
Louis,  etc.  R.  Co.  v.  Curl,  28  Kan. 
622  (1882),  (11  Am.  &Eng.  R.  Cas.458), 
the  question  is  raised  but  not  decided. 

3  I.  Cases  holding  lessor  corporation 
—  under  unauthorized  lease  —  liable  for 
injuries  to  passengers : 

Un ited  States :  Railroad  Co.  v.  Brown, 
17  Wall.  445  (1873). 

Georgia:  Central  R.,  etc.  Co.  v. 
Phinazee,  93  Ga.  488  (1894),  (21  S.  E. 
Rep.  66). 

Iowa :  Bower  v.  Burlington,  etc.  R. 
Co.,  42  Iowa,  546  (1876). 


Kentuckji :  Chesapeake,  etc.  R.  Co, 
V.  Osborne,  97  Ky.  112  (1895),  (30  S.  W. 
Rep.  21). 

New  York:  Abbott  v.  Johnstown, 
etc.  R.  Co.,  80  N.  Y.  27  (1880). 

South  Carolina  :  Bouknight  v.  Char- 
lotte, etc.  R.  Co.,  41  S.  C.  415  (1894), 
(19  S.  E.  Rep.  915). 

Texas:  International,  etc.  R.  Co.  v, 
Eckford,  71  Tex.  274  (1883),  (8  S.  W. 
Rep.  679). 

West  Virginia :  Ricketts  i'.  Chesa- 
peake, etc.  R.  Co.,  .33  \V.  Va.  433  (1890), 
(10  S.  E.  Rep.  801) ;  Fisher  v.  West  Vir- 
ginia, etc.R.  Co.,  39  W.  Va.  366  (1894), 
(19  S.  E.  Rep.  578). 

II.  Cases  holding  lessor  corporation 
—  under  unauthorized  lease  —  liable  for 
injuries  to  persons  lawfully  upon  its  tracks  : 

Freeman  v.  Minneapolis,  etc.  R.  Co., 
28  Minn.  443  (1881),  (10  N.  W.  Rep. 
594, 7  Am.  &  Eng.  R.  Cas.  41 0)  ;  Galves- 
ton, etc.  R.  Co.  V.  Gartesier,  9  Tex.  Civ. 
App.  456  (1895),  (29  S.  W.  Rep.  939). 
See  also  Briscoe  v.  Southern  Kansas 
R.  Co.,  40  Fed. 273  (1889),  (live  stock). 
III.  Miscellaneous  cases  stating  gen- 
eral rule  that  lessor  is  liable  for  negligence 
of  lessee  in  operation  of  road  under  unau- 
thorized lease : 

United  States :  Welden  Nat.  Bank 
V.  Smith,  86  Fed.  398  (1898) ;  Hayes  v. 
311 


§  219  INTERCORPORATE  RELATIONS.        [pART  III. 

"  Shippers,  who  have  a  common-law  right  to  demand  of  tlie 
common  carrier  that  he  shall  carry  their  goods  safely,  passen- 
gers, who  have  a  common-law  right  to  demand  of  the  com- 
mon carrier  that  they  shall  be  carried  safely  to  their  destination, 
and  travellers  upon  the  highway,  who  have  a  statutory  and 
common-law  right  to  such  a  reasonable  and  careftd  operation 
of  the  road  as  shall  not  unduly  injure  them  in  tlie  f>nrsuit  of 
their  lawful  rights,"  sustaining  damnges  by  the  failiii-o  of  a 
lessee,  under  an  unauthorized  railroad  lease,  to  fulfil  all  the 
obligations  required  of  railroad  companies,  may  hold  the 
lessor — as  well  as  the  lessee  —  responsible  therefor.' 

§  219.  Liability  of  Lessor  for  Negligent  Operation  of  Rail- 
road— (B)  Under  Authorized  Lease. —  Extending  the  juinciple, 
already  considered,  that  the  approval  by  the  legislature  of  a 
railroad  lease  is  insufhcicnt,  without  a  clause  of  exemption,  to 
release  a  lessor  from  the  performance  of  its  statutory  duties 
and  the  fulfilment  of  its  primary  obligations,  it  is  held  by  courts 
of  high  authority  that  an  express  exemption  is  also  necessary 
to  relieve  a  lessor  from  liability  for  injuries  to  third  persons 
caused  by  the  negligence  of  a  lessee  in  the  operation  and  man- 
agement of  a  leased  railroad  ;  that  although  the  lessor  has, 
with  statutory  authority,  parted  with  the  control  of  its  rail- 
road, it  is  still  liable  for  the  torts  of  the  lessee.'-^ 

Northern    Tacific   R.  Co.,  74  Fed.  282  Vermont .-    Nelson  v.  Uailroad  Co.,  26 

(1896) ;   Ilukill  v.  Maysville.etc.  R.  Co.,  Vt.  717  (18.j4). 

72  Fed.  745  (189G);  Arrowsinith  v.  Nash-  ^  Ilukill  r.  Maysville,  etc.  R.  Co.,  72 

ville,  etc.  R.  Co.,  57  Fed.  105  (1893).  Fed.  752  (1896). 

Alahama :     Rome,    etc.    R.    Co.   i'.  -  Connrrliatt  :    In    Driscoll    v.   Nor- 

Chastecn,   88    Ala.   591    (1889),  (7   So.  wich,  etc.  H.  Co.,  65  Conn.  2.'50  (1804), 

Rep.  94).  (32  Atl.  Rep.  354),  it  was  said  that  a 

District    of    Columbia  :    Howard    v.  railroad  company  cannot,  by  a  lease  of 

Chesapeake,  etc.   R.  Co.,  11  App.  Cas.  its  property,  absolve  itself  from  liability 

300  (1897).  for  an  injury  to  a  stranger,  caused  by 

Id'iho :    Palmer  v.  Utah,  etc.  R.  Co.,  the  negligence  of  the  lessee  in  the  oper- 

2  Idaho,  350  (1888),  (16  Pac.  Rep.  553,  ation  of  the  road,  unless  such  exemp- 

36  Am.  &  Eng.  R.  Cas.  443).  tion  is  provided  for  in  the  lease,  and  is 

Illinois :    Railway  Co.  v.  Dunbar,  20  also  expres.sly  sanctioned  by  legislative 

111.  623  (1858).  authority. 

South  Carolina  :    Harmon  v.  Colum-  The  conclusion  of  the  Court  in  this 

bia,   etc.    R.   Co.,  28  S.  C.  401  (1887),  case  can,  however,  be  justified  on  other 

(5  S.  E.  Rep.  835).  grounds.    See  post,  §221  :  "  Liability  of 

Texas  :  Railroad  Co.  v.  Culberson,  72  Lessor  for  Ncfjlifjent  Operation  of  Rail- 

Tex.  375  (1888),  (10  S.  W.  Rep.  70G).  road—  (D)   When  it  shares  in  Control." 

312 


CHAP.  XIX.]      RIGHTS    AND    LIABILITIES    OF   LESSOR. 


§219 


It  is  urged,  in  support  of  tliis  position,  that  public  policy 
requires  that  the  obligations  of  a  railroad   corporation  —  to 


Georgia :  Green  v.  Coast  Line  R. 
Co..  97  Ga.  27  (1895),  (24  S.  E.  Rep. 
814)  :  "  It  is  by  reason  of  this  firm  ad- 
liesiou  of  duty  imposed  to  fraucliise 
granted  that  an  incorporated  railroad 
company  cannot  lease  its  line  of  railway 
and  permit  it  to  be  operated  by  the  les- 
see without  being  liable  for  negligent 
torts  committed  by  the  lessee,  to  the 
same  extent  as  if  they  were  committed 
by  itself.  .  .  .  And  this  rigid  rule  of 
liability,  which  is  directly  the  opposite 
of  that  which  prevails  touching  leases 
where  no  charter  franchises  of  a  quasi- 
public  nature  are  involved,  is  not  re- 
laxed in  favor  of  a  company  having 
express  permission  from  the  legislature 
to  make  the  lease,  unless  there  be  also 
an  express  exemption  or  grant  of  abso- 
lution from  liability.  Thus,  in  the  case 
of  a  mere  permissive  lease  of  a  railroad, 
tliere  is  a  cumulative  rather  than  dimin- 
ished security  to  the  injured  citizen,  who 
for  a  tort  committed  ...  by  the  lessee, 
in  the  exercise  of  franchises  derived  from 
the  lessor,  can  hold  either  or  both  an- 
swerable for  the  damages." 

In  Singleton  v.  South  Western  R. 
Co.,  70  Ga.  4G4  (1883),  (48  Am.  Rep. 
574),  a  lessor  was  held  liable  for  inju- 
ries to  a  passenger  upon  lessee's  train 
through  the  negligence  of  lessee's  ser- 
vants. This  decision  was  placed  upon  tlie 
broad  ground  that  a  lessor  is  liable  for 
the  torts  of  its  lessee  even  under  an  au- 
thorized lease,  but  might  well  have  been 
based  upon  the  privity  of  contract  be- 
tween the  lessor  and  the  passenger,  for 
the  passenger's  ticket  was  issued  in  the 
name  of  the  lessor.  See  also  Central  R., 
etc.  Co.  V.  Phinazee,  93  Ga.  488  (1893), 
(21  S.  E.  Rep.  66);  Central  R.  Co.  l-. 
Brinson,  64  Ga.  475  (1880). 

Illinois :  Balsley  i'.  St.  Louis,  etc. 
R.  Co.,  119  111.  68  (1886),  (8  N.  E.  Rep. 
859,  59  Am.  Dec.  784) ;  Pennsylvania 
Co.  V.  Ellet,  132  111.  654  (1890),  (24 
N.  E.  Rep.  559,  42  Am.  &  Eng.  R.  Cas. 
64) ;  Peoria,  etc.  R.  Co.  v.  Lane,  83  III. 
448  (1876). 


Massachusetts :  Brasliu  v.  Somerville 
Horse  R.  Co.,  145  Mass.  68  (1887),  13 
N.  E.  Rep.  65)  {per  Allen,  J.):  "It  is 
nowhere  stated  that  the  lessor  should 
be  exonerated  from  responsibility,  nor 
was  it  possible  for  the  parties  to  make 
a  contract  which  should  have  tliat  effect. 
The  sanction  of  the  legislature  was 
given  the  contract  as  made  b}-  the  par- 
ties, but  added  nothing  by  way  of  ex- 
emption from  the  primary  responsibility 
of  tlie  lessor.  The  lease  did  not  purport 
to  transfer  the  lessor's  franchise,  or  the 
■whole  of  its  property.  The  lessor  was 
not  going  out  of  business  entirely,  but 
only  leased  a  portion  of  its  road,  with 
provisions  for  restoration  of  the  leased 
property  at  the  end  of  the  term,  and  for 
re-entry.  It  was  under  a  positive  duty 
and  obligation  to  the  public,  and  the 
consent  of  the  legislature  to  the  making 
of  the  lease  did  not  imply  a  discharge 
from  the  duty  and  obligation.  Indeed, 
there  is  a  certain  implication  that  the 
parties  did  not  contemplate  any  such  dis- 
charge, arising  from  tlie  stipulation  for 
indemnity  "  during  said  term,"  that  is, 
during  the  M'hole  term  of  the  lease. 
Where  a  corporation  seeks  to  escape 
from  the  burdens  imposed  upon  it  by 
the  legislature,  clear  evidence  of  a  leg- 
islative assent  to  such  exoneration 
should  be  found." 

In  the  earlier  Massachusetts  case  of 
Quested  i;.  Newburj^port  Horse  R.  Co., 
127  Mass.  204  (1879),  a  lessor  was  held 
liable  to  persons  injured  through  the 
negligence  of  the  lessee,  but  in  that  case 
it  was  expressly  provided  by  statute 
that  tlie  lease  should  not  "  release  or 
exempt  such  company  from  any  duties, 
liabilities  or  restrictions  to  which  it 
would  otherwise  be  sul)ject." 

Nebraska  :  In  Chollette  v.  Omaha, 
etc.  R.  Co.,  26  Neb.  159  (1889),  (41 
N.  W.  Rep.  1106),  where  a  passenger 
was  injured  through  the  negligence  of 
the  lessee's  employees,  it  was  held  that, 
upon  grounds  of  public  policy,  tlie  origi- 
nal obligation  of  a  railroad  company  to 

313 


§  219  INTERCORPORATE   RELATIONS.  [PART   III. 

persons  using  its  road  as  passengers  and  shippers,  to  travel- 
lers upon  highways  crossed  by  its  tracks  —  should  not  be  dis- 
charged by  a  lease  of  its  property  and  franchises  to  another 
corporation  unless  it  is  exempted  from  liability  by  legislative 
authority  ;  that  when  a  corporation  seeks  to  escajie  fi'om  the 
burdens  imposed  upon  it,  clear  evidence  of  legislative  assent 
to  such  exoneration  must  be  shown,  which  is  not  furnished  by 
a  mere  approval  of  the  transfer  of  its  property  and  franchises. 
As  tersely  expressed  by  the  Supreme  Court  of  Georgia  in 
Siiifjldon  V.  South  Western  R.  Co.'^:  "The  view  which  we 
take  of  the  law  and  the  cases  cited  is  that  the  original  obliga- 
tions can  only  be  discharged  by  legislative  enactment  consent- 
ing to  and  authorizing  the  lease,  with  an  exemption  to  the 
lessor  company." 

On  the  other  hand,  it  is  said  by  courts  of  equally  high 
authority  that  the  legislature,  by  sanctioning  a  lease,  gives  its 
consent  that  the  lessee  shall  stand  as  a  substitute  for  the  les- 
sor with  respect  to  all  matters  arising  out  of  the  future 
management  and  control  of  the  leased  railroad.  It  is  held  by 
these  courts  that  a  lessor  having,  with  the  approval  of  the 
legislature,  leased    and   entirely  parted  with    the  possession 

the  public  cannot  be  discharged  by  a  burgh,  etc.  R.  Co.,  43  S.  C.  107  (1895), 
transfer  of  its  franchises  to  another  (20  S.  E.  IJep.  1009),  the  Court  went 
company,  except  by  legislative  enact-  the  extreme  length  of  holding  a  lessor 
ment  consenting  to  and  authorizing  liable  for  the  torts  of  a  receiver  of  the 
such  transfer,  with  an  exemption  lessee.  This  holding  that  a  Ics.sor  is 
granted  to  such  company  relieving  it  responsible  for  the  management  of 
from  liability ;  that  mere  legislative  property  in  custodin  legis  cannot  be  jus- 
consent  to  the  transfer  is  not  suffi-  tified  upon  principle  or  authoritv.  See 
cient,  there  must  be  a  release  from  also  Hart  i--.  Railroad  Co.,  33  S.  C.  427 
the  obligations  of  the  company  to  the  (1890),  (12  S.  E.  Rep.  9) ;  Chester  Nat. 
public.  Bank  v.  Atlanta,  etc.  R.  Co.,  25  S.  C. 

North    Carolina:     Pierce    v.    North  216(1886). 
Carolina  R.  Co.,  124  N.  C.  83  (1899),  Tennessee:      In  Hanna   v.    Railway 

(32  S.  E.  Rep.  399) ;  Kinney  r.  North  Co.,  88  Tenn.  310  (1889),  (12  S.  AV.  Rep. 

Carolina  R.  Co.,  122  N.  C.  961  (1898),  718),  a  railroad  company  was  held  not 

(30  S.  E.  Rep.  313)  ;  Logan  v.  North  liable  for  an  injury  to  an  employee  of  a 

Carolina  R.  Co.,  116  N.  C.  940  (1895),  contractor,  but  the  Court  remarlced  that 

(21  S.  E.  Rep.  959).  both  "  sanction   and  exemption  "  were 

South   Carolina  :     In  Harmon  v.  Co-  necessary  to  relieve  a  lessor, 
lumbia,  etc.  R.  Co.,  28  S.  C.  401  (1888).         Texas:  Central,  etc.  R.  Co.  v.  Morris, 

(5  S.  E.  Rep.  835),  a  lessor   was   held  68  Tex.  49  (1887),  (3  S.  W.  Rep.  457). 
liable  for  stock  killed  through   negli-  i  Singleton  v.  South  Western  R.  Co., 

geiice  of  lessee.     In  Parr  o.  Spartans-  70  Ga.  469  (1883),  (48  Am.  Rep.  574). 

314 


CHAP.  XIX.J         RIGHTS    AND   LIABILITIES   OF   LESSOR. 


§219 


and  control  of  its  railroad,  is  not  liable  for  the  torts  of  the 
lessee ;  that  legislative  exemption  is  not  necessary  in  addition 
to  legislative  sanction.^ 

In  Arrowsmith  v.  Nashville^  etc.  R.  Co.^  Judge  Lurton  dis- 
tinguished the  case  where  statutory  exemption  is  necessary 
from  that  where  statutory  sanction  is  sufficient:  "Where 
obligations  are  imposed  by  charter  or  statute  law  upon  a  rail- 
road company  for  the  protection  and  advantage  of  the  general 
public  not  having  contract  relations  with  it,  it  may  very  well 


1  United  States :  Hayes  v.  Northern 
Pacific  R.  Co,,  74  Fed.  282  (1896),  (Jen- 
kins, J.) :  "  It  is,  however,  a  different 
question  when  the  lessor  company  is 
sought  to  be  made  liable  for  the  negli- 
gent management  of  the  road  which  it 
was  authorized  to  lease,  and  of  which 
management  it  had  no  control.  In  such 
case,  we  perceive  no  ground  of  public 
policy  which  should  impose  such  liabil- 
ity upon  the  lessor  company  with  re- 
spect to  injuries  resultin^;  to  individuals 
from  the  negligent  operation  of  the 
railway.  The  subject  has  been  much 
discussed,  and  some  of  the  cases  are 
characterized  by  lack  of  discrimination 
between  liability  for  duties  absolutely 
imposed  by  law  upon  the  lessor  company 
and  duties  arising  from  the  manner  of 
the  operation  of  trains." 

Also  Arrowsmith  v.  Nashville,  etc.  R. 
Co.,  57  Fed.  165  (1893),  (a  leading  case). 

Arkansas :  Little  Rock,  etc.  R.  Co. 
V.  Daniels,  68  Ark.  171  (1900),  (56  S. 
W.  Rep.  874). 

Kansas :  St.  Louis,  etc.  R.  Co.  v. 
Curl,  28  Kan.  623  (1882) :  "  If  the  injury 
results  from  negligence  in  the  handling 
of  trains  or  in  the  omission  of  any  stat- 
utory duty  connected  with  the  manage- 
ment of  the  road,  matters  in  respect  to 
which  the  lessor  company  could,  in  the 
nature  of  things,  have  no  control  — 
then  the  lessee  company  will  alone  be 
responsible." 

See  also  Caruthers  v.  Kansas  City, 
etc.  R.  Co.,  59  Kan.  629  (1898),  (54  Pac. 
Rep.  673). 

Maine  :  Nugent  v.  Railroad  Co.,  80 


Me.  76  (1888),  (12  Atl.  Rep.  797):  "An 
authorized  lease,  without  any  exemption 
clause,  absolves  the  lessor  from  the  torts 
of  the  lessee  resulting  from  the  negli- 
gent operation  and  handling  of  its  trains 
and  the  general  management  of  the 
leased  road,  over  which  the  lessor  could 
have  no  control." 

See  also  Mahoney  v.  Atlantic,  etc.  R. 
Co.,  63  Me.  68  (1873). 

Minnesota :  Heron  v.  St.  Paul,  etc. 
R.  Co.,  68  Minn.  542  (1897),  (71  N.  W. 
Rep.  706). 

Neiv  Hampshire  :  Murch  i'.  Concord 
R.  Co.,  29  N.  H.  1  (1854). 

New  York :  Phillips  v.  Northern  R. 
Co.,  41  N.  y.  St.  Rep.  780  (1891),  (16 
N.Y.  Supp.909).  In  Ditchett  v.  Spuyten, 
etc.  R.  Co.,  67  N.  Y.  425  (1876),  it  was 
held  that  a  railroad  corporation  which 
had  parted  with  the  possession  and  con- 
trol of  its  road  under  a  lease  thereof  to 
another  corporation,  containing  a  cove- 
nant that  the  lessees  should  keep  up  the 
fenceswasnot  liable  to  one  travelling  upon 
a  highway,  for  damages  resulting  from 
an  omission  of  the  lessee  to  repair  a  fence 
which  was  in  good  order  at  the  time  of 
the  lease  and  surrender  of  possession. 

See  also  Miller  v.  Railroad  Co.,  125 
N.  Y.  118  (1890),  (26  N.  E.  Rep.  35). 

Pennsylvania :  Pinkerton  v.  Phila- 
delphia Traction  Co.,  193  Pa.  St.  229 
(1899),  (44  Atl.  Rep.  284). 

Virginia  .  Virginia,  etc.  R.  Co.  v. 
Washington,  86  Va.  629  (1890),  (10 
S.  E.  Rep.  927). 

2  Arrowsmith  v.  Nashville,  etc.  R. 
Co.,  57  Fed.  177  (1893). 

315 


§  220  INTERCORPORATK    RKL.VTIONS.  [PART    III. 

be  said  that  a  general  authority  to  lease  out  its  road,  which 
contains  no  provision  exempting  it  from  such  public  obliga- 
tions, will  not  al)Solvc  it  from  liability.  So,  if  a  railwav  be  in 
such  condition  that  it  is  a  nuisance  when  leased  out  by  reason 
of  the  absence  of  something  necessary  to  its  safe  oj)eration,  or 
the  presence  of  something  dangerous  to  its  safe  operation,  and 
this  nuisance  be  continued  by  the  lessee,  both  the  lessor  and 
lessee  would  be  liable,  —  the  one  as  having  created,  and  tlic 
other  as  having  continued  the  nuisance.  But  to  say  that,  after 
the  lessor  has,  by  authority  of  law,  transferred  the  control 
and  management  of  its  road  to  another,  he  shall,  unless  espe- 
cially exempted,  remain  liable  for  all  the  torts  and  contracts 
of  the  lessee,  is  to  ignore  the  contract  of  lease  and  the  legis- 
lative sanction  under  which  it  wis  made.  The  State,  on 
grounds  of  public  policy,  may  well  refuse  its  consent  to  the 
transfer;  but,  if  it  consent,  then  there  is  no  public  policy  to 
authorize  the  courts  to  say  that  the  responsibility  for  the 
future  management  and  operation  of  the  road  has  not  l)ecn 
exclusively  imposed  upon  the  lessee  as  the  lawful  substitute,  for 
the  company  owning  the  road." 

Upon  })rinciple  there  is  no  obvious  reason  why,  when  the 
legislature  has  authorized  a  railroad  company  to  lease  its  rail- 
road, and  it  has  exercised  the  power  conferred  and  has  entirely 
parted  with  the  control  of  the  leased  property,  it  should 
still  be  responsible  for  the  negligence  of  the  lessee  in  the  op- 
eration of  the  road.  The  doctrine  of  respondeat  superio7-  has 
no  application,  for  the  lessee  is  the  owner  pro  hac  vice.  The 
legislature  has  passed  upon  considerations  of  public  policy  in 
authorizing  the  lease.  Under  these  conditions,  it  would  seem 
that  the  privileges  and  corresponding  obligations  should  both 
pass  to  the  lessee  in  the  manner  of  other  property,  and  that 
the  general  principle  that  a  landlord  is  not  responsible  for  the 
negligence  of  his  tenant  in  the  management  of  the  leased 
property  should  be  applicable  and  controlling. 

§  220.  Liability  of  Lessor  for  Negligent  Operation  of  Railroad 
—  (c)  To  Employees  of  Lessee.  —  The  rule  that  a  lessor  cor- 
poration, under  an  unauthorized  lease,  is  responsible  to  third 
persons  for  the  negligence  of  the  lessee,  is,  upon  principles 
316 


CHAP.  XIX.]      RIGHTS    AND    LIABILITIES    OF   LESSOR. 


§  220 


already  illustrated,  well  settled.^  A  similar  rule,  in  favor  of 
the  employees  of  the  lessee,  lias  been  adopted  by  the  Supreme 
Court  of  North  Carolina,  upon  the  theory  that  the  original  obli- 
gation of  the  lessor  to  compensate  its  own  servauts  for  injuries 
received  enures  to  the  benefit  of  the  servants  of  the  lessee.^ 

The  doctrine  is  fundamentally  unsound.  The  obligations 
of  the  lessor  to  its  own  servants  grew  out  of  the  contract  of 
employment.  Their  duties  were  reciprocal.  But  after  the 
lease  of  a  railroad  there  is  no  privity  of  contract  between 
the  lessor  and  the  servants  of  the  lessee.  An  employee  of 
the  lessee  owes  the  lessor  no  duty,  and  the  lessor  owes  him 
no  corresponding  obligation.  Upon  principle  and  authority 
it  is  clear  that  the  lessor  corporation  is  not  liable  to  an  em- 
ployee of  the  lessee  for  injuries  sustained  through  the  negli- 
gence of  the  lessee  in  the  operation  of  the  road,  even  though 
the  lease  is  without  legislative  authority.  "  To  his  own  master 
he  standeth  or  falleth."  ^ 


1  Ante,  §  218:  '^Liability  of  Lessor 
for  Negligent  Operation  of  Railroad  — 
(^1)  Under  Unauthorized  Leased 

2  lu  Logan  v.  North  Carolina  R.  Co., 
116  N.  C.  949  (189,5),  (21  S.  E.  Kep. 
9.59),  the  Court  said :  "  If  we  apply  the 
te?t  which  we  hold  to  be  the  true  one, 
that  the  liability  of  the  lessor  grows  out 
of  the  duty  imposed  with  the  privilege 
in  the  first  instance,  the  same  reason  is 
found  to  e.Kist  for  holding  it  liable  to 
servants  of  the  lessee  for  injuries  sus- 
tained by  them,  as  for  injuries  inflicted 
on  passengers.  A  part  of  the  original 
duty  imposed  by  the  charter  was  to 
compensate  servants  in  damages  for  any 
injuries  they  might  sustain,  except  such 
as  should  be  due  to  the  negligence  of 
their  fellow-servants.  The  employee  is 
deemed  in  law  to  contract  ordinarily 
to  incur  such  risks  as  arise  from  the 
carelessness  of  the  other  servants  of  tlie 
company,  but  where  the  lessor  company 
would  be  liable,  if  it  remained  in  charge 
of  the  road,  to  a  person  acting  as  its  own 
servant,  we  see  no  reason  why  it  should 
not  be  answerable  to  him  when  em- 
ployed by  the  lessee.  Its  implied  ob- 
ligation in  the  first  instance  —  to  come 


back  to  the  touchstone  —  was  to  com- 
pensate its  own  servants  for  injuries 
due  to  any  cause  other  than  the  care- 
lessness of  their  fellows,  and  the  same 
rule  must  apply  in  its  relation  with  the 
servants  of  the  lessee." 

In  Macon,  etc.  R.  Co.  v.  Mayes,  49 
Ga.  355  (1873),  the  Court  held,  ge-i- 
erally,  that  a  lessor,  under  an  unauthor- 
ized lease,  is  liable  to  an  employee  of 
the  lessee  for  injuries  caused  by  the 
negligent  operation  of  the  road,  but  in 
that  case  the  negligence  was  actually 
that  of  the  lessor  itself.  Compare  Galves- 
ton, etc.  R.  Co.  V.  Daniels,  9  Tex.  Civ. 
App.  253  (1894),  (28  S.  W.  Rep.  548). 

3  Hayes  r.  Northern  Pacific  R.  Co., 
74  Fed.  279  (1896) ;  Ilukill  r.  Maysville, 
etc.  R.  Co.,  72  Fed.  745  (1896) ;'  Balti- 
more, etc.  R.  Co.  V.  Paul,  143  Ind.  23 
(1895),  (40  N.  E.  Rep  519);  Virginia 
IMidland  R.  Co  v.  Washington,  86  Va. 
629  (1890),  (10  S.  E.  Rep.  927)  ;  Buck- 
ner  i:  Richmond,  etc.  R.  Co.,  72  Miss. 
873  (18  So.  Rep.  449)  ;  Hanna  v.  Rail- 
way Co.,  88  Tenn.  310  (18891,<12  S  W. 
Rep.  718)  ;  Baxter  v.  New  York,  etc. 
Co.  (Tex.  1893),  (22  S.  W.  Rep.  1002). 
lu  East   Line,  etc.  R.    Co.  v.   Culber- 

317 


§  220 


INTERCORPORATE   RELATIONS. 


[part  III. 


A  fortiori,  the  employees  of  the  lessee  corporation  have  no 
right  of  action  against  the  lessor  for  the  negligence  of  tiie 
lessee  when  the  road  is  oi)erated  under  an  authorized  lease. ^ 

The  rules  already  considered,  however,  that  a  lessor  corpo- 
ration is  liable  for  any  failure  in  the  performance  of  its  own 
statutory  and  primary  duties,  unless  expressly  exenipted,^ 
are  applicable  in  favor  of  employees  of  the  lessee,  as  well  as 
other  jicrsons.  Thus,  a  lessor  may  be  liable  to  such  employees 
for  injuries  caused  by  the  improper  construction  of  a  station- 
house,^  and  by  defects  in  the  road-bed  where  the  owner  is 
charged  with  the  duty  of  keeping  it  up.* 


son,  72  Tex.  379  (1888),  (10  S.  W. 
Kcp.  706,  3  L.  H.  A.  567,  38  Am.  & 
Kiig.  U.  Cas.  225),  where  a  conductor 
upon  a  train  of  a  lessee  corporation, 
under  nn  unauthorized  lease,  was  in- 
jured h_v  the  neglii^eace  of  the  lessee 
in  supplying  a  tlefectivo  engine  and 
employing  a  careless  engineer,  the 
Court  said:  "Tiio  duties  wliich  are 
owed  by  a  railroad  company  to  its  ser- 
vants are  not  duties  owed  to  him  in 
coniinou  with  tlic  public,  but  grow  out 
of  the  contract  of  service.  He  as.-^umes 
the  relation  of  servant  to  his  employer 
voluntarily,  and  out  of  it  arises  the 
reciprocal  obligations  from  one  to  the 
other.  It  seems  to  us  that  the  relation 
of  the  servant  of  the  company  ojjerat- 
ing  tiic  road  to  the  owner  is  very  dif- 
ferent from  his  relation  to  liis  employer, 
and  that  the  relation  of  the  owner  of 
tlie  road  to  him  is  different  from  its 
relation  to  the  general  public.  His  con- 
tract is  not  with  the  company  owning 
the  road,  and,  it  may  be  a.sked,  does  the 
latter  owe  him  the  duty  of  a  master  to 
a  servant,  or  guarantee  that  the  master 
with  whom  he  has  voluntarily  con- 
tracted, will  perform  its  obligation  to 
him  ?  It  may  be  that  if  the  injury  had 
occurred  by  reason  of  a  defect  in  the 
road-bed  or  track  and  not  by  reason  of 
a  defect  in  the  engine,  the  company 
charged  with  the  duty  of  keeping  up 
the  road  would  be  liable.  But  if  it 
were  true  that  the  injury  was  caused 
entirely  bv  another  company  operating 

318 


the  owner's  road,  and  was  inflicted  upon 
one  of  its  own  eiii]doyei':4  by  rea-son  of  a 
defect  iit  machinery  entirely  under  its 
control,  it  is  difficult  to  see  upon  what 
princij)le  of  policy  or  justice  the  lessor 
should  be  held  liable  merely  because  it 
owned  the  road." 

1  Virginia  .Midland  R.  Co.  i-.  Wash- 
ington, 86  Va.  629  (1890),  (10  S.  E. 
Rep.  927).  See  also  cases  cited  in  pre- 
cedijig  note. 

Contra,  Logan  i\  North  Carolina  R. 
Co.,  116  N.  C.  940  (1895),  (21  S.  E.  Rep. 
959). 

*  See  ante,  §216:  "Lessor  cannot 
avoid  Statutori/  Obligations  unless  ex- 
emjited;"  ante,  §  217:  "Lessor  cannot 
avoid  Primary  Obligations  unless  ex- 
empted." 

'  Nugent  t'.  Boston,  etc.  R.  Co.,  80 
Me.  62  (1888),  (12  Atl.  Rep.  797).  The 
lessor  ha.'*,  however,  been  held  not  liable 
for  injuries  received  by  an  employee  of 
the  lessee  when  the  pro.ximate  cause  of 
the  injury  was  the  running  of  the  train 
by  a  co-employee,  although  a  defective 
railroad  platform  contributed  to  the 
injury.  Evans  v.  Sabine,  &c.  R.  Co., 
(Tex.  1892),  (18  S.  W.  Rep.  493).  See 
also  Jones  v.  Georgia  Southern  R.  Co., 
66  Ga.  558  (1881). 

*  East  Line,  etc.  R.  Co.  v.  Culber- 
son, 72  Tex.  375  (1888).  (10  S.  W.  Rep. 
706,  3  L.  R.  A.  567,  38  Am.  &  Eng. 
R.  Cas.  225) ;  Galveston,  etc.  R.  Co. 
r.  Daniels,  9  Tex.  Civ.  App.  253  (1894), 
(28   S.  W.   Rep.  548).     See,  however, 


CHAP.  XIX.]      RIGHTS   AND   LIABILITIES   OF   LESSOR.  §  221 

§  221.    Liability  of  Lessor  for  Negligent  Operation  of  Railroad 

—  (D)  "When  it  shares  in  Control.  —  A  COgeilt  reason  why 
a  railroad  corporation  which  has,  with  legislative  sanction, 
leased  and  turned  over  the  possession  of  its  road  to  another 
company,  should  not  be  held  responsible  for  the  torts  of  the 
lessee,  is  that  they  are  committed  by  persons  over  whom  it  has 
no  control,  upon  property  in  the  exclusive  possession  of  an- 
other. This  reason  fails  when  the  lessor,  having  leased  its 
railroad,  retains  any  part  in  its  control.  Thus,  for  example, 
where  a  lease  provided  that  the  managing  agent  of  the  leased 
road  should  be  satisfactory  to  the  lessor,  and  that  its  treasurer 
should  receive  and  disburse  the  earnings,^  it  was  held  that 
the  lessor,  as  well  as  the  lessee,  was  responsible  for  all  injuries 
to  the  public  through  the  negligent  operation  of  the  road. 
Where  the  control  retained  amounts  to  joint  management,  the 
lessor  is  undoubtedly  liable  for  injuries  to  employees  equally 
with  the  lessee. 

Upon  other  principles  —  contractual  liability  and  estoppel 

—  the  lessor  corporation  will  be  held  responsible  where  it 
allows  the  lessee  to  use  its  name  in  the  operation  of  the  leased 
road  and  in  the  issue  of  tickets  for  travel  thereon.^ 

In  Railroad  Co.  v.  Broivn^  the  Supreme  Court  of  the  United 
States  said  :  "  The  holder  of  such  a  ticket  contracts  for  car- 
riage with  the  company,  not  with  the  lessees  and  receiver. 

Murch  V.  Coucord  R.  Corp.,  29  N.  H.  have  possession  of  the  same  ;  from  which 

9  (1854).  he  sliall  pay  all  the  expenditures  and 

^  In  DriscoU  v.  Norwich,  etc.  R.  Co.  dues  incurred  in  respect  to  the  property 

65  Conn.  230  (1894),  (32  Atl.  Rep.  354),  demised,   all    taxes,    assessments,   and 

the  Court  held  a  lessor  corporation  re-  other  liabilities,  and  shall,  at  the  end 

sponsible  for  the  negligence  of  its  lessee  of  each  six  montlis,  pay  to  himself  for 

upon  several  grounds,  and,  while  some  and  on  account  of  the  defendant,   tiie 

of  them  seem  opposed  to  the  current  of  semi-annual  rent  due  by  the  terms  of 

authority,  the  foUowiugground, as  stated  the  contract,  and  the  balance,  if  any, 

by  Chief  Justice  Andrews  (p.  254),  is  deliver    over    to   the   lessee,    the    said 

unexceptionable  :  "  The  defendant  pre-  New  York  and  New  England  Railroad 

serves  to  itself  an  absolute  control  over  Company." 

all  business  done  by  the  lessee  upon  the  2  Bower  v.  Burlington,  etc.  R.  Co., 
leased  property,  by  requiring  that  the  42  Iowa,  546  (1876)  ;  Singleton  v.  South- 
managing  agent  to  be  appointed  by  western  R.  Co.,  70  Ga.  464  (1883)  ; 
the  lessee  shall  be  a  person  satisfactory  Harmon  v.  Columbia,  etc.  R.  Co.,  28 
to  itself;  that  its  own  treasurer  shall  S.  C.  401  (1887),  5  S.  E.  Rep.  835. 
collect  all  the  money  received  from  and  3  Railroad  Co.  v.  Brown,  17  Wall. 
the  earnings  of  thcleased  property,  and  (U.  S.)  451  (1873). 

819 


§  222  INTEUCORPORATE   RELATIONS.  [PART  III. 

Indeed,  there  is  iiothing  to  sliow  that  Catherine  Brown  knew  of 
the  dil'liculLies  into  which  the  original  company  had  fallen,  nor 
of  the  part  performed  by  the  lessees  and  receiver  in  operating 
the  road.  She  was  not  rcqnircd  to  look  beyond  the  ticket, 
which  conveyed  the  information  that  tliis  road  was  run,  as 
railroads  generally  are,  by  tlie  chartered  company.  Besides, 
the  company,  having  j)ermitted  the  lessees  and  receiver  to 
conduct  the  business  of  the  road  in  this  particular,  as  if  there 
were  no  cliange  of  possession,  is  not  in  a  position  to  raise  any 
question  as  to  its  liability  for  their  acts." 

v^  222.  Liability  of  Lessor  upon  Contracts  of  Lessee.  — 
When  a  railroad  company  leases  its  j-ailroad  to  another  cor- 
poration, with  or  without  legislative  authority,  it  is  not  lialjlc 
upon  contracts  made  by  the  les.see  with  third  jiersons,  not 
relating  to  the  performance  of  its  duties  to  the  public.^  There 
is  no  privity  between  the  lessor  and  the  parties  to  such  con- 
tracts, nor  are  there  reasons  of  public  policy  which  recpiii-e 
that  the  lessee  should  be  considered  the  agent  of  the  lessor 
in  their  execution. 

Contracts  of  the  lessee  relating  to  the  discharge  of  the 
lessor's  ))ublic  duties  stand  upon  a  different  basis.  In  case  of 
an  unauthorized  lease,  the  lessee,  in  the  operation  of  the  road, 
is  treated  as  the  agent  ^  of  the  lessor,  and  the  lessor  may  be 
held  responsible,  in  actions  ex  contractu  upon  contracts  of 
carriage  and  in  actions  ex  delicto  for  any  failure  to  perform 
the  obligations  imposed  by  law  uj)on  common  carriers.^     The 


1  Pittsburgh,  etc.  R.  Co.  v.  Har-  the  lessees  to  do,  and  probably,  for  all 
baugh,  4  Bruwst.  (Pa.)  115  (1870).  which  they  do  do,  as  their  general 
Compare  luteruational,  etc.  R.  Co.  v.  agents.  For  the  public  can  only  look 
Thornton,  3  Te.x.  Civ.  App.  197  (1893),  to  that  corjjoration  to  wlioni  tliey  liave 
(22  S.  W.  Rep.  67).  delegated    this  portion   of    tlie    public 

A  lessor  is  not  liable  for  construe-  service." 
tion  work  done  by  contractors  having  It  is  incorrect  to  say,  however,  that 

contracts   solely  with    the   lessee.     St.  the  lessee  is  the  general  agent  of   the 

Louis,  etc.  R.  Co.  v.  Ritz,  30  Kan.  30  lessor,  except  so  far  as  relates  to  the 

(1883),  (1  Pac.  Rep.  27).  performauce  of  its  public  duties. 

2  In  Nelson  v.  Vermont,  etc.  R.  Co.,  3  Chester  National  Bank  v.  Atlanta, 
26  Vt.  721  (1854),  Judge  Redfield  used  etc,  R.  Co.,  25  S.  C.  216  (1886). 

this    comprehensive    language :    "  The  Lessor   is  liable  for  lessee's  failure 

lessors  must,  at  all  events,  be  held  re-  to  carry  goods.     Central,  etc.  R.  Co.  v. 

sponsible  for  just  what  they  expected  Morris,  68  Te.Y.  49  (1887),  (3  S.  W.  Rep. 

320 


CHAP.  XIX.]        RIGHTS    AND    LIABILITIES    OF   LESSOR.  §  223 

foundation  of  liability  in  each  case  is  the  same.  The  lessee 
is  agent  of  the  lessor  because  the  public  have  the  right  to 
look  to  the  corporation  to  which  they  have  delegated  the 
performance  of  public  duties.  The  lessor  is  responsible  for 
the  negligence  of  the  lessee  because  it  cannot,  by  its  own 
action,  absolve  itself  from  its  obligations  to  the  public.^ 

The  foundation  of  the  lessor's  liability  in  actions  ex  contractu 
being  the  same  as  that  in  actions  ex  delicto,  the  liability  of  a 
lessor,  under  an  authorized  lease,  upon  the  contracts  of  the 
lessee  is  determinable  according  to  the  principles,  already 
considered,  which  fix  its  liability  for  negligence.  In  the  juris- 
dictions which  require  an  express  legislative  exemption  to 
relieve  a  lessor  in  the  case  of  negligence,  it  is,  undoubtedly, 
necessary  in  the  case  of  a  contract.  If  legislative  sanction  is 
suflBcient  in  the  one  case,  it  is  sufficient  in  the  other.^ 

§  223.  Liability  of  Lessor  for  Reconstruction  and  Repairs.  — 
At  common  law,  in  the  absence  of  an  express  covenant  in  the 
lease,  the  lessor  was  not  bound  to  repair  or  rebuild,  or  to  allow 
the  lessee  compensation  for  repairs  made  without  his  authority. 
The  lessee  took  the  leased  property  as  he  found  it,  and  there 
was  no  implied  covenant  or  warranty  on  the  part  of  the  lessor 
in  regard  to  the  property,  its  continuance  in  its  existing  con- 
dition through  the  term,  or  its  availability  for  the  purposes 
for  which  it  was  leased. 

These  principles,  except  as  they  have  been  modified  by 
statute,  are  still  of  general  application  and  apply  where  the 
property  leased  is  a  railroad.  A  railroad  company,  leasing 
its  railroad,  remains  under  no  obligation,  unless  it  is  so  pro- 
vided in  the  lease,  to  rebuild  bridges  or  other  similar  property, 
whether  regarded  as  repairs,  reconstruction  or  substitution, 

457).    Lessor  is  liable  for  goods  received  snch  company  is  not  only  under  obli- 

by  it  to  Le  carried  by  its  lessee,  a  foreign  gations  to  carry  passengers  safely  but 

corporation.     Langley   v.   Boston,   etc.  also  to  deliver  goods  intrusted  to  it  fur 

R.  Co.,  10  Gray  (Mass.),  103  (1857).  transportation,  the  same  principles  ap- 

1  The  foundation  of  liability  in  ac-  ply  in  either  case.      Chester  National 

tions  ex  delicto  and  actions  ex  contractu  Bank  r.  Atlantic,  etc.  R.  Co.,  25  S.  C. 

is  that  the  company,  by  accepting  its  216  (ISSG). 

charter,  has  assumed  obligations  from  "^  See  ante,  §  219:  "  Liabiliti/  of 
which  it  cannot  absolve  itself  by  leasing  Lessor  for  Negligent  Operation  of  Rail- 
its   road  to  another  company;  and   as  road  —  (B)  Under  Authorized  Lease." 

21  321 


§224 


INTERCORPORATE   RELATIONS. 


[part  iir 


or  to  reimburse  the  lessee  corporation  or  its  receiver  for  any 
Rucli  improvements  made  upon  the  leased  road  without  its 
authority.^ 

§  22-4.  Taxation  of  Leased  Railroads. — The  exercise  of  the 
taxing  power  is  evidenced  entirely  by  statutes  which,  in  the 
different  States,  vary  widely  in  their  provisions. 

Especially  is  this  true  in  the  matter  of  the  taxation  of  rail- 
road companies.  The  method  of  assessment,  whether  upon 
earnings,  ca])ital  stock  or  property,  and  the  manner  of  collec- 
tion, are  governed  by  statutes  of  essentially  different  character 
in  different  States.  The  respective  obligations  of  lessor  and 
lessee  cor[)orations  to  pay  taxes,  the  question  whether  lease- 
hold interests  arc  taxable  separately  from  the  fee,  and  the 
obligations  of  foreign  lessor  corporations  regarding  taxes,  may 
also  properly  be  determined  by  statutory  provisions.'-^ 


1  Felton,  Tieceiver,  v.  City  of  Cin- 
cinnati, 95  Fed.  336  (1899).  In  this 
case  a  receiver  was  appi)intccl,  at  the 
suit  of  creditors  and  .'stuckliulders,  for 
the  property  of  a  railroad  comjjany 
whose  only  interest  in  the  road  it 
operated  was  a  leasehold  for  a  term  of 
years.  The  lessor  was  not  a  party  to 
the  suit.  It  was  held  that  the  prin- 
ciples upon  wliich  courts  authorize  ex- 
penditures by  receivers  of  railroads  in 
foreclosure  suits  for  necessary  improve- 
ments, and  cl)arge  the  cost  as  a  first 
lieu  on  the  property,  do  not  authorize  a 
court  to  charge  the  cost  of  bridges  re- 
built by  a  receiver  under  order  of  the 
court  upon  the  lessor's  interest  in  the 
property,  where  the  lease  gives  the  les- 
see no  right  to  make  such  improve- 
ments at  the  les.sor's  expense. 

2  Arkansas.  San.  &  H.  Dig.  1894, 
§  6333 :  If  a  railroad  company  of  an- 
other State  leases  a  railroad  in  this 
State  such  part  of  the  railroad  as  is 
witliin  this  State  is  subject  to  taxation. 

Kansas.  G.  S.  1897,  ch.  70,  §96: 
Nothing  in  the  provisions  authorizing 
leases  of  railroads  to  foreign  corpora- 
tions shall  be  construed  as  curtailing 
any  riirhts  of  the  St.ate,  or  counties, 
etc.  of  this  State,  through  which  road  is 
located,  to  levy  and  collect  taxes  on  the 

322 


same,  in  conformity  with  the  provisions 
of  tlie  laws  of  tiiis  State. 

Missouri.  K.  S.  18'.»9,  §  1060:  Simi- 
lar to  Arkansas  provision,  sni>rn. 

Montana.  Code  1895,  §  923:  Simi- 
lar to  Kansas  provision,  supra. 

N'hraska.  Comp.  Stat.  1901,  §1768: 
Lessees  of  railroads  "  shall  cause  the 
same  to  be  listed  for  taxation."  Ih. 
§  4026  :  Similar  to  Kansas  jjrovision, 
supra. 

North  Carolina.  Pub.  Laws  1895, 
ch.  116,  §  40,  p.  127  :  Where  a  railroad 
is  operated  in  this  State  by  virtue  of  a 
lease,  taxes  shall  be  i)aid  by  the  lessee 
and  may  be  charged  against,  and  de- 
ducted from,  any  payments  due  or  to 
become  due  the  lessor  on  account  of 
tlie  lessee  or  otherwise. 

lb.  §  48,  p.  151  :  If  the  property  of 
any  railroad  company  be  leased  or  oper- 
ated by  any  other  corporation,  foreign 
or  domestic,  the  property  of  the  le.ssor 
shall  be  subject  to  taxation. 

South  Dakota^  Anno.  St.  1901,  §  3906  : 
Nothing  in  the  provisions  of  the  statute 
authorizing  leases  shall  curtail  the  right 
of  the  State  and  counties  througli  which 
the  road  is  located,  to  levy  and  collect 
taxes  ;  and  all  roads  leased  or  purchased 
shall  be  subject  to  taxation. 

Wyoming.      K.    S.    1899,    §    3206: 


CHAP.  XIX.]      RIGHTS    AND    LIABILITIES    OF   LESSOR. 


§224 


As  a  general  rule  in  America,  real  estate  is  taxable  as  a 
vrhole,  witliout  regard  to  separate  estates  of  different  persons 
therein,^  and  is  assessed  in  the  name  of  the  lessor  —  as  owner 
—  rather  than  in  the  name  of  the  lessee.^  These  principles 
are  applicable  to  railroads,  in  the  absence  of  controlling  statute, 
and  must  be  followed  irrespective  of  covenants  in  the  lease, 
which  merely  determine  the  obligations  of  the  parties  between 
themselves.^ 

An  exception  to  the  general  rule  that,  in  the  absence  of  a 
governing  statute,  taxes  are  assessed  in  the  name  of  the  lessor, 
has,  sometimes,  been  made  in  the  case  of  leases  in  perpetuity, 
and  might  properly  be  made  in  the  case  of  other  long  term 
railroad  leases.  These  exceptions,  however,  in  no  way  modify 
the  principle,  for  a  lessee,  under  such  a  lease,  is  treated,  for 
purposes  of  taxation,  as  the  otvner,  and  the  lease  is  equivalent 
to  a  conveyance  in  fee  in  consideration  of  an  annuity.^ 


Similar    to    South    Dakota    provision, 
sit  pro. 

1  Cooley  on  Taxation,  p.  28S. 

2  In  Rutland  R.  Co.  v.  Central  Ver- 
mont R.  Co.,  63  Vt.  25  (1890),  (21  Atl. 
Rep.  262),  the  Supreme  Court  of  Ver- 
mont said  regarding  a  tax  on  earnings  : 
"  Under  the  original  as  well  as  the  mod- 
ified lease  no  provision  for  the  payment 
of  taxes  was  made.  The  lease  being 
silent,  the  duty  to  pay,  under  the  com- 
mon law,  rested  upon  the  lessor." 

See  also  Irvin  v.  New  Orleans,  etc. 
R.  Co.,  94  111.  105  (1879);  Wood's 
Landlord  and  Tenant,  p.  685 ;  Taylor's 
Landlord  and  Tenant,  pp.  341,  395. 

In  Maryland  the  general  principle 
that  the  lessor  is  bound  to  pay  all  State 
and  municipal  taxes  is  modified  by 
statutes  requiring  the  lessee  to  pay 
them  but  giving  him,  in  the  absence  of 
other  agreement,  the  right  to  recover 
the  amount  paid  from  the  lessor  or  to 
deduct  it  from  the  rent.  Philadelphia, 
etc.  R.  Co.  V.  Appeal  Tax  Court,  50 
Md.  397  (1879). 

Upon  the  principle  that  only  the 
owners  of  railroads  are  liable  for  assess- 
ments, it  has  been  held  that  the  lessee 
of  a  railroad  cannot  be  held  liable  for  a 


ditch  assessment.  Baltimore,  etc.  R. 
Co.  r.  Pausch,  7  Ohio  N.  P.  624  (1896). 
Under  a  New  Mexico  statute  pro- 
viding that  leased  property  shall  be 
taxed  to  the  lessor  unless  listed  by  the 
lessee,  railroad  property,  held  under 
lease,  cannot  be  assessed  against  the 
lessee  unless  so  listed.  Valencia  County 
r.  Atchison,  etc.  R.  Co.,  3  N.  M.  67*7 
(1886),  (10  Pac.  Rep.  294). 

*  A7ite,  §  205  :  "  Covenant  to  pay 
Taxes." 

*  Where  the  charter  of  a  railroad 
company  authorized  it  to  acquire,  by 
lease  or  purchase,  any  necessary  exten- 
sion of  its  road,  and  provided  that  all 
property  so  acquired  should  become 
part  of  its  property,  and  in  pursuance 
thereof  it  leased  other  railroads  forever, 
and  provided  in  the  leases  that  the  roads 
so  leased  slnnild  become  and  be  operated 
as  a  part  of  its  main  line,  it  was  held 
that  the  leased  railroads  would,  if  not 
for  all  purposes,  at  least  for  the  pur- 
poses of  taxation,  be  regarded  as  the 
propert}'  of  the  lessee.  Huck  v.  Chicago, 
etc.  R.  Co.,  86  111.  352  (1877).  See 
also  Appeal  Tax  Court  f.  Western 
Maryland  R.  Co.,  50  Md.  274  (1879); 
Commonwealth   v.    Nashville,   etc.   R. 

323 


§  225  INTERCORPORATE   RELATIONS.  [pART   III. 

CHAPTER  XX. 

RIGHTS    AND    LIABILITIES   OF   LESSEE   CORPORATION. 

I.    Rights  and  Remedies  of  Lessee  Corjtoration. 

§  225.  Riprhts  of  Lessee  in  General.     Incidental  Franchises. 

§  226.  Uights  of  Lfsscu  in  Matter  of  Tolls. 

§  227.  Mortgages  of  Leosea. 

§  228.  Kemedics  of  Lessee  Corporation. 

II.    Liabilities  of  Lessee  Corporation. 
§  220.     Obligation  of  Lessee  to  perform  Lessor's  I'ublic  Duties. 
§  230.     Statutory  Liability  of  Lessee. 
§  231.     Liability  of  Le.s.see  for  Torts  in  Operation  of  lload  under  Authorized  or 

Unauthorized  Lease. 
§  232.     Joint  Liiii)ility  of  Lessor  and  Ijcssee. 
§  233.     Liability  of  Lessee  for  Debts  of  Lessor. 

I.    Rights  and  Remedies  of  Lessee  Corporation. 

§  225.  Rights  of  Leasee  in  General.  Incidental  Franchises. — 
Under  a  lease  of  a  railroad  and  franehi.scs,  by  leirislativL'  au- 
thority, the  lessee,  as  a  general  rule,  succeeds  to  all  the  rights 
and  privileges  of  the  lessor  and  is  entitled  to  the  full  enjoy- 
ment of  the  property  leased.^  But  the  lessee  acquires  by  the 
lease  no  rights  superior  to  those  enjoyed  by  the  lessor.  The 
power  to  lease  does  not  imply  power  to  transfer  greater  privi- 
leges than  the  lessor  possesses.-  A  lessee  takes  the  benefit  of 
contracts  for  the  use  of  railroad  property,  entered  into  by  the 
lessor  with  other  corporations;''  and  may  purchase  the  lease- 
hold interests  of  the  lessor  in  connecting  lines.*     And  where 

Co.,  93  Ky.  430  (1892),  (20  S.  W.  Rop.  exercise  no  riglit  which  its  lc.s.«or  could 

383).     Compare  State  v.  Housatonic  R.  not.     If  that  corporation  had  no  riixht 

Co.,  48  Conn.  44  (1880).  to  use  the  land  and  may  be  restrained 

1  Fisher  v  New  York,  etc  R.  Co.,  from  operating  its  road,  the  lessee 
46  N.  Y.  644  (1871)  ;  Chicago  r.  Evans,  acquired  no  higher  or  superior  right 
24  111.  52  (I860).  under  its  lease,  which  could  not  trans- 

In  Pennsi/lvonia  (Bright.  Pur.  Dig.  fer  privileges  the  lessor  did  not 
1894,  §  123,  p.  1804)  the  lessee  corpora-  possess."  See  also  McMillan  v.  Michi- 
tion  may  indorse,  guarantee  or  other-  gan,  etc.  R.  Co.,  16  Mich.  79  (1867). 
wise  become  liable  for,  or  assume  the  *  London,  etc.  R.  Co.  v.  South- 
principal  and  interest  of,  bonds  of  the  eastern  R.  Co.,  8  Ex.  (W.  H.  &  G.) 
lessor  corporation.  584(18.53). 

2  Nibbs  V.  Chicago,  etc.  R.  Co.,  39  *  Philadelphia,  etc.  R.  Co  r.  Cata- 
Iowa,  344  (1874) :  "  It  (the  lessee)  can  wissa  R.  Co.,  53  Pa.  St.  20  (1866). 

324 


CHAP.  XX.]         RIGHTS   AND   LIABILITIES   OF   LESSEE.  §  226 

a  portion  of  the  leased  property  is  taken  by  process  of  con- 
demnation for  the  use  of  another  corporation,  the  lessee  is 
entitled  to  the  use  of  the  money  awarded  as  compensation, 
during  the  remainder  of  the  term  of  the  lease.^ 

A  lessee  taking,  under  a  lease,  a  railroad,  without  other 
words  of  description  in  the  lease  or  governing  statute,  takes, 
as  incidental  thereto,  such  rights  and  franchises  as  are  neces- 
sary for  the  continued  operation  of  the  road.^  Only  such 
rights  and  franchises,  however,  as  are  essential  to  such  pur- 
pose are  so  acquired,  and,  as  already  shown,  the  lessee,  under 
statutory  authority  to  take  a  lease  of  a  railroad,  does  not  suc- 
ceed to  the  prerogative  franchises  of  the  lessor.^ 

§  226.  Rights  of  Lessee  in  Matter  of  Tolls.  —  Upon  the  prin- 
ciple that  a  lessee  corporation,  in  operating  a  leased  road, 
exercises  only  derivative  franchises,^  it  has  been  held  that 
a  lessee,  in  taking  over  the  railroad  of  the  lessor,  is  entitled 
to  charge  the  rates  of  fare  fixed  by  the  charter  of  the  lessor, 
without  regard  to  the  rates  prescribed  in  its  own.^ 

But  while  the  rates  fixed  in  the  owner's  charter  may  limit 
—  as  a  condition  —  the  tolls  collectible  upon  the  leased  road, 
the  privilege  of  charging  a  greater  rate  of  fare  than  authorized 


^  Where  a  railroad  lease   included  chartered  rights  of  the  lessor.   McCand- 

all   lauds  reasonably    useful   and   con-  less  i'.  Richmond,  etc.  R.  Co.,  38   S.  C. 

veuieut   in   operating   a   railroad,  and  103  (1892),  (16  S.  E.  Rep.  429). 
another  railroad  company  condemned  ^  Where     one     railroad     company 

a  piece  of  land  which  might  be  useful  leased  the  road  of  another  with  all  ita 

although  not  then  in  use,  it  was  held  rights,  powers,  privileges,  etc.,  it  was 

that  the  land  was  included  in  the  lease  held  that  the  lessee,  in  using  the  lessor's 

and  that  the  lessee  was  entitled  to  the  road,  was  not  subject   to   the  charges 

use  of  the  money  awarded  as  damages  fixed  by  its  own  charter  as  to  toll,  but 

for  such  taking,  during  the  continuance  to  the  regulations  in  the  charter  of  the 

of  the  lease.     Matter  of  New  York,  etc.  lessor.      Pennsylvania  R.    Co.   v.  Sly, 

R.  Co.,  49  N.  Y.  414  (1872).  63  Pa.  St.  205  (1870).     See  also  Fisher 

2  See  ante,  §  157:  "  Essential  Fran-  v.  New  York,  etc.  R.  Co.,  46  N.  Y. 
chises  pass  upon  Sale  of  Railroad."  652  (1871). 

3  See  ante,  §  210:  "Lessor  Corpora-  A  lease  on  the  basis  of  a  division  of 
tion  retains  Prerogative  Powers.  Right  of  the  net  profits  from  the  lessor's  and 
Eminent  Domain."  lessee's  road  combined  gives  the  lessor 

*  Where  one  railroad  company  leases  no  claim  on  earnings  from  new  roads 

the   rights    and    property    of    another  subsequently  built  or  acquired  by  lessee, 

railroad  company,  all  corporate  rights  Murch  v.  Eastern  R.  Co.,  43  N.  H.  515 

exercised  by  the  lessor  in  the  operation  (1862). 
of  the  leased  road  are  referable  to  the 

325 


§  228  INTERCORPORATE   RELATIONS.  [PART  III. 

in  the  lessee's  cliarter  or  in  general  laws  applicable  to  it,  can 
only  be  transferred  b}'  lease  where  the  statute  permits  the 
transfer  and  the  lease  distinctly  includes  the  privilege.^ 

§  227.  Mortgages  of  Leases.  —  A  railroad  Corporation,  hav- 
ing power  to  mortgage  its  property  to  secure  its  bonds,  may 
mortgage  its  leasehold  interest  in  a  railroad,  as  well  as  other 
property,  and  such  an  interest  will  pass  whenever  compre- 
hended, expressly  or  by  implication,  in  the  terms  of  the  mort- 
gage.^ So,  also,  a  leasehold  of  a  railroad  acquired  subsequently 
to  the  execution  of  a  mortgage  may  be  included  within  its 
"  after  acquired  property  "  clause  whenever  it  clearly  appears 
from  the  language  that  leasehold  estates  were  intended  to  be 
embraced.  Thus,  a  railroad  mortgage  covering  "  all  the  cor- 
porate rights,  privileges,  franchises,  and  immunities,  and  all 
things  in  action,  contracts,  claims,  and  demands  of  the  said 
party  of  the  first  part,  whether  now  owned  or  hereafter  ac- 
quired in  connection  or  relating  to  said  railroad,"  has  been 
held  to  include  a  subsequently  acquired  lease  of  a  connecting 
road.^ 

Where  a  mortgage,  made  by  a  railroad  company,  provided 
that  it  should  include  all  property  subsequently  acquired  by 
the  mortgagor,  it  was  held  that  it  included  a  railroad  with  its 
appurtenances  subsequently  leased,  and  that  the  title  thereto 
was  valid  as  against  the  assignee  of  the  mortgagor.* 

On  the  other  hand,  however,  a  lease,  executed  by  a  mort- 
gagor after  the  execution  of  a  mortgage,  creates  no  privity  of 
estate  or  contract  between  the  mortgagee  and  the  lessee,  and 
a  covenant  of  the  lessee  to  make  advancements  cannot  be 
treated  as  "  after  acquired  property,"  within  the  meaning  of 
that  phrase  as  used  in  mortgages.^ 

§  228.    Remedies   of   Lessee   Corporation.  —  The  fact  that  a 

1  See  ante,  §  161  :  "Right  tojix  Rates  authorizes  the  mortgagiug  of  leases  to 

of  Fare.      Chartered  Rates."  secure  construction  bonds. 

The  lessee  can  collect  only  the  tolls         ^  Columbia,   etc.   Co.    v.    Kentucky 

stated  in  the  lessor's  charter  though  less  Union  R.  Co.,  60  Fed.  794  (1894). 
than   its   own.     McGregor   i;.    Erie  R.  *  Barnard   v.  Norwich,  etc.  R.  Co., 

Co.,  3.5  N.  J.  L.  89  (1871).  14  N.  B.  R.  469  (1876). 

-  Beekman  v.  Hudson  River,  etc.  R.  ^  Moran  v.  Pittsburgh,  etc.  R.  Co., 

Co.,  35  Fed.  3  (1888).  32  Fed.  878  (1887). 

The  Iowa  statute  (Code  1897,  §  2067) 

326 


CHAP.  XX.]        RIGHTS   AND   LIABILITIES    OF   LESSEE.  §  229 

railroad  company  takes  a  lease  of  a  railroad,  manifestly  affects, 
in  no  way,  its  remedies  against  third  persons. 

The  demands  of  a  lessee  against  a  lessor  corporation  depend 
upon  the  terms  of  the  lease.  In  enforcing  these  demands 
and  establishing  its  rights  as  lessee,  a  railroad  company  must, 
ordinarily,  depend  upon  an  action  at  law,  but,  when  this  remedy 
is  inadequate,  resort  may  be  had  to  equity.  Thus,  where  an 
attack  was  threatened  upon  the  validity  of  a  lease,  under 
which  a  railroad  company  held  a  road  forming  a  necessary 
part  of  its  system,  it  was  held  that  the  company  might  main- 
tain a  bill  in  equity  against  the  lessor  corporation  and  its 
officers  to  establish  the  validity  of  the  lease.^ 

II.   Liahilities  of  Lessee  Corporation. 

§  229.  Obligation  of  Lessee  to  perform  Lessor's  Public  Duties. 
—  A  lessee  railroad  company  taking,  by  lease,  the  railroad, 
franchises  and  privileges  of  a  lessor  corporation,  assumes  its 
correlative  duties  and  obligations.  The  burdens  are  insepar- 
able from  the  privileges.^  The  lessee  assumes  the  obligations 
connected  with  the  operation  of  the  railroad  contained  in  the 
lessor's  charter  and  must  conform  to  its  requirements.^  It 
must  fulfil  the  conditions  upon  which  the  franchise  was 
originally  granted.* 

A  lessee  corporation  must,  primarily,  keep  the  road  in 
operation.^     Where  the  lessor,  in  consideration  of  a  grant  of 

1  Southern  R.  Co.  v.  North  Carolina  <  Mullen   v.   Philadelphia    Traction 

R.  Co.,  81  Fed.  595  (1897).  Co.,  4  Pa.  Co.  Ct.  Rep.  164  (1887). 

A  lessee  may  intervene,  as  a  party  ^  The  law  is  clearly  established  that  a 

defendant,  in  an  action  by  the  attorney-  railroad  company  may  be  compelled,  by 

general  to  forfeit  the  charter  of  the  les-  mandamus,  to  operate  its  railroad,  and 

sor  corporation,  especially  where,  the  the  underlying  principles  would  seem 

interests  of  the  lessor  being  protected  to  require  the  application  of  the  same 

by  stipulations,  there  isre.ason  to  believe  remedy  where  a  lessee,  after  acquiring, 

it  is  not  unfriendly  to  the  ])roceeding.  under  an  authorized  lease,  a  railroad 

People  y.  Albany,  etc.  R.  Co.,  77  N.Y.  and  its  franchises,  fails  to  operate  it. 

232  (1879).  It   has,   however,   been   held   that  the 

~  Mayor,  etc.  v.  Twenty-Third  St.  lessee  of  a  railroad  under  an  unauthor- 
R.  Co.,  113  N.  Y.  311  (1889),  (21  N.  E.  ized  lease  cannot  be  compelled  by  man- 
Rep.  60) ;  Chicago  v.  Evans,  24  111.  52  damus  to  operate  it.  See  People  v. 
(1860).  Colorado,    etc.    R.    Co.,   42    Fed.    638 

3  People  V.  St.  Louis,  etc.  R.  Co.,  176  (1890), 
111.  512  (1898),  (52  N.  E.  Rep.  292). 

327 


§230 


INTERCORPORATE   RELATIONS. 


[part  III. 


State  or  municipal  aid,  has  entered  into  an  agreement  to 
maintain  the  road  in  a  certain  location,  the  lessee  must  fulfil 
the  obligation.^  So,  where  the  charter  of  the  lessor  provides 
for  the  payment  of  a  certain  percentage  of  the  receipts  to  the 
State  or  to  a  city,  the  lessee  is  bound  to  make  the  payment.* 
Where  a  lessor  corporation,  under  its  charter,  is  not  permitted 
to  abridge  its  liability  as  a  common  carrier,  the  lessee  operates 
the  road  subject  to  the  same  condition.' 

§  230.     statutory   Liability   of    Lessee.  —  Statutes   have   bccn 

enacted  cxpi'cssly  i)roviding  that  all  duties  imposed  by  law 
upon  railroad  companies  shall  be  discharged  by  lessee  corpo- 
rations, and  that  all  liabilities  may  be  enforced  against  them.* 


1  Chicago,  etc.  R.  Co.  i-.  Crane.  11.3 
U.  S.  424  (1885).  (5  Sup.  Ct.  Itt'i).  578). 

See  also  State  v.  Central  Iowa  R. 
Co.,  71  Iowa,  410  (1887),  (32  N.  W. 
Rep.  409). 

*  Where  the  charter  of  a  .street  rail- 
way company  ohliged  it  to  pay  one  per 
cent  of  tlic  fares  received  to  the  city  iu 
whicii  it  was  located,  and  the  company 
leased  its  railroad  and  franchises  to 
another  coniitany,  witliout  any  provision 
in  the  lease  imposing  u])on  tlie  lessee 
the  obli^ration  to  pay  the  percentac;e,  it 
was  held  tluit  the  les.see,  ui)on  t.ikiiifxthe 
place  of  its  lessor  as  to  its  diartcr  rii;lits 
and  ])owers,  took  it.s  ])lace  also  as  to  its 
charter  ol)li<^ations  .and  duties,  and  was 
not  entitled  to  exercise  the  former  with- 
out dischari^ing  the  latter.  Mayor,  etc. 
V.  Twenty-Third  St.  K.  Co.,  1 13  N.  Y. 
311  (1889),  (21  N.  E.  Rep.  60). 

*  McMillan  v.  Michigan,  etc.  R.  Co., 
16  Mich.  102  (1867):  "The  power  to 
lease  does  not  imply  the  power  to  trans- 
fer greater  rights  than  tiie  lessor  him- 
self possesses ;  and  where  the  obligations 
assumed  by  the  lessor,  pertaining  to  tlie 
managenieut  of  his  business,  and  the 
liabilities  which  would  spring  there- 
from, were  the  consideration  upon 
which  the  franchise  was  granted,  it 
would  be  a  violent  inference  that  the 
legislature  designed  to  waive  them  when 
they  are  no  less  important  to  the  public 
protection  after  the  lease  than  before." 

328 


«  Inwa:  Code  1897,  §2039.  Another 
provision  of  the  Iowa  Code  (§  2066)  is 
as  follows  :  "  Any  .  .  .  corporation  ope- 
rating the  railway  of  anotiier  sliall  be 
liable  in  the  same  manner  and  extent  as 
thougii  such  railway  belonged  to  it." 
For  construction  of  this  statute  see 
Stewart  »•.  Chicago,  etc.  R.  Co.,  27  Iowa, 
282  (1869) ;  Stephens  v.  Davenport,  etc. 
R.  Co.,  36  Iowa,  327  (1873) ;  Bower  v. 
Burlington,  etc.  R.  Co.,  42  Iowa,  546 
(1876). 

In  Indiana,  by  statute,  the  lessee  ia 
solely  liable  when  it  o])erates  the  rail- 
road in  its  own  name.  Pittsburgh,  etc. 
R.  Co.  V.  Uolner,  57  Ind.  572  (1877); 
Pittsburgh,  etc.  R.  Co.  v.  llanuon,  60 
Ind.  417  (1878)  ;  Cincinnati,  etc.  R.  Co. 
V.  Bunnell,  61  Ind.  183  (1878). 

For  additional  statutory  provisions 
prescribing  the  liability  of  lessees  of  rail- 
road see : 

Arizona  :    R.  S.  1901,  par.  864. 

Arkansas :  S.  &  H.  Dig.  1894,  §§  6188, 
6334. 

Georgia:    Code  1895,  §  1863. 

Massachusetts :   Pub.  St.  ch.  112,  §5. 

Neljraska  :    Comp.  Stat.  1901,  §  4020. 

Ohio:  Anno.  Stat.  (1787-1902), 
§  3305. 

Tennessee:    Code  1896,  §  1.539. 

Texas  :  Sayles'  Civ.  Stat.  1897  (Supp. 
to  1900),  vol.  ii.  ch.  15  a  (Acts  1899, 
p.  73). 

In    Georgia   (Code    1895,  §  2335),  a 


CHAP.  XX.]         EIGHTS   AND   LIABILITIES   OF  LESSEE. 


230 


Other  statutes  have  been  construed  to  apply  to  them  as  well 
as  to  lessor  corporations. 

As  a  general  rule,  statutes  imposing  duties  upon  railroad 
companies  apply  to  the  corporation  actually  operating  the 
road.  They  are  often  applicable  to  the  lessor  corporation 
also  —  but  the  liability  of  the  lessee  is  not  thereby  affected. 

Statutes  requiring  railroad  companies  to  fence  their  roads, 
and  to  maintain  cattle  guards  at  crossings,  apply  to  lessee 
corporations,  and  they  are  held  responsible  for  any  failure  to 
observe  their  provisions.^ 

Statutes  fixing  the  liability  of  railroad  corporations  for 
damages  by  fire  communicated  by  their  locomotives  also 
apply  to  lessee  corporations."-^     In  construing  such  a  Massa- 


lessee  of  any  railroad  may  be  sued  in  the 
6;ime  jurisdiction  in  which  the  lessor 
might  have  been  sued. 

^  I.  Failure  to  maintain  fonces  : 
Ditchett  V.  Spuyten  Duyvil,  etc.  R. 
Co.,  67  N.  Y.  425  (1876)  ;  Tracy  v.  Troy, 
etc.  R.  Co.,  38  N.  Y.  43.3  (1868)  ;  Birch- 
field  V.  Northern  Central  11.  Co.,  57 
Barb.  (N.  Y.)  589  (1870) ;  Clement  v. 
Canfield,  28  Vt.  302  (1856)  ;  Cook  v. 
Milwaukee,  etc.  R.  Co.,  36  Wis.  45 
(1874)  ;  Clary  v.  Iowa  Midlaud  R.  Co., 
37  Iowa,  344  (1873) ;  Downing  v.  Chi- 
cago, etc.  R.  Co.,  43  Iowa,  96  (1876). 
The  liability  of  a  lessee  is  sometimes 
placed  upon  grounds  of  public  policy. 
Thus,  in  Illinois  Cent.  R  Co.  v.  Kanouse, 
39  111.  272  (1866),  the  Court  said,  in 
substance,  that  the  defendant  was  lialtle 
for  using  a  defective  road ;  that  public 
policy  required  that  it  should  be  held 
responsible  for  injuries  resulting  from 
such  use ;  that  the  fencing  law  was  en- 
acted for  the  public  good  and  would  be 
defeated  if  an  irresponsible  owner  could 
lease  an  unfenced  road  to  a  responsible 
company  which  would  not  be  liable  for 
injuries  ;  that  the  company  using  the 
road  was  pro  hac  vice  the  owner.  See 
also  Toledo,  etc.  R.  Co.  v.  Rumbold,  40 
111.  (1866). 

In  New  York,  since  1890  (General 
Railroad  Law,  1890  and  1892,  §32), 
both  lessor  and  lessee   are   liable  for 


want  of  fences.  Prior  to  that  statute 
the  lessee  was  alone  held  liable.  Thome 
V.  Lehigh  Valley  R.  Co.,  88  Hun  (N.  Y.), 
141  (1895),  (34  N.  Y.  Supp.  525).  See 
also  ante,  §216:  "Lessor  Corporation 
cannot  avoid  Statutory  Obligations  unless 
exempted." 

The  Iowa  statute  (Code  1897,  §  2058) 
is  as  follows :  "  If  the  .  .  .  lessee  own- 
ing or  engaged  in  the  operation  of  any 
railroad  in  the  State  refuses  or  neg- 
lects to  comply  with  any  provision  of 
this  chapter  relating  to  fencing  of 
the  tracks,  it  shall  be  guilty  of  a 
misdemeanor." 

II.  Failure  to  mairitain  CaltleGuards  : 

In  Missouri  Pacific  R.  Co.  v.  jSIorrow, 
32  Kan.  217  (1884),  (4  Pac.  Rep.  87,  19 
Am.  &  Eng.  R.  Cas.  630),  it  was  held, 
under  a  Kansas  statute,  that  it  is  always 
the  duty  of  a  railway  company  operat- 
ing a  railroad  to  see  that  proper  cattle 
guards  exist  wherever  its  railroad  en- 
ters or  leaves  improved  or  fenced  iands, 
whether  such  railway  company  owns 
the  railroad  or  is  simply  operating  it 
under  a  lease. 

An  Iowa  statute  (Code  1897,  §  2054) 
relates  to  cattle  guards  and  h(jlils  all 
railroad  companies  (including  le.ssees) 
liable  for  all  damages  occasioned  by  a 
faihire  to  maintain  them. 

2  Pierce  v.  Concord  R.  Corp.,  51  N.  H. 
590(1872);  Davis   v.   Providence,   etc. 

329 


§  230  INTERCORPORATE   RELATIONS.  [PART  III. 

chusetts  statute,  Judge  Ames,  in  Davis  v.  Providence^  etc.  R. 
Co.,^  after  reviewing  cases  holding  the  lessor  responsible,  said  : 
"  But  there  is  nothing  in  these  decisions,  or  in  the  reasons 
upon  which  they  appear  to  rest,  that  confines  the  liability  in 
such  a  case  exclusively  to  the  lessor,  or  that  excludes  the 
idea  that  the  party  injured  may  seek  his  remedy  either  of  the 
lessor  or  the  lessee.  The  case  of  the  defendant  comes  liter- 
ally within  the  terms  of  the  statute.  The  fire  was  communi- 
cated from  its  engine.  The  damage  was  occasioned  by  its 
use  of  the  road.  .  .  .  All  the  reasons,  assigned  in  the  above 
cited  cases,  for  holding  tlie  corporation  owning  the  road  liable, 
apply  with  at  least  equal  force  to  the  corporation  using  the 
road  and  actually  doing  the  mischief.  Under  such  circum- 
stances, the  route,  for  the  time  being,  may  be  considered  as 
the  route  of  the  defendant;  and  there  is  no  reason  why  it 
should  not  be  held  resi^nsible  for  tlie  damage  caused  by  its 
use  of  the  road,  although  the  law  has  given  to  the  injured 
party  the  right,  if  he  sees  fit,  to  seek  his  remedy  against  the 
corporation  owning  the  road." 

A  lessee  corporation,  holding  under  a  long  term  lease,  has 
been  held  to  be  the  "proprietor"  of  the  railroad,  within  the 
meaning  of  a  New  Hampshire  statute  relating  to  fires,  and 
to  be  liable  for  damages  sustained  ;2  and  has  been  held  to 
be  the  corporation  "  owning  the  tracks,"  within  the  provisions 
of  a  statute  imposing  upon  railroads  whose  tracks  crossed  at 
grade,  the  joint  duty  of  making  repairs  and  of  maintaining  a 
lookout  at  the  crossing.^ 

A  lessee  corporation  is  also  liable  for  injuries  to  travellers 
at  higliway  crossings,  caused  by  a  failure  to  equip  its  engines 
with  statutory  signals  to  warn  them,  and  must  observe  other 
statutory  provisions  for  the  protection  of  the  lives  and  prop- 
erty of  the  public* 

R.  Co.,  121  Mass.  134  a876)  ;  Caution  '  Pierce  r.   Concord    R.  Corp.,   51 

V.  Eastern  R.  Co.,  45  Miun.  481  (1891),  N.  H.  590  (1872). 

(48  N.  W.  Rep.  22).     See  also  Slossen  ^  Baltimore,  etc.  R.  Co.  t- .  Worker, 

J-.  Burlington,  etc.  R.  Co.,  60  Iowa,  215  45  Ohio  St.  577  (188S),  (14  West.  Hep. 

(1882),  (14  N.  W.  Rep.  244).  172,  16  N.  E.  Rep.  475). 

1  Davis  V.  Providence,  etc.  R.  Co.,  *  A  Massachusetts  statute  which  re- 

121  Mass.  134  (1876).  quired    every   railroad    corporation  to 

330 


CHAP.  XX.]         RIGHTS    AND    LIABILITIES   OF   LESSEE. 


§231 


§  231.  Liability  of  Lessee  for  Torts  in  Operation  of  Road 
under  Authorized  or  Unauthorized  Lease.  —  A  railroad  company 
operating,  under  lease,  the  railroad  of  another  corporation,  is 
liable  for  injuries  caused  by  its  negligent  or  improper  opera- 
tion, to  the  same  extent  that  the  lessor  would  have  been  had  it 
continued  to  operate  the  road  ;  ^  and  its  liability  is  not  affected 
by  the  fact  that  the  lease  may  have  been  unauthorized  and 
the  lessor  also  responsible  for  the  same  acts  or  omissions.^ 

The  lessee  is  liable  for  its  own  wrongs  regardless  of  the 
liability  of  others,  and  its  responsibility  is  usually  placed  upon 
this  ground;^  It  may  also  be  placed  upon  the  ground  that,  in 
assuming  the  rights  and  franchises  of  the  lessor  to  operate  the 
road,  the  lessee  assumes  the  correlative  duty  of  operating  it 
properly  and  the  consequent  liability  for  negligent  operation.* 


carry  a  bell  on  every  engine  passing 
upon  "their  road,"  etc.,  applied  to  a 
railroad  corporation  which  had  taicen  a 
lease  of  a  railroad  owned  by  another 
corporation  and  was  running  its  own 
engines  upon  it  under  such  lease.  Lin- 
field  V.  Old  Colony  R.  Corp.,  10  Cush. 
(Mass.)  562  (1852). 

For  construction  of  a  Massachusetts 
statute  (Pub.  St.  ch.  112,  §  5),  providing 
that  a  corporation  lawfully  maintaining 
and  operating  a  railroad  laid  out  and  con- 
structed by  another  corporation  should 
be  subject  to  the  same  duties  and  liabil- 
ities as  if  laid  and  constructed  by  itself, 
see  Nichols  v.  Boston,  etc.  R.  Co.,  174 
Mass.  379  (1899),  (54  N.  E.  Rep.  881). 

1  In  Sprague  v.  Smith,  29  Vt.  425 
(1S57),  (70  Am.  Dec.  426),  Chief  Justice 
Redfield  said :  "  It  is  well  settled  in 
practice,  and  by  repeated  decisions,  that 
the  lessees  of  railroads  are  liable  to  the 
same  extent  as  the  lessors  would  have 
been,  while  they  continue  to  operate  the 
road.  .  .  .  The  party  having  independ- 
ent control  is,  in  general.  ]ial)le  for  the 
acts  of  those  under  such  control,  whether 
in  contract  or  tort." 

2  I'eital  V.  Middlesex  R.  Co.,  109 
Mass.  405  (1872)  {per  Colt,  J.):  "The 
defendants  were  in  actual  possession 
and  use  of  the  track  without  objection 
from  the  owners  or  the  Commonwealth; 


they  assumed  this  responsibility  to  the 
plaintiff  for  a  valuable  consideration ; 
and  it  is  wholly  immaterial,  so  far  as 
this  action  is  concerned,  tliet  the  lease 
was  not  legally  made." 

In  McCluer  v.  Manchester,  etc.  R. 
Co.,  13  Gray  (Mass.),  124  (1859),  it  was 
held  that  a  railroad  company  could  not 
avoid  liability  for  goods  injured  upon  a 
railroad  leased  by  it  on  the  ground  that 
the  lease  was  void.  The  Court  said 
(p.  129) :  "  An  innkeeper  might  as  well 
resist  the  claim  of  a  guest  for  compen- 
sation for  the  loss  of  his  baggage,  by 
suggesting  doubts  as  to  the  validity  of 
his  landlord's  title  to  the  inn  which  he 
hired." 

A  lessee  cannot  be  held  liable  for 
the  torts  of  the  lessor  committed  be- 
fore the  execution  of  the  lease.  Pitts- 
burgh, etc.  R.  Co.  V.  Kain,  35  lud.  291 
(1871). 

3  Wabash,  etc.  R.  Co.  v.  Peyton,  106 
111.  534  (1883) ;  Hall  v.  Brown,"  54  N.  H. 
495  (1874) ;  Toledo,  etc.  R.  Co.  v.  Rum- 
bold,  40  111,  14.3  (1866)  ;  Philadelphia, 
etc.  R.  Co.  V.  Anderson,  94  Pa.  St.  351 
(1880),  (6  Am.  &  Eng.  R.  Cas.  407) ;  St. 
Louis,  etc.  R.  Co.  v.  Curl,  28  Kan.  622 
(1882),  (11  Am.  &  Eng.  R.  Cas.  458). 

*  Sprague  v.  Smith,  29  Vt.  421 
(1857),  (70  Am.  Dec.  424);  McMillan 
V.  Michigan,  etc.  R.  Co.,  16  Mich.  79 

331 


§232 


INTERCORPORATE   RELATIONS. 


[part  III. 


The  obligation  of  a  common  carrier  may  be  contractual,  and 
a  lessee  corporation  will  be  responsible  for  any  damage  aris- 
ing from  its  breach  of  contract  of  carriage.^  So,  of  course, 
the  relations  of  the  lessee  corporation  with  its  employees  are 
contractual,  and  it  is  liable  to  them  for  any  failure  in  the  ful- 
filment of  its  obligations  as  master.'-^  The  lessee  corporation 
is  also  liai)lc  for  creating  a  nuisance,  as  well  as  for  maintain- 
intr  and  continuing  a  nuisance  created  bv  tlie  lessor."* 

\  232.  Joint  Liability  of  Lessor  and  Lessee.  —  As  a  general 
rule,  in  cases  where,  upon  principles  already  considered,  the 
lessor  corporation  is  responsible  for  the  negligence  of  the 
lessee,  both  corporations  may  be  jointly  sued  and  a  joint 
judgment  obtained.*  A  joint  liability  is  also  sometimes  cre- 
ated by  statute.^ 


(18C7)  ;  Ilaff  v.  Minneapolis,  etc.  R.  Co., 
14  Fed.  5J8  (1882). 

1  Waliash,  etc.  R.  Co.  i-.  Peyton, 
100  111.  .'i34  (1883).  (18  Am.  &  Eiig.  14. 
Cas.  I);  Arrowsinith  v.  NjLshville,  etc. 
R.  Co.,  57  Fed.  165  (18'J.3);  I'hila- 
delpliia,  etc.  R.  Co.  r.  Anderson,  94  Pa. 
St.  351  (1880),  (6  Am.  &  Eug.  li.  Cas. 
407). 

In  Mahoney  v.  Atlantic,  etc.  R.  Co., 
63  Me.  68  (1873),  and  Murch  i'.  Concord 
R.  Corp.,  29  N.  II.  1  (18.'i4),  (61  Am. 
Dec.  631),  it  was  held  that  tiio  remedy 
of  a  passenger  injured  is  against  the 
company  with  which  he  contracts. 

2  The  lessee  of  a  continuous  line  of 
railroad  is  liable  to  suit  by  an  employee 
for  an  injury  received  anywhere  on  the 
line,  wliiih  may  be  brought  at  the  gen- 
eral residence  of  the  lessee  corporation 
whether  within  or  without  the  limits  of 
the  State  where  the  injury  occurred. 
Wat.<on  ('.  Richmond,  etc.  R.  Co.,  91 
Ga.  222  (1892),  (18  S.  Y..  Kep.  30G). 

*  Ante,  §  217  :  "Lessor  cannot  avoid 
Primary  Obligations  unless  exempted." 


In  Wa.<<mer  r.  Delaware,  etc.  R.  Co., 
80  N.  V.  216  (188(1),  (I  Am.  &  Eug.  R. 
Cas.  125),  where  a  railroad  was  improp- 
erly laid  upon  and  along  a  street,  the 
Court  said:  "The  defendant  cannot 
e.«cnpe  liability  for  this  condition  of  the 
railroad,  because  it  was  simply  the 
lessee  of  the  road.  It  had  the  posses- 
sion, the  use  and  control  of  the  road, 
and  could  not  kcej)  and  maintain  the 
rails  in  such  a  way  in  the  street  as 
to  be  dangerous  to  travellers  thereon, 
and  yet  escape  responsibility.  He  who 
knowingly  maintains  a  nuisance  is  just 
as  responsible  as  he  who  created  it." 

See  also  Dickson  r.  Chicago,  etc.  R. 
Co.,  71  Mo.  575  (1880);  Western,  etc. 
R.  Co.  r.  Cox,  93  Ga.  561  (1894),  (20 
S.  E.  Rep.  68). 

Com/iare,  however,  Kearney  r.  New 
Jersey  Central  R.  Co.,  167  Pa.  St.  362 
(1895),  (31  Atl.  Rep.  637),  where  a 
lessee  was  held  not  liable  for  an  over- 
flow caused  by  an  improperly  con- 
structed bridge. 

*  Pennsylvania  Co.  v.  Ellet,  132  111. 


6  In   Ohio   (Anno.  Stat.    1787-1902,  N.  P.  129  (1897).    For  construction  of  an 

§  3305),  it  is  provided  that  lessor  and  Iowa  statute,  see  Stephen  v.  Davenport, 

leesee  may  be  jointly  sued   for   negli-  etc.  R.  Co.,  36  Iowa,  327  (1873);  Clary 

gence.     This   statute    is    construed    in  v.  Towa  Midland  R.  Co.,  37  Iowa,  344 

Staltz  V.  Baltimore,  etc.  R.  Co.,  7  Ohio  (1873). 

332 


CHAP.  XX.]        RIGHTS   AND   LIABILITIES   OF  LESSEE. 


232 


The  lessor  and  lessee  corporations  may  be  jointly  liable 
for  a  nuisance  —  the  former  for  creating,  the  latter  for  con- 
tinuing it.i  A  separate  liability,  as  has  been  shown,  also 
exists.^  So,  where  both  lessor  and  lessee  participate  in  the 
management  of  a  railroad,  they  are  jointly  and  severally  liable 
for  injuries  caused  by  the  negligence  of  employees,  for  the 
employees  are  as  much  the  servants  of  the  one  as  of  the 
other.3  And  where  a  railroad  is  operated  under  an  unauthor- 
ized lease,  the  lessee  becomes  the  agent  of  the  lessor  in  such 
operation,  and  the  general  principle  is  applicable  that  the  lia- 
bility for  negligence  of  principal  and  agent  may  be  enforced 
in  a  suit  against  either  or  both.'*  The  lessor  and  lessee  may 
also,  in  such  a  case,  be  held  jointly  liable,  upon  the  ground 
that  they  are  undertaking  an  unlawful  enterprise  and  are 
wrongfully  usurping  powers. 

This  general  rule  also,  undoubtedly,  applies  in  the  case  of 
an  authorized  lease,  without  an  exemption  clause,  in  those 
States  where  an  express  grant  of  immunity  is  necessary  to 


654  (1890),  (24  N.  E.  Rep.  559).  In 
this  case  the  plaintiff  recovered  a  joint 
judgment  against  both  defendants  — 
lessor  and  lessee.  Compare,  however, 
Spangler  v.  Atchison,  etc.  R.  Co.,  42 
Fed.  307  (1890),  where  the  Court  said  : 
"  It  may  also  be  conceded  that  both  are 
liable.  But  the  action  is  joint  as  well 
as  several.  The  plaintiff  had  the  right 
to  proceed  against  either  one  of  them, 
and  would  be  entitled  in  the  joint  action 
to  take  judgment  against  one,  and  dis- 
miss as  to  the  other."  See  also  Logan 
V.  North  Carolina  R.  Co.,  116  N.  C.  940 
(1895),  (21  S.  £.  Rep.  939). 

1  Stickler  v.  Chesapeake,  etc.  R.  Co., 
93  Ky.  323  (1892),  (20  S.  W.  Rep.  261). 
In  Railroad  Co.  v.  Hambletou,  40  Ohio 
St.  503  (1884),  (14  Am.  &  Eng.  R.  Cas. 
126),  the  Supreme  Court  of  Ohio  said  : 
"  Numerous  cases  are  referred  to  by 
counsel  for  the  plaintiff  in  error  involv- 
ing the  liability  of  lessor  and  lessee.  But 
most  of  them  are  cases  involving  the 
separate  liability  of  lessor  and  lessee. 
This  case  involves  the  joint  liability  of 
lessor  and  lessee,  and  this  class  of  lia- 
bility is  clearly  applicable  to  a  person 


who  creates  a  nuisance  jointly  with  him 
who  continues  it." 

2  Ante,  §  217  :  "Lessor  cannot  avoid 
Primari/  Obligations  unless  exempted." 

*  In  Nashville,  etc.  R.  Co.  i;.  Carroll, 
6  Heisk.  (Tenn.)  357  (1871),  the  Court 
said  :  "  The  principle  is,  that  where  one 
has  the  exclusive  control  and  manage- 
ment of  the  train,  whether  owner  or 
not  of  the  cars,  it  is  responsible  for  dam- 
ages for  wrongs ;  and  if  this  be  so,  it 
follows,  necessarily,  that  if,  in  fact,  that 
control  be  joint,  and  the  train  jointly 
under  the  control  of  agents  of  the  two 
companies,  then  both  must  be  held  re- 
sponsible. Two  persons  may  be  joint 
masters,  and  thereby  .subject  to  a  joint 
liability  for  the  acts  of  servants  or  em- 
ployees ;  and  such  joint  liability  may  be 
converted  into  a  several  liability  by  the 
election  of  the  plaintiff  to  sue  only  one, 
which  may  be  done  in  such  a  case." 

See  also  Railroad  Co.  v.  Brown,  17 
Wall.  (U.  S.)  445  (1873).  Also  ante, 
§  221  :  ^^  Liability  of  Lessor  for  Negligent 
Operation  of  Railroad  —  (Dj  When  it 
shares  in  Control." 

*  Cooley  on  Torts,  p.  165. 

833 


§  233  INTERCORPORATE   RELATIONS.  [PAUT    III, 

relieve  a  lessor  from  liability  for  the  negligence  of  its  lessee. 
It  should  be  observed,  however,  that  this  application  of  the 
rule  renders  a  railroad  company  which  makes  a  lease,  with 
the  approval  of  the  State,  a  joint  tort  feasor  in  the  operation 
of  a  road  over  which  it  has  no  control.' 

§  233.  Liability  of  Lessee  for  Debts  of  Lessor.  —  A  railroad 
conjpany  taking,  under  lease,  in  good  faith,  the  railroad  and 
franchi.sos  of  another  corporation,  nssmnes,  as  a  general 
rule,  no  responsibility  for  the  unsecured  debts  of  the  latter. 
Where,  however,  the  lease  cml)races  the  entire  property  of  a 
lessor  corporation  in  debt,  of  the  existence  of  which  indel<ted- 
ncss  the  lessee  has  notice,  it  may,  upon  the  principle  that  the 
property  of  a  corporation  constitutes  a  trust  fund  for  the  pay- 
ment of  its  debts,  be  chargeaidc  as  a  trustee  and  compelled  to 
ajiply  the  property  so  received,  in  payment  of  the  del)ts  of  the 
lessor.^  And  even  without  bad  faith  on  the  part  of  the 
lessor  or  lessee,  where  the  entire  i)roj»erty  of  a  corporation 
having  debts  is  transferred,  under  a  lease  permitting  the 
lessee  to  dispose  of  a  portion  of  the  leased  property  and  apply 
the  proceeds,  not  only  for  the  improvement  of  the  remaining 
property  but  for  its  own  benefit  —  thus  preventing  any  appli- 
cation for  the  satisfaction  of  debts  —  and  the  lessee  makes 
such  sale  and  application,  a  court  of  equity  will  decree  the 
payment  of   a  judgment   debt  of   the    lessor  by    the  lessee.' 

1  Even  if  the  lessor  and  lessee  under  honefit  of  the  Ipssw,  ami  the  hontls  were 
an  aiUlmrizeil  lease  are  joint  lort  J'.tisnrs  so  sold  and  npjdied.amonp  other  thinKf, 
it  is  eertnin  that  the  rule  which  forbids  for  the  huildinR  of  a  hrld^e  for  tlie 
contrihution  anion<T  wrongdoers  is  inaj)-  lessee's  henefit,  the  Supreme  Court  of 
plicable  in  favor  of  a  lessee.  the  United  States  said  (p.  286)  :  "The 

2  Mellen  v.  Moliue  Iron  Works,  1.31  contractinp  parties  arrauf^ed  not  merely 
T^.  S.  .352  (IS^O),  (9  Sup.  Ct  TJep.  781) ;  for  the  discharge  of  the  forcelosure 
Central  R.  Co.  v.  Pettns,  U.I  U.  S.  lien,  but  for  the  completion  of  the  road 
116  (18S.T),  (5  Sup.  Ct.  Kep  387).  for  which   tlie    lessor's    franchi>e   was 

8  In  Chicnpro,  etc.  R.  Co.  v.  Third  granted.  The  lessee  not  only  per- 
NationalB.ink,  1.34  U.  S.  276  (1890).  (10  formed  these  stipulations,  but.  with 
Sup.  Ct.  Rep.  S.'iO),  ajfirminff  26  Fed.  moneys  arising  from  the  sale  of  these 
820  (1886),  where  a  railroad  company,  bonds,  built,  for  its  own  benefit,  a 
heavily  in  debt,  leased  all  its  property  to  bridge  across  the  Mississippi  River, 
another  company  for  nine  hundred  and  connecting  this  road  with  its  line  in 
ninetv-nine  vears ;  and  also  executed  a  Iowa,  and  thus  making  a  continuous 
deed  of  trust  securing  bonds  to  a  large  line  of  road  to  Omaha.  Neglecting  to 
amount  which  were  to  be  sold  for  the  pay  the  debts  of  the  le.s.sor,  it  appro- 
payment  of  existing  lieus  and  for  the  priated  a  large  amouut  of  the  proceeds 

334 


§234 


CHAP.    XXI.]  LEASES   UNDER  RECEIVERSHIP. 

In  such  a  case  the  lessee  corporation  is  liable,  not  ns  lessee, 
but  as  a  trustee  ^hich  has  diverted  funds  due  creditors  to  its 


own  use. 


vii  use.  .  - 

A  lessee  corporation  may,  as  a  part  of  the  consideration  of 
the  lease,  assume  and  agree  to  pay  the  debts  of  the  lessor 
In  such  a  case,  the  weight  of  authority  supports  the  view  that 
the  lessee  may  be  held  directly  liable  to  creditors  of  the  lessor 
upon  the  assumption  clause.^ 


CHAPTER  XXI. 

RAILROAD   LEASES    UNDER   RECEIVERSHIP. 
§  234.     Receiver  not  Assignee  of  the  Term.    May  not  abrogate  Leases  as  between 

§  235.  Receiver  may  elect  within  Reasonable  Time  to  assume  or  renounce  Lease. 

§  236.  Obligations  of  Receiver  pending  Llection. 

§  237.  Obligations  of  Receiver  after  Election. 

§  238.  Lease  of  Railroad  by  Receiver. 

S  034  Receiver  not  Assignee  of  the  Term.  May  not  abro- 
gate  leases  as  between  Parties. -The  appointment  of  a  re- 
ceiver of  the  property  of  a  railroad  company,  by  a  court  of 
equity ,2  does  not  change  the  title  to  the  property  or  even  the 

of  the  trust  deed  upon  the  lessor's  ('^Am.  &  Eng.  R.  Cas.  576)  ;  Pennsy^ 
property  to  its  own  benefit  and  the  ™  C.  .  Er,e  et.  R.  C..  1^08^^^^^ 
improvement  of  its  own  property.    Here     bt.  621  ( 188&),  U^  ^i"- 

ttie  cieuitor  application  York,  a  certam  class  of  receivers  are, 

S  Sar  do  tri  e^°  Vhe  pr 'parties  of  by  statute,  invested  with  the  estate  o 

a     onoition   constitute  a' trust  fund  an   insolvent    with,    substantial  y    the 

for    the   pavment   of    its   debts;    and,  powers  of  trustees  m  bankruptcy.    Such 

wl  en  the?e  is  a  misappropriation  of  the  statutes   are.  however,  generally  map- 

funds  of  a  corporation.  Equity,  on  be-  plicable  to  railroad  companies,  and  the 

half   of  the  creditors  ^f  such  corpora-  receivers  referred  to  in  this  cliapter  are 

^,  :  lltlbw  the  funds  so  diverted."  those  appointed  accor  ing  to  the  course 

i'Seea.^e,§123:  "LiabiliU,afPur.  of  equity,     ^ee  ^70^' !  "  ^9,^"  ;2 

c;..,  Cor,oraUo.f.r  ne.sof  Vendor  ^:;:^^:;]^^^:::±^l 

""ToTLes  illustrating  assumption  of  bridge.  67  Md^  222  (1887U9  Atl.  Rep. 

debts  of  lessor  by  lessee  corporation,  632).     Also  Boo  h  v.  Clark,   17   How. 

see  Mississippi,  etc.  R.  Co.  v.  Southern  (U.  S.)  322  (1854). 
R.  Ass'n,  7  Baxt.  (Tenn.)  595  (1874), 

335 


§234 


INTERCORPORATE    RELATIONS. 


[part  III. 


right  of  possession.  Tiie  receiver  takes  the  property,  including 
leasehold  interests,  merely  as  a  custodian  for  the  court  from 
whicli  he  derives  his  authority  ;  he  does  not  hecomc  an  as- 
signoc  of  the  unexpired  term  of  the  leasehold  estate.*  As  said 
by  the  Supreme  Court  of  Maryland,^  in  laniruai^e  approved  by 
the  Supreme  Court  of  the  United  States :  ^  "If  the  order  of 
the  court,  under  which  the  receiver  acts,  embraces  the  lease- 
hold estate,  it  becomes  his  duty,  of  course,  to  take  possession 
of  it.  IJiit  he  does  not,  by  takin'.^  such  possession,  become 
the  assii^nee  of  the  term,  in  any  proper  sense  of  the  word. 
He  holds  that  as  he  would  hold  any  other  personal  property 
involved, —  for  and  as  the  hand  of  the  court,  and  not  as 
assiirnee  of  the  term." 

Tile  intervention  of  a  court  of  equity  for  the  preservation 
of  property  involved  in  litip^ation  by  putting  it  into  the  hands 
of  a  receiver  —  a  ministerial  othccr  —  not  only  makes  no 
change  in  the  title  but  alters  no  lien  or  contract.  A  contract 
of  lease  is  not  affected  by  the  appointment  of  a  receiver,  nor 
is  the  right  of  the  lessor  corporation  to  insist  upon  perform- 
ance or  forfeiture  in  any  way  impaired.  The  lease  remains 
in  full  force  until  terminated  by  the  parties,  and  the  receiver 


*  Quincy,  etc.  R.  Co.  v.  Humphreys, 
145  U.  S.  82  (1892).  (12  Sup.  Vt.  Hep. 
787),  ajfinnlnr}  suh  nom.  Central  Trust 
Co.  V.  Wab.a.sii.  etc.  14.  Co.,  34  Fo.i.  2.'i9 
(1888) ;  Union  Bank  of  Chicajro  r.  Kan- 
sas City  Bank.  1.36  U.  S.  223  (1890). 
(10  Sup.  Ct.  Kep.  1013)  ;  Central  Trust 
Co.  V.  Continental  Trust  Co.,  86  Fed. 
517  (1898);  Empire  Distilling  Co.  v. 
McNulta.  77  Fed.  700  {\m',),  ajfirmed 
sub  nmn.  Denneiiy  v.  McNulta,  86  Fed. 
82.')  (1898),  (41  L.  R.  A.  609);  Cars- 
well  I".  Farmers  Loan,  etc.  Co..  74  Fed. 
88  (1896);  Ames  v.  Union  Pacific  R. 
Co.,  60  Fed.  966  (1894);  New  York.  etc. 
R.  Co.  I'.  New  York,  etc.  R.  Co.,  58 
Fed.  268,  280  (1893);  Park  t;.  New 
York,  etc.  R.  Co..  57  Fed.  799  (1893)  ; 
Bell  r.  American  Protective  League, 
163  Mass.  55S  (1895).  (40  N.  E.  Rep. 
857);  Gaither  v.  Stockbridge.  67  Md. 
222  (1887).  (9  Atl.  Rep.  632).  Compare, 
however,  United  States  Trust  Co.  v. 

336 


Wahash  Western  R.  Co.,  150  U.  S  287 
(1893).  (14  Sup.  Ct.  Kep.  86),  where 
Mr.  Justice  Brown  apparently  over- 
looks the  langu.age  of  Mr.  Chief  .lustice 
Fuller  in  Quincy,  etc.  R.  Co.  v.  Hum- 
pheys,  supra,  and  considers  a  receiver 
as  standing  in  the  same  position  as  an 
assignee.  In  Brown  v.  Toledo,  etc.  R. 
Co.,  35  Fed.  444  (1888),  Judge  Gres- 
ham,  in  view  of  the  nature  of  the  pro- 
ceedings, treated  the  receiver  as  an 
assignee  of  the  term,  but  that  decision 
has  been  criticised  in  later  cases.  New 
York,  etc.  R.  Co.  v.  New  York,  etc.  R. 
Co.,  58  Fed.  268  (1893).  Compare  also 
Commonwealth  r.  Frankfort  Ins.  Co., 
115  .Ma.^s.  278  (1874). 

2  Gaither  v.  Stockbridge,  67  Md. 
224  (1S87),  (9  Atl.  Rep.  632). 

'  Quincv,  etc.  R.  Co.  i'.  Humphreys, 
145  U.  S.  98  (1892),  (12  Sup.  Ct.  Rep. 
787). 


CHAP.  XXI.]  LEASES   UNDER   RECEIVERSHIP. 


§235 


has  no  power  to  abrogate  it  as  between  them.  "  It  is  not  in 
the  power  of  such  receivers  to  annul  or  abrogate  such  a  lease 
as  between  the  lessor  and  lessee  company."  ^ 

§  235.  Receiver  may  elect  -within  Reasonable  Time  to  assume 
or  renounce  Lease.  —  When  a  receiver  of  a  railroad  company, 
having  leased  lines,  is  appointed,  it  is  necessary,  in  order  to 
keep  the  entire  system  a  going  concern,  that  he  should  take 
possession  of  and  operate  the  leased  roads,  as  well  as  the  other 
roads  of  the  system.  The  public  duties  of  the  corporations  — 
lessor  and  lessee  —  must  be  performed;  their  obligations,  to 
the  government  in  carrying  the  mails,  to  the  public  as  common 
carriers,  must  be  fulfilled  witliout  interruption,  and  this  result 
can  only  be  obtained  by  putting  the  receiver  into  temporary 
possession  of  the  leasehold  interests.  The  mere  act  of  taking 
possession,  however,  does  not  constitute  an  adoption  of  the 
lease  by  the  receiver  nor  render  him  liable  upon  its  covenants, 
and  he  is  entitled  to  a  reasonable  time  —  a  breathing  spell  — 
to  determine  whether  he  will  assume  or  renounce  the  lease.^ 


1  New  York,  etc.  R.  Co.  v.  New 
York,  etc.  R.  Co.,  58  Fed.  280  (1893), 
per  Lurton,  J.  In  Park  v.  New  York, 
etc.  R.  Co.,  57  Fed.  802  (1893),  Judge 
Lacombe  said  :  "  The  right  to  insist 
upon  tlie  execution  of  this  contract  ac- 
cording to  its  terms  —  the  right  to  re- 
fuse further  use  and  possession  of  that 
property  to  any  one  who  will  not  or 
cannot  make  such  payments  —  is  in  no 
■way  impaired  by  the  fact  that  the  court 
has  taken  possession  of  all  the  property 
owned  and  held  by  the  Erie  Company, 
to  administer  the  same  for  the  interests 
of  all  concerned,  and  has  placed  its 
officers,  the  receivers,  as  custodians  and 
caretakers,  not  only  to  preserve  the 
same,  but  also  to  maintain  it  as  agoing 
concern  pending  the  final  adjustment." 

A  receiver  cannot,  by  agreement 
with  the  lessor  company,  abrogate  a 
lease,  pending  receivership,  without  the 
consent  of  the  court.  In  determining 
the  matter,  the  court  will  take  into 
consideration  the  situation  of  the  parties 
at  the  time  the  receiver  was  appointed. 


Day   V.    Postal   Tel.   Co.,    66    Md.  354 
(1886),  (7  Atl.  Rep.  608). 

2  A  receiver,  appointed  by  order  of 
a  court  of  equity,  is  obliged  to  take  pos- 
session of  a  leasehold  estate,  if  it  be 
included  within  the  order  of  the  court ; 
but  he  does  not,  thereby,  become  the 
assignee  of  the  term  or  liable  for  the 
rent,  but  holds  the  property  as  the  hand 
of  the  court  Hud  is  entitled  to  a  reason- 
able time  to  ascertain  its  value,  before 
he  can  be  held  to  have  accepted  it  as 
lessee.  Quincy,  etc.  R.  Co.  v.  Hum- 
phreys, 145  U.  S.  82  (1892),  (12  Sup. 
Ct.  Rep.  787).  In  so  holding  Mr.  Chief 
Justice  Fuller  said  (p.  101):  "The 
court  did  not  bind  itself  or  its  receivers 
eo  instanti  by  the  mere  act  of  taking 
possession.  Reasonable  time  had  nec- 
essarily to  be  taken  to  ascertain  the 
situation  of  affairs.  The  Quincy  Com- 
pany, as  a  guasj-pubiic  corporation  op- 
erating a  public  highway,  was  under 
a  public  duty  to  keep  up  and  maintain 
its  railroad  as  a  going  concern,  as  was 
the  Wabash  Company  under  the   con- 

337 


§235 


INTERCORPORATE    RELATIONS. 


[PAKT    111. 


As  said  by  Judge  Lurton  in  the  recent  case  of  Carxwell 
V.  Farmers  Loan,  etc.  Co. ;  *  "A  receiver  may  take  and  retain 
possession  of  leasehold  interests  for  such  reasonable  time  as 
will  enable  liim  to  intelligoutly  elect  whether  the  interest  of 
his  trust  will  be  beat  subserved  by  adopting  the  lease,  and 
making  it  his  own,  or  by  returning  the  property  to  the  lessor," 
What  constitutes  a  reasonable  time,  within  which  a  receiver 
must  elect,  depends  to  such  an  extent  ujion  the  facts  and 
circumstances  appearing  in  any  particular  case,  that  no  general 
rule  can  be  laid  down  for  determining  it.' 

trart  between  them,  but  the  Intter  hail  An    npreement  thnt   tho    receipt   of 

bcfonio  unaMo  to  perform  the  pulilic  Iom  tliaii  full  rental  for  leasetl  proj)ertjr 
nervicu  for  which  it  ha<i  l>een  emiowed  shall  he  without  prejudice  to  a  claim 
with  its  facultii'it  ami  franchisee,  and  for  the  balance,  or  to  the  lessor's  riyht 
whidi  it  had  as.iumed  to  diH<hnr£je  aji  to  forfeit  the  lea.«e,  makes  the  receiver 
between  it  and  the  other  roinpany.  Its  hold  nuder  the  a^^reement,  an<l  not  under 
operation  could  oidy  Ik)  continued  under  the  lease,  so  that  his  continued  posse*- 
tlio  receivers,  whose  action  in  that  re-  sion  does  not  amount  to  an  adoption  of 
S{)ect  cannot  bo  adjudged  to  have  been     the  lease.     Thomas  f.   Cincinnati,  etc. 

It.  Co.,  77   Fed.  C07   (1896). 

•  Can«well  v.  Farmers  Loan,  etc. 
Co.,   74   Fed.   91    (1890). 

'  Receivers  of  a  lessee  railroad  com- 
pany are  not  Ixiund,  merely  by  tlieir 
ap{Kjintment,  to  assume  all  its  leases; 
but  they  have  a  reasonable  time  in 
which  to  determine  whetlier  they  will 
assume  or  renounce  them.  And  where 
numerous  contracts  are  to  be  examined, 


dictated  by  the  idea  of  keepini;  the 
property  in  order  to  sell  it,  or  u.xing  it 
to  tlie  ailvanta^je  of  the  creditors,  or 
doin^  otiierwi.so  than  '  alxttain  fr<>m 
trying  t»)  get  rid  of  tho  property.'" 

See  also  United  States  Trust  Co.  v. 
Wabash  Western  K.  Co.,  150  U.  S.  287 
(1893),  (14  Sup.  Ct.  Hep.  86);  Seuey 
V.  Waba-sh  Western  U.  Co.,  150  U.S. 
310  (1893).  (14  Sup.  Ct.  Hep.  94)  ;  St. 
Joseph,  etc.   H.  Co.  v.  Humj)hrey9,  145     a  delay  of  65    days  before  reuouncing 


U.  S.  105  (1892),  (12  Sup.  Ct.  Hep. 
795) ;  Sunflower  Oil  Co.  v.  Wilson.  142 
U.  S.  313  (1892),  (12  Sup.  Ct.  Hep. 
235)  ;  Central  Trust  Co.  v.  Continental 
Trust  Co.,  86  Fed.  517  (1898);  .Mer- 
cantile Trust   Co.   V.    Farmers    Loan, 


a  lea.se  is  not  unrea.sonablc.  Ames 
r.  Union  Pacific  U.  Co.,  60  Fed.  966 
(1894). 

In  Quincy,  etc.  R.  Co.  i'.  Ilnrnphrers, 
145  U.  S.  82  (1892),  (12  Sup.  Ct.  Kep. 
787),  one  month  wa.s  said  to  l>«  a  re.ison- 


etc.   Co.,  81    Fed.    254   (1897)  ;  Empire  able  time  in  which  to  make  an  election 

Distilling    Co.    v.    McNulta,    77     Fed.  to  accejit  or  surrender  a  lea.oe.     In  St. 

700  (1897)  ;  Carswell  v.  Farmers  Loan,  Joseph,  etc.  R.  Co.  v.   Humphrey.",  145 

etc.    Co.,    74    Fed.    88    (1896);    Amea  U.   S.    105   (1892),   (12    Sup.   Ct'.   Hep. 

V.   Union   Pacific   H.   Co.,   60  Fed.   966  787),    under   somewhat    extraordinary 

(1894);    Farmers    Loan,    etc.    Co.    v.  circumstances,  a  period  of  nine  months 


Northern  Pacific  R.  Co.,  58  Fed.  257 
(1893);  New  York,  etc.  R.  Co.  r.  New 
York,  etc.  R.  Co.,  58  Fed.  268  (1893)  ; 
Park  V.  New  York,  etc.  R.  Co.,  67  Fed. 
799  (1893);    Bell   v.  American  Protec- 


was  held  not  to  be  an  unreasonable 
time.  In  Park  v.  }iew  York,  etc.  R- 
Co.,  57  Fed.  799  (1893),  two  weeks  was 
said  not  to  be  unreasonable.  A  period 
of  ten  months,  during  all  of  which  time 


live  League,  163  Mass.  558  (1895),  (40     negotiations  were  being  carried  on  for 
N.  E.  Rep.  857).  a  reduction  of  the  rental,  was  held  in 

338 


CHAP.    XXI.]  LEASES    UNDER   RECEIVERSHIP.  §  236 

It  is  not  necessary  in  order  to  charge  the  receiver  that  he 
should  have  formally  elected  to  assume  the  lease.  His  pos- 
session of  the  leased  property  might  be  continued  for  such  a 
period  and  under  such  circumstances  as  would,  in  law,  be 
equivalent  to  an  election.^  Thus,  receivers  of  a  leased  rail- 
road, who  for  a  long  time  continued  to  operate  the  leased 
line,  and  issued  receivers'  certificates  to  raise  money  for  pay- 
ing taxes  thereon  according  to  the  provisions  of  the  lease, 
were  held  to  have  adopted  the  lease,  and  to  be  liable  to  repay 
to  the  lessor  taxes  on  the  leased  line  which  it  had  been  com- 
pelled to  pay  by  the  judgment  of  a  competent  court.^  Where 
the  question  of  the  renunciation  or  adoption  of  a  lease  has 
been,  by  a  receiver,  submitted  to  and  determined,  after 
due  consideration,  by  the  court  appointing  him,  its  decision, 
being  upon  a  question  of  business  policy  and  not  of  law,  and 
administrative  rather  than  judicial  in  its  nature,  will  not  be 
disturbed  by  an  appellate  court,  unless  it  appears  that  the 
discretion  of  the  lower  court  has  been  abused.^ 

If  the  receiver  elect  to  adopt  a  lease,  he  becomes  vested 
with  the  title  to  the  leasehold  interest,  and  a  privity  of  estate 
is  thereby  created  between  the  lessor  and  the  receiver  by 
which  the  latter  becomes  liable  ■  upon  the  covenant  to  pay 
rent.* 

§  236.  Obligations  of  Receiver  pending  Election.  —  As  already 
shown,  the  appointment  of  a  receiver  of  a  lessee  corporation 
does  not  work  an  assignment  of  the  lease  or  render  hira 
liable  upon  the  covenants  therein.  While  the  receiver  may 
operate  the  leased  railroad  for  a  reasonable  time  in  order  to 
determine  whether  he  will  adopt  the  lease,  he  does  not,  as  a 

Carswell   v.    Farmers   Loan,   etc.   Co.,  action  and  not  by  mere  petition  in  the 

7-4  Fed.  88  (1896),  to  be  a  reasonable  receivership  cause. 

time.  People  v.  Erie  R.  Co.,  54  How.  Pr, 

1  Empire  Distilling  Co.  v.  McNulta,  59  (1877).  See  also  Woodruff  v.  Erie 
77  Fed.  700  (1897),  and  cases  cited.  R.  Co.,  93  N.  Y.  609  (1883). 

2  United  States  Trust  Co.  v.  Mer-  A  receiver  will  not  be  ordered  to 
cantile  Trust  Co.,  88  Fed.  140  (1898).  assume  a  lease  merely  because  the  com- 

3  Mercantile  Trust  Co.  v.  Farmers  pany  he  represents  is  solvent.  Empire 
Loan,  etc.  Co.,  81  Fed.  254  (1897).  Distilling  Co.  v.  McNulta,  77  Fed.  700 

Disputed    questions    of    fact   as   to     (1897). 
whether  a  receiver   has   renounced   or  4  Mercantile   Trust  Co.  v.  Farmers 

assumed  a  lease  must  be  determined  by     Loan,  etc.  Co.,  81  Fed.  254  (1897). 

339 


§236 


INTERCORPORATE   RELATIONS. 


[part  in. 


general  rule,  thereby  hecorae  liable  for  the  stipulated  rent  for 
such  period,  in  case  he  finds  the  road  unprolitable,  and,  with 
the  approval  of  tl»e  court,   surrenders  it  to  its  owner.'     He 


1  lu  Quiijcy,  etc.  R.  Co.  v.  Hum- 
phrevH.  145  U.  S.  98  (1892),  (12  Slip. 
Ct.  Kep.  TH7).  .Mr.  Cliii-f  Ju.tticc  Fuller 
said  :  "  But  uppt-llntiti  ini*itil  that,  with- 
out regard  to  privity  of  citnte  or  priv- 
ity of  contract,  receivers  in  chancery  arc 
)ial)lc,  not  for  a  r(>a.H4>iinl>lc  renUil  value 
during  the  wcupancy  of  Icitted  pro|>- 
erty  CKtninitted  to  their  charge  byonler 
r>f  court,  hut  for  rental  acconling  to 
the  covenants  of  the  lea-^es  whenever 
there  are  uiMMiuiviM-al  acts  of  u«e  and 
control  of  .such  proprrty  ;  and  that  they 
thu5  adopt  ttie  Icxhcs  nnil  hecome  Utnnd 
by  their  term.H  so  long  a.H  such  u.ne  and 
contml  continue.  .  .  .  Clearly,  this  was 
no  case  of  the  employment  of  the  pn>p- 
erty  of  another  for  one's  own  l>enctit. 
Within  a  month,  the  receivers  applied 
to  the  court  for  in.ttnictions,  di.Htinctly 
sotting  forth  that  there  vvn.<«  no  income 
wherewith  to  p.ny  the  rent.il  in  <|ue.HtioD, 
and  the  order  of  court,  entered  at  once, 
prweeded  under  the  theory  that  they 
were  not  to  he  hound  l>y  the  rental 
preiicrihed.  .  .  .  We  do  not  di.icover  any 
e(|uitaMo  ground  upon  w  hich  appellants 
are  entitled  to  a  preference  in  the  di.i- 
trihution  of  the  proceeds  of  the  sale  of 
the  mortgaged  j)roperty.  The  cast  of 
the  maintenance  of  the  Quincy  road 
by  the  receivers  exceeded  it.s  total  earn- 
ings ;  and  the  net  earnings  of  the  whole 
Waba.-<h  system,  before  the  C^uincy 
Company  retook  its  road,  did  not 
amount  to  one  ([uarter  of  tiie  amount  of 
preferred  debt  exi.«ting  when  the  re- 
ceivers were  appointed.  The  property 
was  surrendered  to  it  freed  from  any 
charge  for  that  debt,  to  the  payment  of 
whicli  it  contril>uted  nothing." 

An  order  directing  receivers  to  keep 
divisional  accounts,  and  to  pay  rental 
on  leased  lines  only  to  the  extent  of  any 
surplus  earned  by  them,  is  notice  to  such 
lines  that  they  must  not  expect  pay- 
ment of  rentals  unless  there  is  a  sur- 
plus ;  and  if  thev  do  not  then  intervene 

'  340 


to  regain  |HM«iiession  of  the  property, 
they  ha\e  no  claim  on  the  receivers  iu 
the  event  that  there  is  uo  surplus. 
I'uited  States  Tru.st  Co.  v.  Wabash 
We--.tern  K.  Co.,  l&O  U.  S.  287  (1H9.'J), 
( U  Sup.  Ct.  Hep.  Sft) ;  Seuey  i:  Wal^ish 
Western  U.  Co.,  150  U.  S.  310  ( I8'J.T), 
(14  Sup.  Ct.  |{ep.  94). 

I{eceivers  have,  as  a  general  rule,  a 
reasonable  time  in  which  to  deterniino 
whether  they  will  adopt  the  lease,  or  will 
nxTely  )>ay  to  the  lessor  the  net  earnings 
of  its  road,  subject,  alw.tys.  to  the  lessor's 
right  to  reenter  for  condition  broken. 
Farmers  Loan,  etc.  Co.  r.  Northeru  I'v 
cific  H.  Co.,  58  Fed.  '.'S:  (189.3). 

The  e\{>enhcs  ami  deficits  incurred 
by  reeeivers  in  o|HTatiiig  a  railroad 
under  a  lea-te  whidi  it  was  their  duty 
to  renounce  are  chargeablo  to  the  leased 
road,  and  not  to  the  receivers,  where  they 
have  not  a.<«sume<l  the  lease.  Mercan- 
tile Trust  Co.  V.  Farmers  Loan,  etc.  Co., 
81  Fed.  254  (1897). 

A  les-Hor  corporation  ha.s  no  pre- 
ft^rred  claim  for  rentals  accruing  during 
receivership  where  it  did  not  demand 
eitlier  po.«i.«ession,  or  contirmation  of 
lease  by  receiver.  New  York  etc.  U. 
Co.  r.  New  York,  etc  U.  Co.,  58  Fed. 
268  (189.1). 

See  also  OS  sustaining  geneml  prin- 
ciple stated  in  text :  St.  .Joseph,  etc.  H. 
Co.  V.  Humphreys,  145  V.  S.  105(1892), 
(12  Sup  Ct.  Uep.  987);  .Milwaukee, 
etc.  R.  Co.  r.  Bnjok.s  etc.  Works,  121 
U.  S.  4.30  (1887).  (7  Sup.  CL  Rep. 
1094);  Parke.  New  York,  etc.  R.  Co., 
57  P'ed.  799  (189.3) ;  Ames  v.  L'nion 
Pacific  R.  Co.,  60  Fed.  966  (1894) ;  Bell 
V.  American  Protective  League,  163 
Ma.<«s.  558  (1S93),  (40  N.  E.  Rep. 
8.-.7). 

Contra,  however,  Woodruff  v.  Erie 
R.  Co.,  93  N.  Y.  609  (1883),  where  the 
New  York  Court  of  Appeals  held  that  a 
receiver  could  not  take  possession  of  a 
leased  railroad  and  enjoy   its   use  and 


CHAP.    XXI.]  LEASES    UNDER   RECEIVERSHIP. 


236 


must,  however,  deal  fairly  with  the  lessor  and  is  bound  to 
turn  over  the  net  earnings  of  the  road,  if  less  than  the  stipu- 
lated rent,  to  the  lessor,  and  to  pay  a  reasonable  rental  for 
leased  property,  in  itself  non-producing.^  This  is  equitable. 
The  receiver  operates  the  leased  road  subject  to  the  right  of 
the  lessor  to  re-enter  for  condition  broken  and  to  insist  upon 
an  immediate  adoption  of  the  lease  or  surrender  of  the  road. 
If  the  lessor  fail  to  assert  his  right,  it  may  fairly  be  presumed 
that  the  trial  of  the  road  by  the  receiver  is  of  as  much  impor- 
tance to  him  as  to  the  receiver,  and  there  is  no  reason  why 
the  receiver  should  hazard  the  corpus  of  his  estate  by  the 
experiment. 

Where,  however,  the  lessor,  immediately  upon  the  appoint- 
ment of  the  receiver,  demands  of  the  receiver  and  of  the  court, 
either  an  assumption  of  the  lease  or  a  surrender  of  the  road, 
and  the  decision  is  long  delayed  that  the  receiver  may  deter- 
mine which  policy  is  expedient,  he  must  pay  the  stipulated 
rent  for  the  time  he  has  had  possession,  in  case  he  elects  to 
surrender  the  road.^     So,  where  a  receiver  operates  a  leased 


occupation,  without  incurring  liability 
for  the  rent  reserved. 

See  also  Mercantile,  etc.  Co.  v. 
Southern,  etc.  R.  Co.,  113  Ala.  543 
(1897),  (21  So.  Rep.  373);  Brown  v. 
Toledo,  etc.  R.  Co.,  35  Fed.  444  (I8S8). 

1  See  cases  cited  in  preceding  note. 
Also  Carswell  v.  Farmers  Loan,  etc. 
Co.,  74  Fed.  88  (1896),  where  a  receiver 
of  a  railroad  retained  possession  of 
leased  depot  property  for  ten  months, 
■with  the  assent  of  the  depot  company 
negotiations  being  all  the  time  in  prog- 
ress to  fix  a  reasonable  rent.  At  the 
end  of  this  time,  a  receiver  of  the  depot 
company  was  appointed.  It  was  held 
that  the  railway  receiver  had  not  elected 
to  adopt  the  lease,  and  was  liable  only 
for  a  reasonable  rent  of  the  depot,  not 
for  the  stipulated  rental. 

And  see  Savannah,  etc.  R.  Co.  v. 
Jacksonville,  etc.  R.  Co.,  79  Fed.  35 
(1S97). 

Where  a  mortgage  trustee  notified 
the  lessor  upon  taking  possession  that 
he    repudiated    the    lease    but    would 


pay  fair  compensation  the  court  upheld 
the  notice.  Milwaukee,  etc.  R.  Co.  v. 
Brooks,  etc.  Works,  121  U.  S.  430 
(1887),  (7  Sup.  Ct.  Rep.  1094). 

-  In  Farmers  Loan,  etc.  Co.  v.  North- 
ern Pacific  R.  Co..  58  Fed.  265  (1893), 
Judge  Jenkins  said  :  "  So  that  here  the 
lessors  have  been  continuously  knocking 
at  the  door  of  the  court,  demanding 
possession  of  the  demised  premises,  and 
possession  has  been  withheld  from  them 
against  their  consent,  and  against  their 
protest.  It  appears  to  the  court  that, 
under  such  circumstances,  it  would  be 
inequitable  to  say  that  the  court  or  its 
receivers  should  hold  possession  of  the 
demised  premises,  refusing  to  jiay  rent 
accruing  before  the  receivership,  taking 
from  the  lessor  their  estate  without 
their  consent,  express  or  implied,  and 
saying  to  them  :  '  While  we  take  and 
withhold  that  possession  until  it  shall 
he  satisfactorily  determined  wliether  it 
is  profitable  or  not  to  operate  the  road, 
you,  the  lessee,  shall  not  have  your 
rental  pending  that  determination  ac- 

341 


§  237  INTERCOKPORATE   RELATIONS.  [PART   III. 

road  and  kcops  no  separate  accounts  showing  the  net  earnings 
of  the  road,  he  must  pay  t!»e  rent  Ktij)ulated  for  tlie  time  of 
his  possession,  although  he  renounces  the  lease.*  In  such 
cases,  ecpiity  establishes  exceptions  to  the  general  rule. 

§  237.  ObligaUouB  of  Receiver  after  Election. —  When,  after 
due  investigation,  a  receiver  elects,  and  the  court,  after  con- 
sideration, determines,  to  surrender  a  leasehold  interest  to  its 
owner,  and  such  surrender  ia  made  and  compensation  for  the 
use,  {tending  election,  is  paid,  according  to  the  principles  just 
indicated,  the  connection  of  the  receiver  with  the  leased  prop- 
erty terminates;  hut  when  the  receiver,  with  the  approval  of 
the  court,  decides  not  to  surrender  the  lease,  ami  so  notifies 
the  lessor  and  continues  in  |)ossession  of  the  leased  property, 
such  acts  constitute  an  adoption  of  the  lease  and  carry  with  it 
an  obligation  to  fulfil  the  covenants  of  the  lease  and  to  j)ay 
the  rental  stipulated.-  Thus,  where  a  receiver  adopts  a  lease 
containing  provisions  for  the  purchase  of  the  property  leased, 
he  is  bound  by  the  instrument.^ 

When  a  receiver  is  operating  a  railroad  system  consisting 
of  many  leased  lines,  the  leases  of  which  have  been  adopted, 
the  accounts  of  each  line  should  he  kept  separately,  and  the 

conlinjj  to  the  stipnlations  of  the  lo.iac  roooivcr    by   a   federal    conrt    for  puch 

under  which  posses.xion  v\a.'«  taken.'  "  corporatinn,    were   permitted   to    come 

1  Central,  etc.  Co.  r.  Farmers  Loan,  in  and  directly  a'<9ert  their  claims  for 
etc.  Co.,  79  Fed.  158  (1897).  interest  ai^ainst  tlie  fnnd  in  the  hands 

Where   a   receiver    operates    le.Tsed  of  tlie  court  fi>r  the  payment  of  rentals, 

lines  for  a  year,  and  uses  the  earninps  notwithstanding   the  appointment  of  a 

to  pay  interest,  the  court  will  order  him,  receiver  for  the  les^sor  corjwration,  with 

to  that  extent,  to  pay  taxes  on  the  road  power  to  collect  the  rentals.    Mercantile 

as  required  by  the  terms  of  the  lease.  Trust  Co.  v.  Baltimore,  etc.  II.  Co.,  94 

Clyde  r.  Hichniond,etc.  R.  Co.,  63  Fed.  Fe.l.  722  (1899). 

21  (1894)  See   also    Grand  Trunk   R.   Co.    v. 

2  Central  Trust  Co.  v.  Continental  Central  Vermont  R.  Co.,  78  Fed.  690 
Trust  Co..  86  Fed.  517  (1898).  {\807 ),(ijjirnied sub  nom.  Bank  v.  Smith, 

See  also  Easton  v.  Houston,  etc.  R.  86  Fed.  .398  (1898). 
Co.,  38   Fed.    784    (1889);  Mercantile,  As  to  submission  of  amount  of  in- 

etc.  Co.  V.  Southern,  etc.  Co.,  113  Al.i.  crea.sed  rental  due  to  improvements  to 

543  (1897),  (21  So.  Rep.  373).     Spencer  arbitration  see  Farm  rs  Loan,  etc.  Co. 

V.  World's   Columbian  Exposition,  163  v.   Chicago,   etc.  R.  Co.,   18    Fed.   484 

111.  117  (1896),  (45  N.  E.  Rep.  250).  (1883),  ajjxrmed  sub  nom.  Peoria,  etc.  R. 

Where  a  lessee  corporation  agreed  Co.  r.  Chicago,  etc.  R.  Co.,  127  U.  S. 

to  pay,   as   a   part  of  the   rental,   the  200  (1888).  (8  Sup.  Ct.  Rep.  1125). 
interest  on  certain  bonds,  the  holders  ^  Mercantile  Trust  Co.   r.  Atlantic, 

of  such  bonds,  on  the  appointment  of  a  etc.  R.  Co.,  80  Fed.  18  (1897). 

342 


CHAP.    XXI.]  LEASES   UNDER   RECEIVERSHIP.  §  238 

outlay  of  each  reduced,  if  possible,  until  it  pays  operating 
expenses  ;  but  if  the  receiver  is  unable  to  do  so,  receiver's 
certificates  on  the  whole  system  may  be  issued  to  make  up 
the  deficiency.!  So,  where  a  receiver  has  been  unable  to 
obtain  money  for  the  payment  of  rentals,  the  court,  on  final 
decree,  may  properly  declare  the  unpaid  rentals  a  first  lien 
on  the  property  and  direct  that  the  same,  with  interest,  be 
paid  out  of  the  proceeds  of  the  sale,  as  a  preferential  lien.^ 

When,  however,  the  court,  in  authorizing  a  receiver  to 
operate  a  leased  line,  provides  that  the  rent  shall  be  paid  only 
after  certain  prior  payments  have  been  made,  the  lessor 
cannot  claim  payment  from  the  receiver  absolutely.^  The 
lessor  may  re-take  its  road  if  dissatisfied  with  the  provisions 
of  the  order,  but  its  only  demand  against  the  receiver  is  in 
accordance  with  the  order. 

Where  a  receiver  makes  a  valid  contract  for  repairs  on 
leased  rolling  stock,  he  is  liable  thereon  as  receiver,  although 
it  is  subsequently  turned  over  to  another  receiver.* 

§  238.  Lease  of  Railroad  by  Receiver.  —  As  a  railroad  cor- 
poration cannot,  itself,  lease  its  railroad  and  franchises,  with- 
out legislative  authority,  a  receiver  who  temporarily  assumes 
its  functions  does  not,  without  like  authority,  possess  the 
power. 5  The  necessary  authority  is  legislative,  not  judicial, 
and,  in  order  to  justify  a  lease  by  receivers,  some  statutory 
provision  must  confer  the  right  to  execute  it. 

1  Central  Trust  Co.  v.  Wabash,  etc.  ship,  see  Central  U.,  etc.  Co.  v.  Farmers 
R.  Co.,  23  Fed.  86-3  (188.5).     Stje  also  Loan,  etc.  Co.,  79  Fed.  158  (1897). 
Miltenberger  v.  Logansport  R.  Co.,  166  Lessor  has  no   preferred  claim  for 
U.    S.   286    (1882),  (10   Sup.  Ct.   Rep.  rentals  during  receivership  where  it  did 
J40).  not  demand  either  possession   or   con- 

2  Central  Trust   Co.  v.  Continental  firination   of  lease   by    receiver.     New 
Trust  Co.,  86  Fed.  517   (1898).  York,  etc.  R.  Co.  v.  New  York,  etc.  K. 

Where  a  railroad  lease  is  declared  Co.,  58  Fed.  268  (1893). 

void  the  lessor  has  no  riglit  to  qmntum  ^  Central  Trust  Co.  v.  Wabash,  etc. 

meruit  against  funds  in  hands  of  receiver,  R.  Co.,  38  Fed.  63  (1889). 

the  operation  of  the  leased  road  having  *  Central  Trust  Co.  v.  Wabash,  etc. 

been  a  source  of  loss.     St.  Louis,  etc.  R.  Co.,  50  Fed.  857  (1892). 

R    Co.  V.  Cleveland,  etc.   R.  Co.,   125  5  State  v.  McMinnviUe,  etc.  R.  Co., 

u!  b  658  (1888),  (8  Sup.  Ct.  Rep.  1011).  6  Lea  (Tenn.),369  (1880)  ;  McMinnviUe 

Whether  a  debt  for  rental  of  a  leased  etc.  R.  Co.  v.  Huggins,  3  Baxt.  (Tenn.) 

line,  part  of  a  railroad  system,  shall  be  177  (1873). 


treated  as  an  obligation  of  the  receiver- 


343 


§  239  INTERCORPORATE  RELATIONS.        [PAKT  III. 

Courts  liavo,  however,  sometimes  authorized  receivers  ap- 
pointed by  them  to  take  leases  of  railroads, —  generally  short 
connectin;,'  lines,  —  where  the  interest  of  the  creditors  and 
the  corporation  required  it.'  Upon  the  principle  that  legisla- 
tive authority  is  as  necessary  to  take  as  to  make  a  lease,  it  is 
assumed  that  such  orders  have  i)een  passed  only  wliere  some 
general  or  special  law  authorized  the  connection,  by  lease,  of 
the  road  leased  with  that  controlled  by  the  receiver.  It 
cannot  be  that  a  receiver,  without  an  enabling  statute  in  his 
behalf  and  without  authority  in  the  corporation  he  represents, 
can,  by  mere  order  of  court,  assume  the  discharge  of  public 
duties  imposed  on  another  corporation. 


CIIAPTKIl   XXII. 

ILTHA    VIRES    AND    VGIDAIJLE    RAILROAD    LEASES. 

§  239.  Distinction  between  Ultra  V&fx  ami  Irropular  Leases. 

§  240.  Eiiforconu-nt  of  Kxecutory  L'ltrn   \'ires  Lcnsi-s. 

§  241.  Delivery  of  rossc.s.sion  nndiT  lltra  Virei  Lease. 

§  242.  Rifjht  and  Duty  of  Disaffirmance. 

§  243.  Kccovery  of  Property  after  Dis:ifHrmnnce. 

§  244.  Recovery  on  Quantum  meruit  for  I'list  Use. 

§  245.  Imjjrovemonts  made  by  Lessee  under  Ultra  Virrs  Lease. 

§  246.  Eflect  of  Ultra  I'ires  Lease  upon  Stock  Subscriptions. 

§  247.  Guarantee  of  Ultra  Vires  Lease  void. 

§  248.  Voidable  Railroad  Leases. 

§  249.  Leases  of  Railroads  for  Pnrpose  of  suppressing  Competition. 

§  250.  Remedy  of  State—  Quo  Warranto. 

§  251.  Remedy  of  State  —  InjunctioD. 

§  239.  Distinction  between  Ultra  Vires  and  Irregular  Leases. 
—  There  is  an  obvious  distinction  between  a  want  of  power 
and  a  want  of  formalities  in  the  exercise  of  power.  More 
precisely,  the  exercise  by  a  corporation  of  a  power  not 
conferred  by  its  charter  or  the  laws  of  its  incorporation,  is 

1  Gibert  v.  Washington  City,  etc.  Mercantile  Trust  Co.  r.  Missouri,  etc. 
R.    Co.,   33    Gratt.    (Va.)    586    ('l880);     R.   Co.,  41   Fed.  8  (1889). 

344 


CHAP,    XXII.] 


ULTRA    VIRES    LEASES. 


289 


clearly  distinguishable  from  the  irregular  exercise,  in  a 
particular  instance,  of  a  general  power  conferred  upon  a 
corporation.^ 

A  lease  of  a  railroad,  without  legislative  authority,  is  wholly 
void,  and  the  parties  thereto  are  permitted  to  plead  their 
want  of  authority,  upon  the  ground  that  a  court  will  not  inter- 
fere in  aid  of  parties  to  an  illegal  enterprise.  Principles  of 
estoppel  and  ratification  are  inapplicable.  A  corporation 
cannot  ratify  that  which  it  was  without  power  to  do  in  the 


1  In  Central  Transp.  Co.  v.  Pull- 
man Car  Co.,  139  U.  S.  59  (1891), 
(11  Sup.  Ct.  Rep.  478),  Mr.  Justice  Gray 
said:  "A  contract  of  a  corporation, 
which  is  ultra  vires,  in  the  proper  sense, 
that  is  to  say,  outside  the  object  of  its 
creation  as  defined  in  the  law  of  its 
organization,  and  therefore  beyond  the 
powers  conferred  upon  it  by  the  legisla- 
ture, is  not  voidable  only,  but  wholly 
void,  and  of  no  legal  effect.  Tlie  ob- 
jection to  the  contract  is,  not  merely 
that  the  corporation  ouglit  not  to  have 
made  it,  but  that  it  couM  not  make  it. 
The  contract  cannot  be  ratified  by 
either  party,  because  it  could  not  have 
been  authorized  by  either.  No  per- 
formance on  either  side  can  give  the 
unlawful  contract  any  validity,  or  be 
the  foundation  of  any  right  of  action 
upon  it.  When  a  corporation  is  acting 
within  the  general  scope  of  the  powers 
conferred  upon  it  by  the  legislature,  the 
corporation,  as  well  as  persons  contract- 
ing with  it,  may  be  estopped  to  deny 
that  it  had  complied  with  the  legal 
formalities  which  are  prerequisites  to 
its  existence  or  to  its  action,  because 
such  requisites  might  in  fact  have  been 
complied  with.  But  when  the  contract 
is  beyond  the  powers  conferred  upon  it 
by  existing  laws,  neither  the  corpora- 
tion, nor  the  other  party  to  the  con- 
tract, can  be  estopped,  by  assenting  to 
it,  or  by  acting  upon  it,  to  show  that  it 
was  prohibited  by  those  laws.  The 
doctrine  of  the  common  law,  by  which 
a  tenant  of  real  estate  is  estopped  to 
deny  his  landlord's  title,  has  never  been 
considered  by  this  court  as  applicable  to 


leases  by  railroad  corporations  of  their 
roads  and  franchises.  It  certainly  lias 
no  bearing  upon  the  question  whether 
this  defendant  may  set  up  that  the  lease 
sued  on,  which  is  not  of  real  estate, 
but  of  personal  property,  and  which 
includes,  as  inseparable  from  the  other 
property  transferred,  the  inalienable 
francliise  of  the  plaintiff,  is  unlawful 
and  void,  for  want  of  legal  capacity  in 
the  plaintiff  to  make  it." 

And  in  Davis  r.  Old  Colony  R.  Co., 
131  Mass.  260  (1881),  Mr.  Justice 
Gray,  then  Chief  Justice  of  the  Su- 
preme Judicial  Court  of  Massachusetts, 
said :  "  There  is  a  clear  distinction,  as 
was  pointed  out  by  Mr.  Justice  Camp- 
bell in  Zabriskie  v.  Cleveland,  etc.  R. 
Co.,  23  How.  (U.  S.)  398  (1859),  by 
Mr.  Justice  Hoar  in  Monument  Bank 
V.  Globe  Work.s,  101  Mass.  58  (1869), 
and  by  Lord  Chancellor  Cairns  and 
Lord  Hatherly  in  Ashbury  Carriagp, 
etc.  Co.  V.  Riche,  L.  R.  7  H.  L.  684 
(1875),  between  the  exercise  by  a  cor- 
poration of  a  power  not  conferred  upon 
it,  varying  from  the  objects  of  its  crea- 
tion as  declared  in  the  law  of  its  organi- 
zation, of  which  all  persons  dealing  with 
it  are  bound  to  take  notice ;  and  the 
abuse  of  a  general  power,  or  the  failure 
to  comply  with  prescribed  formalities 
or  regulations,  in  a  particular  instance, 
when  such  abu.se  or  failure  is  not  known 
to  the  other  contracting  party." 

See  also  Miners  Ditch  Co.  v.  Zeller- 
bach,  37  Cal.  543  (1869),  (99  Am.  Dec. 
300) ;  City  Fire,  etc.  Ins.  Co.  v.  Carruei, 
41  Ga.  660  (1871 ) ;  Royal  British  Bank 
V.  Turquand,  6  El.  &  Bl.  327  (1856). 

34o 


§240 


INTERCORPORATE   RELATIONS. 


[part    III. 


first  instance;  and  it  cannot  be  estopped  from  plcadinp:  ultra 
vires,  because  all  persons  liavinj;  dealings  with  it  are  bound 
to  take  notice  of  the  limitations  of  its  charter.^  If,  however, 
the  execution  of  the  lease  is  within  the  i)owers  of  the  contract- 
ing corporations,  but  cither  has  failed  to  conform  to  statutory 
regulations  designed  for  the  protection  of  its  stockholders, 
the  stockholders  may  ratify  the  lease  and,  as  already  shown, 
both  the  corporation  and  the  stockholders  may  be  estopped 
from  denyinuj  its  validity.- 

§  210.  Enforcement  of  Executory  Ultra  Vires  Leases.  —  While 
executed  contracts  made  by  corporations,  in  excess  of  their 
legal  jiowers,  have,  in  some  jurisdictions,  been  uj)held  by  the 
courts,  and  parties  have  been  precluded  from  setting  up,  as 
a  defence  to  actions  brought  by  or  against  corporations,  their 
want  of  power  to  enter  into  such  contracts,  the  doctrine  has 
never  been  applied  to  mere  executory  contracts.^ 


*  Union  Pacific  R.  Co.  v.  Chic.i;;o, 
etc.  R.  Co.,  IG.}  U.  S.  581  (189r,),  (10 
Suj).  Ct.  Kep.  1 173) :  "  The  general  riilo 
is  that  a  contract  by  wliich  a  rail- 
road conijiany  renders  itself  incapable 
of  perforniin};  its  dnties  to  the  public, 
or  attempts  to  absolvo  itself  from  those 
obligations  without  the  consent  of  the 
State,  or  a  contr.ict  made  by  a  corpora- 
tion beyond  tlio  scope  of  its  powers, 
express  or  implied,  on  a  proper  coiv 
etruction  of  its  charter,  cannot  bo  en- 
forced, or  rendered  enforceable  by  the 
application  of  the  doctrine  of  estoppel ; 
.  .  .  but  where  the  subject-matter  of 
the  contract  is  not  foreign  to  the  pur- 
poses for  which  the  corporation  is 
created,  a  contract  embracing  '  what- 
ever may  fairly  be  regarded  as  in- 
cidental to,  or  conseqnenti.il  npon, 
those  tilings  which  the  legislature  has 
authorized,  ought  not,  unless  expressly 
prohibited,  to  be  held  by  judicial  con- 
struction to  be  ultra  vires.'  " 

A  legislative  act  purporting  to  ratify 
an  ultra  virex  lease,  is,  in  effect,  a  new 
grant  of  power.  The  acceptance  of 
rent  under  an  ultra  virea  lease  does 
not  make  it  valid.     Ogdensburgh,  etc. 

346 


R.  Co.  V.  Vermont,  etc.  R.  Co.,  4  Ilun 
(X.  v.).  268  (1875). 

3  Boston,  etc.  U.  Co.  i-.  New  York, 
etc.  R.  Co.,  13  R.  I.  260  (1881)  ;  Hum- 
phreys V.  St.  Louis,  etc.  R.  Co.,  37 
Fed.  307  (1889).  See  &]so  ante,  §  192: 
"  Acr/uiescence  and  Laches  of  Stockhold- 
ers ;  "  ante,^  196  :  "  Corporation  maif  be 
extoppedfrom  alleging  Irregular  Execution 
of  Lease." 

8  United  States:  Safety  Insulated 
Wire,  etc.  Co.  v.  Baltimore,  74  Fed. 
135  (1890). 

Massachusetts:  In  White  v.  Bass, 
3  Cush.  449  (1849),  Chief  Justice  Shaw 
laid  down  the  rule  as  follows  :  "  It 
is  well  settled  by  the  authorities,  that 
any  promise,  contract  or  undertaking, 
the  performance  of  which  would  tend 
to  promote,  advance,  or  carry  into 
effect  an  object  or  purpose  which  is 
unlawful,  is  in  itself  void  and  will  not 
maintain  an  action." 

New  York :  Nassau  Bank  v.  Jones, 
95  N.  Y.  122  (1882).  Also  Jemison  v. 
Citizens  Savings  Bank,  122  N.  Y.  142 
(1890),  (25  N.  E.  Rep.  264)  ;  Tracy  v. 
Talmadge,  14  N.  Y.  162  (1856). 

England:     Ashbury   Railway   Car- 


CHAP.    XXII.]  ULTRA   VIRES   LEASES.  §  240 

Public  policy  forbids  ultra  vires  leases  of  railroads,  and 
the  authorities  are  practically  unanimous  in  holding  that  in 
no  way,  directly  or  indirectly,  will  the  courts  allow  an  action 
to  be  maintained  to  enforce  the  provisions  of  such  leases, 
while  they  remain  executory .^  They  will  not  aid  a  corpora- 
tion to  enforce  its  unlawful  contracts.  They  will  not  assist 
in  diverting  corporate  funds  to  unauthorized  objects,  to  the 
detriment  of  stockholders  and  creditors  and  prejudice  of  the 
rights  of  the  State.  While  the  application  of  this  principle 
may  allow  a  corporation  to  repudiate  its  contracts  and  escape 
its  obligations,  such  result  is  incidental,  and  must  be  borne 
by  the  suffering  party  as  a  penalty  for  participating  in  an 
illegal  enterprise. 

Lord  Mansfield  thus  tersely  stated  the  position  of  the 
courts  in  Holman  v.  Johnson^  decided  in  1775 :  "  The  ob- 
jection that  a  contract  is  immoral  or  illegal  as  between  the 
plaintiff  and  defendant,  sounds  at  all  times  very  ill  in  the 
mouth  of  the  defendant.  It  is  not  for  his  sake,  however,  that 
the  objection  is  ever  allowed  ;  but  is  founded  on  general 
principles  of  policy,  which  the  defendant  has  the  advantage 
of,  contrary  to  the  real  justice,  as  between  him  and  the  plaintiff, 
by  accident,  if  I  may  say  so.  The  principle  of  public  policy 
is  this :  ex  dolo  malo  non  oritur  actio.     No  court  will  lend  its 


riage,  etc.  Co.  v.  Riche,  L.  R.  7  H.  L.  v.  United   Gas,   etc.   Co.,  8.5  Me.  532 

653  (1875),   L.  R.  9  Ex.  224;  Caledo-  (1893),  (27  Atl.  Rep.  525,  35  Am.  St. 

nian,  etc.  R.  Co.  v.  Magistrates  of  Hel-  Rep.  385). 

ensburgh,  2  Macq.  391  (1855).  New    York:       Compare    Bath    Gas 

1   United  States:   Pullman  Car  Co.  Light  Co.  ?>.  Claffy,  151  N.  Y.  24  (1896), 

V.  Central  Trahsp.  Co.,  171  U.  S.  138  (45  N.  E.  Rep.  390)  ;  Woodruff  v.  Erie 

(1898),    (18    Sup.   Ct.    Rep.    808)  ;   St.  R.  Co.,  93  N.  Y.  609  (1883). 

Louis,  etc.  R.  Co.  v.  Terre   Haute,  etc.  England :     East  Anglian  R.  Co.  v. 

R.  Co.,  145  U.  S.  393  (1892),  (12  Sup.  Eastern  Counties  R.  Co.,  11  C.  B.  775 

Ct.  Rep.  953);  Central  Transp.  Co.  i?.  (1851);  McGregor  »>.  Dover,  etc.  R.  Co., 

Pullman  Car  Co.,  139  U.  S.  24  (1891),  18  Q.  B.  618  (1852). 

(11  Sup.  Ct.  Rep.  478)  ;  Oregon  R.,  etc.  ^  Holman  r.  Johnson,  1  Cowp.  341 

Co.  V.  Oregonian  R.  Co.,  130  U.  S.  1  (1775). 

(1889),  (9  Sup.  Ct.  Rep.  409)  ;  Pennsyl-  Lord  Mansfield,  in  Smith  v.  Brom- 

vania  R.  Co.  v.  St.  Louis,  etc.  R.  Co.,  ley,  2   Doug.    696    (1760),    an    earlier 

118  U.  S.  290  (1886),  (6  Sup.  Ct.  Rep.  case,  says:  "If  the  act  is  in  itself  im- 

1094)  ;  Thomas  v.  Railroad  Co.,  101  U.  S.  moral,  or  a  violation  of  the  general  laws 

71  (1879).  of  public  policy,  then  the  party  paying 

Maine  :     Brunswick  Gas  Light  Co.  shall  not  have  his  action." 

347 


INTKUCOUPORATE   RELATIONS. 


[PAIIT    MI. 


aid  to  a  man  who  founds  liis  cause  of  action  upon  an  inunoral 
or  an  illegal  act." 

§  241.  Delivery  of  Posaesflion  under  Ultra  Vires  Lease.  — 
It  ha.s  been  held  that  the  principle,  enunciated  hv  niany  courts, 
tliat  a  [tarty  to  an  ultra  rires  contract  who  has  received  the 
benefit  of  its  full  p(>rforniance  is  estopped  from  questioning 
its  validity,  is  applicable  in  the  case  of  an  unauthorized 
lease  of  a  railroad  where  possession  has  passed,  upon  the 
ground  that  delivery  of  jwssession  constitutes  complcto 
execution  on  tho  part  of  the  lessor.*  The  weight  of  authority, 
however,  supports  the  view  that  a  lease  is  a  continuimj  con- 
tract, as  to  rent  and  as  to  occupancy,  and  is  executory  in  re- 
spect of  its  future   performance.^     Upon  the  principles  just 


•  Camden,  etc.  U.  Co.  v.  .Mnv'a  I^and- 
iiiR.  etc.  K.  Co..  48  N.  J.  L.  ^30  (1S86). 
(7  Atl.  Rep.  52.1).  In  thin  c.-me  (two 
juijpes  dissontiii;:),  the  Court  allowed  a 
recovery  of  rent  .iccruinj;  after  an  j\l>an- 
donnicnt  of  an  ultra  rites  le.xte,  reaching 
tlie  conclusion  th.it  the  transaction  wa.s 
completed  upon  the  [>artof  the  les.sorhy 
the  delivery  of  the  leased  road,  ami  tliiit 
the  other  party  should  not  ho  allowed 
to  plead  ullrit  ei'/e.t  when  sued  for  not 
performing  its  part  cff  the  contract. 
The  Court,  howevi-r,  said  that  the  ([ues- 
tion  is  different  where  the  State  accuses 
a  corporation  of  exceeding  its  powers, 
thus  apparently  .idopting  the  doctrine, 
Bometimcs  statcl  by  courts,  that  the 
State  alone  can  (luestioii  ultra  rires  act.s 
of  corporations.  This  doctrine,  how- 
ever, while  reasonable  in  many  re- 
spect.<!,  is  opposed  to  the  great  weight 
of  authority. 

-  In  Pennsylvania  Co.  v.  St.  Tx)ui8, 
etc.  U.  Co  .  1 18  U.  S.  316  (1886),  (6  Sup. 
Ct.  Kep  1094),  Mr.  Justice  Miller  said: 
"  It  is  argued  in  support  of  the  decree, 
th.'\t,  though  the  contract  of  the  lease 
was  void,  so  that  no  action  could  origi- 
nally have  been  sustained  upon  it,  there 
has  been  for  ten  years  such  perform- 
ance of  it,  in  the  nse,  possession  and 
control  of  plaintiff's  road  and  its  fran- 
chises by  the  defendant,  that  they  can- 
not DOW  be  permitted  to  repudiate  or 

348 


abandon  it ;  that  it  now  presents  acla.^* 
of  ca.>««'8  which  hold  that  where  a  void 
contract  has  l>oen  so  far  executed  th.it 
propt-rty  ha.-*  pa-sncd  under  it  and  rights 
have  l)een  actpiired  under  it,  the  courts 
will  not  disturb  the  pos.session  of  such 
property.  .  .  .  We  know  of  no  well-con- 
siflcred  ca.se  where  a  corporation,  which 
is  a  p.arty  to  a  continninij  contntrt,  which 
it  had  no  power  to  make,  seeks  to  re- 
tract and  refuses  to  proceed  further  can 
be  compelleil  to  do  so." 

And  in  Oregon  II.,  etc.  Co.  v.  Ore- 
gonian  K.  Co..  1.10  U.  S.  37  (1889), 
(9  Sup.Ct.  Hep.  409).  Mr.  Justice  .Miller 
said:  "To  sjiy  that  a  contract  which 
runs  for  ninety-six  years,  .ind  whi<h 
reipiires  of  both  parties  to  it  continual 
and  actual  operations  and  ])erfonnance 
under  it,  becomes  an  executed  contract 
by  such  performance  for  less  than  three 
years  of  the  term,  is  carrying  the  doc- 
trine much  farther  than  it  has  ever  been 
carried,  and  is,  decidedly,  a  misnomer. 
This  cla.<«s  of  ca.ses  is  not  governed  by 
the  doctrine  of  part  performance  in  a 
suit  in  equity  for  specific  performance, 
nor  is  this  a  suit  for  specific  perform- 
ance. This  is  an  action  at  law  to  re- 
cover money  under  a  contract  which  is 
void,  where  for  nearly  three  years  the 
parties  acted  under  it,  but  in  which  one 
of  them  refuses  longer  to  be  bonnd  by 
its  provisions ;  and  the  argument  now 


CHAP.    XXII.] 


ULTRA    VIRES   LEASES. 


§242 


considered,  therefore,  no  action  can  be  maintained  upon  sucli 
a  lease  for  any  failure  to  further  perform  it,  and  the  lessee  may 
surrender  an  unexpired  term  without  liability  for  damages. 

§  242.  Right  and  Duty  of  Disaffirmance.  —  As  an  ultra  vires 
lease  of  a  railroad  is  forbidden  by  considerations  of  public 
policy,  and  involves  a  continuing  violation  of  the  obligations 
of  the  corporations  to  the  State,  it  is  the  duty,  as  well  as  the 
right,  of  the  parties  to  rescind  and  abandon  it  at  the  earliest 
possible  moment ;  and  this  duty  is  a  continuing  one  which 
is  rendered  none  the  less  imperative  by  delay  in  its  per- 
formance.^ 

This  right — and  corresponding  duty  —  of  rescission  is 
generally  spoken  of  in  the  decisions  as  belonging  to  the  lessee. 
Upon  principle,  however,  there  should  be  no  distinction  be- 
tween the  right  and  obligation  of  the  lessee  and  of  the  lessor. 


set  up  is  that  because  the  defendant 
has  paid  for  all  the  actual  use  it  made 
of  the  road,  while  engaged  in  the  actual 
performance  of  the  contract  between 
the  dates  just  given,  it  is  thereby  bound 
for  more  than  ninety-three  years  longer 
by  tlie  contract  which  was  made  with- 
out lawful  authority  by  its  president 
and  board  of  directors.  We  consider 
this  proposition  as  needing  no  further 
consideration." 

So  iu  Thomas  v.  Eailroad  Co.,  101 
U.  S.  86  (1879),  the  Court  said  :  "But 
what  is  souglit  in  the  case  before  us  is 
the  enforcement  of  the  unexecuted  part 
of  this  agreement.  So  far  as  it  has 
been  executed,  namely,  the  four  or  five 
years  of  action  under  it,  the  accounts 
have  been  adjusted,  and  each  party  has 
received  what  he  was  entitled  to  by  its 
terms.  There  remains  unperformed  the 
covenant  to  arbitrate  with  regard  to  the 
value  of  the  contract.  It  is  the  dam- 
ages provided  for  in  that  clause  of  the 
contract  that  are  sued  for  in  this  action. 
Damages  for  a  material  part  of  the  con- 
tract never  performed  ;  damages  for  the 
value  of  a  contract  which  was  void.  It 
is  not  a  case  of  a  contract  fully  exe- 
cuted. The  very  nature  of  the  suit  is  to 
recover  damages   for   its  non-perform- 


ance. As  to  this  it  is  not  an  executed 
contract." 

See  also  Central  Transp.  Co.  v.  Pull- 
man Car  Co.,  1.39  U.  S.  24  (1891),  (11 
Sup.  Ct.  Rep.  478) ;  Mallory  v.  Hanaur 
Oil  Works,  86  Tenn.  598  (1888),  (8  S. 
W.  Rep.  396).  Compare  Ueims  Brewing 
Co.  V.  Flannery,  137  111.  309  (1891),  (27 
N.  E.  Rep.  286.) 

1  A  contract  made  by  a  corporation 
which  is  unlawful  and  void  does  not  by 
being  carried  into  execution  become 
lawful  and  valid.  The  proper  remedy 
of  an  aggrieved  party  is  to  disaffirm  tlie 
contract.  Brunswick  Gas  Light  Co.  w 
United  States,  etc.  Co.,  85  Me.  532 
(1893),  (27  Atl.  Rep.  525,  35  Am.  St. 
Rep.  385). 

See  also  Pullman  Car  Co.  v.  Central 
Transp.  Co.,  171  U.  S.  151  (1898),  (18 
Sup.  Ct.  Rep.  808) :  "  The  right  of  re- 
covery must  rest  upon  a  disaffirmance 
of  the  contract."  Also  St.  Louis,  etc. 
R.  Co.  V.  Terre  Haute,  etc.  R.  Co.,  145 
U.  S.  393  (1892),  (12  Sup.  Ct.  Rep.  953; 
Central  Transp.  Co.  v.  Pullman  Car  Co., 
139  U.  S.  24  (1891),  (11  Sup.  Ct.  Rep. 
478)  ;  Pennsylvania  Co.  v.  St.  Louis,  etc. 
R.  Co.,  118U.  S.  290  (1886),  (6  Sup.  Ct. 
Rep.  1094)  ;  Thomas  v.  Railroad  Co., 
101  U.  S.  71  (1879). 

349 


§  242  INTERCORPORATE   RELATIONS.  [VMlT   III. 

Tliey  are  both  parties  to  an  unlawful  contract  and  owe  the 
same  duty  to  di.saHirni  it.  I'racticaliy,  liuwever,  tlie  riglit 
iu:iy  be  said  to  be  unilateral,  owing  to  obstacles,  placed 
by  tlie  courts,  in  the  path  of  the  lessor  in  recovering  hia 
property  when  the  lessee  has  not  repudiated  the  lease. 
Practically,  also,  the  duty  of  rescission  will  rest  lightly  upon 
a  lessor  who  risks  the  confiscation  of  his  property  by  observ- 
ing it.  Thus,  the  Supreme  Court  of  the  United  States  has 
held  that  the  parties  to  an  unauthorized  lease  are  guilty  of  a 
public  wrong  whicli  precludes  a  court  of  equity  from  enter- 
taining a  l)ill  by  a  lessor  for  relief  from  the  lease  and  for  a 
return  of  the  j)roperty  ;  and  has  intimated  that  neither  a 
court  of  law  nor  of  equity  would  grant  a  lessor,  under  such 
a  lease,  any  relief  in  obtaining  its  property,  so  long  as  the 
lessee  was  satisfied.*  And  the  Supreme  Court  of  Te.xas  has 
carried  this  doctrine  to  its  logical  conclusion  by  holding  that 
a  lessor,  under  an  unauthorized  lease,  will  not  receive  the  aid 
of  the  courts  in  recovering  its  railroad,  rent  or  a  quantum 
vwruit? 

This  doctrine  cannot  be  approved.  The  illegality  of  an 
tdtra  vires  lease  involves  no  moral  tur{)itude,  and,  while  a 
court  of  equity  might  properly  decline  to  disturb  the  p«jsses- 
eion  of  property  acquired  thereunder,  a  court  of  law  should 

*  In  St.  I.oais,  etc.  R.  Co.  v.  Terre  used  the  language  above  stated,  which  is 

Hnuto,  etc.  U.  Co.,  145  U.  S.  39.3  (1892),  difficult  to  reconcile  with  Us  language  in 

(12    Sup.    Ct,    Hep.    953),    Mr.   Justice  Pullman    Car  Co.    i'.  Central    Tranpp. 

Gray  said:  "When  the  parties  are  in  Co.,  171  U.  S.  138  (1898).  (18  Sup.  Ct. 

;)((;•/  dt'licto,  and  the  contract  has  l)€en  Kep.  808),  and  in  Central  Transp.  Co.  ir. 

fully  executed  on  the  part  of  the  plain-  Pullman  Car  Co.,  139  U.  S.  24  (1891), 

tiff,  l>y  the  conveyance  of  property,  or  (11  Sup  Ct.  Hep.  478),  except  upon  the 

by  the  payment  of  money,  and  has  not  ground  that  the  ca.ses  are  distiiigiiishod 

been  repudiated  by  the  defendant,  it  is  by  the  lessee's  repudiation  of  the  lease 

now  etjually  well  settleil  that  neither  a  in    the    latter    cases.     This,    in   effect, 

court  of  law  nor  a  court  of  equity  will  gives  the  lessee  the  exclusive  right  of 

assist  the  plaintiff  to  recover  back  the  ropufliation,  for  if  the  lessor  repuiiiates 

property  conveyed  or  money  paid  under  he  is,  according  to  the  decision,  without 

the  contract."     This  language  was  used  remedy. 

with  reference  to  an  vJtra  rires   lease  "^  Olcott  v.  International,  etc.  K.  Co., 

which  the  les.sor  desired  to  cancel  and  (Tex.  1894),  28  S.  W.  Rep.  728.     See 

uuder  which  a  railroad  had  been  trans-  note  to  §  243,  post :  "  Recoreri/  of  Prop- 

ferred  to  and   operated  without  objec-  erty   afifr    Disaffirmance,"   for    further 

tion  by  the  lessee  for  seventeen  years,  consideration   of   this   remarkable    de- 

The  Court  denied  eciuitable  relief  and  cision. 

350 


CHAP.    XXII.]  ULTRA   VIRES   LEASES.  §  243 

always  be  open  to  a  lessor  corporation  when  it  seeks  to  do 
its  duty,  —  to  abandon  an  illegal  continuing  contract  and 
retake  its  property.^  An  action  for  such  a  purpose  is  not  in 
affirmance,  but  in  disaffirmance,  of  the  lease,  while  the  denial 
of  a  remedy  permits  the  lessee  to  retain  the  property  as  long 
as  it  chooses  and  gives  effect  to  an  illegal  lease.^ 

§  243.  Recovery  of  Property  after  Disaffirmance. — Upon  the 
abandonment  by  a  lessee  corporation  of  an  ultra  vires  lease, 
it  is  bound,  upon  principles  of  natural  justice,  to  return  the 
leased  property  to  the  lessor,  or  make  compensation  for  its 
loss.^  However  much  the  contractual  powers  of  corporations 
may  be  limited  by  their  charters,  there  is  no  limitation  upon 
their  power  to  make  restitution  of  property  acquired  under 
an  unlawful  lease ;  "  nor,  as  corporations,  are  they  exempted 
from  the  common  obligation  to  do  justice  which  binds  in- 
dividuals, for  this  duty  rests  upon  all  persons  alike,  whether 
natural  or  artificial."* 

The  Supreme  Court  of  the  United  States,  however,  in  a 
series  of  cases  of  controlling  authority,  holds  that  "  in  no  way 
and  through  no  channels,  directly  or  indirectly,  will  the 
courts  allow  an  action  to  be  maintained  for  the  recovery  of 
property  delivered  under  an  illegal  contract  where,  in  order 

1  That  ejectment  will  lie  to  recover  fraud."  Green's  Brice's  Ultra  Vires 
possession  of  a  railroad,  see  St.  Louis,     (2d  Am.  Ed.),  721. 

etc.  R.  Co.  V.  Terre  Haute,  etc.  R.  Co.,  Davis   v.   Old    Colony   R.   Co.,   131 

33  Fed.  440   (1888);    Railroad   Co.  v.  Mass.    275    (1881),  (per' Gray,  C.   J.): 

Johnson,  119  U.  S.  608  (1887),  (7  Sup.  "A  corporation  may  indeed  be  bound 

Ct.  Rep.  339).  to  refund  to  a  person,  from  whom  it  has 

2  Parkersburgh  v.  Brown,  106  U.  S.  received  money  or  property  for  a  pur- 
503  (1882),  (1  Sup.  Ct.  Rep.  442),  (case  pose  unauthorized  by  its  charter,  the 
of  invalid  bonds):  "The  enforcement  value  of  that  which  it  has  actually  re- 
of  such  rights  is  not  in  affirmance  of  the  ceived  ;  for,  in  such  a  case,  to  maintain 
illegal  contract,  but  is  in  disaffirmance  the  action  against  the  corporation  is  not 
of  it."  to  affirm,  but  to  disaffirm,  the   illegal 

^  "  To  say  that  a  corporation  cannot  contract."     Citing  White   v.   Franklin 

sue  or  be  sued  upon  an  ultra  vires  ar-  Bank,    22   Pick.    (Mass.)    181    (1839); 

rangement  is  one  thing.     To  say  that  it  Morville  i'.   American  Tract   Soc,  123 

may  retain  the  proceeds  thereof  which  Mass.  129  (1877);    In  re  Cork,  etc.  R. 

have  come  into  its  possession  without  Co.,  L.  R.  4  Ch.  App.  748  (1869). 
making  any  compensation  whatever  to  *  Manchester,  etc.  R.  Co.  v.  Concord, 

the  person  from  whom  it  has  obtained  etc.  R.  Co.,  66  N.  H.  127  (1890),  (20  Atl. 

them,  is  something  very  different,  and  Rep.  384). 
savors  very  much  of  an  inducement  to 

351 


§243 


INTERCORPORATE  RELATIONS. 


[part  III. 


to  maintain  such  recovery,  it  is  necessary  to  have  recourse 
to  that  contract.  The  right  of  recovery  must  rest  upon  a 
disafhrmancc  of  the  contract,  and  it  is  permitted  only  hecause 
of  tiie  desire  of  courts  to  do  justice  as  far  as  possible  to  the 
party  who  has  made  payment  or  delivered  property  under  a 
void  agreement  and  which  in  justice  he  ought  to  recover."  ^ 
Upon  these  principles  an  action  for  the  recovery  of  prop- 
erty delivered  under  an  invalid  lease,  cannot  be  maintained 
thereon  upon  its  rescission,  but  will  lie  upon  the  implied 
contract  of  the  lessee  to  return,  or,  failing  in  that,  to  make 
compensation  for  the  property  which  it  has  no  right  to  retain,"'^ 
An  action  at  law  should  also  be  available  for  the  recovery 
of  the  specific  property,  as  well  as  a  suit  in  equity  for  an 
accountinir  and  restitution.^ 


1  Pullman  Car  Co.  b.  Central 
Traiisp.  Co.,  171  U.  S.  151  (1898), 
(18  Sup.  Ct.  Kep.  808),  (per  Pei-kliain, 
J.).     See  also  cases  cited  iu  not<'.  2. 

2  Ceutral  Transp.  Co.  i-.  I'ulliiiau  Car 
Co.,  139  U.  S.  24  (1891),  (11  Sup.  Ct. 
Hep.  478.  See  also  Pennsylvania  K.  Co. 
V.  St.  Louis,  etc.  K.  Co.,  118  U.  S.  317 
(188G),  (6  Sup.  Ct.  Uep.  1094)  ;  Bruns- 
wick Gas  Liglit  Co  v.  United  Gas,  etc. 
Co.,  83  Me.  532  (1893),  (27  Atl.  Kep.  525, 
35  Am.  St.  Kep.  389). 

In  Railway  Companies  v.  Keokuk 
Bridge  Co.,  131  U.  S.  389  (1889),  (9  Sup. 
Ct.  Hep.  770),  Justice  Gray  said  :  "  Ac- 
cording to  many  recent  opinions  of  this 
court,  a  contract  made  by  a  corporation, 
which  is  unlawful  and  void  liecau.se  be- 
yond tlie  scope  of  its  corporate  powers, 
does  not,  by  being  carried  into  execution, 
become  lawful  and  valid,  but  the  proper 
remedy  of  the  party  aggrieved  is  by  dis- 
affirming the  contract,  and  suing  to  re- 
cover, as  on  a  f/uantum  meruit,  the  value 
of  what  the  defendant  has  actually  re- 
ceived the  benefit  of."  Citing  Louisiana 
r.  Wood,  102  U.  S.  294  (18S0);  Par- 
kersburg  v.  Brown,  106  U.  S.  487 
(1882),  (1  Sup.  Ct.  Rep.  442) ;  Chapman 
f.  Douglas  County,  107  U.  S.  348 
(1882),  ^2  Sup.  Ct.  Rep.  62) ;  Salt  Lake 
City  D  Hollister,  118  U.  S.  256  (1886), 
(6  Sup.  Ct.  Rep.  1055). 

352 


Compare,  however,  Olcott  i-.  Interna- 
tional, etc.  K.  Co.  (Tex.  1894),  28  S.  W. 
Rep.  728,  wliich  holds  that  a  lessor, 
party  to  an  ullra  vires  lease,  will  not 
receive  the  aid  of  the  courts  to  obtain 
either  the  return  of  tiie  property,  rent 
or  ijiinnlitm  meruit  compensation  ;  that 
botli  parties  are  in  pari  delicto  and  that 
the  court  will  leave  them  wliere  they 
have  deiil)erately  ])Ut  tiiemselves.  This 
remarkable  decision,  j)ermitting  the 
absolute  confiscation  of  the  lessor's 
property,  is  the  not  illogical  outcome  of 
the  decision  of  the  Supreme  Court  of 
the  United  States  in  St.  Louis,  etc.  R. 
Co.  V.  Terre  Haute,  etc.  R.  Co.,  145 
U.  S.  393  (1892),  (12  Sup.  Ct.  Rep. 
593),  to  which  reference  was  made  in 
the  last  section. 

3  A  cross  bill  for  an  accounting,  etc., 
was  allowed,  under  the  circumstances 
of  the  case,  in  Pullman  Car  Co.  i'. 
Central  Transp.  Co.,  171  U.  S.  138 
(1898),  (18  Sup.  Ct.  Rep  808),  and  there 
is  no  reason,  in  principle,  why  such  a 
bill  should  not  be  allowed  in  all  ca.-es 
where  the  leased  property  has  been  lost 
or  destroyed.  In  the  celebrated  case 
referred  to,  the  Court,  upon  the  principle 
stated  in  the  text,  decided  : 

(a)  That  the  lessor  was  entitled  to 
recover  from  the  lessee  the  value  of  the 
property  transferred    to    it  when  the 


CHAP.    XXII.] 


ULTRA    VIRES   LEASES. 


§244 


§  244.  Recovery  on  Quantum  Meruit  for  Past  Use.  —  Upon 
the  principle,  just  considered,  that  no  action  can  be  main- 
tained upon  an  unlawful  contract,  it  is  held  by  the  Supreme 
Court  of  the  United  States  and  other  courts  that  no  recovery 
can  be  had  of  rent,  as  such,  due  under  an  ultra  vires  lease, 
although  the  lessee,  before  disaffirmance,  has  enjoyed  pos- 
session of  the  property  according  to  its  terras.^  The  lessor, 
however,  while  denied  a  recovery  of  the  stipulated  rent,  may 
recover  compensation,  in  an  action  for  use  and  occupation 
based  upon  an  implied  agreement  on  the  part  of  the  lessee  to 
pay  the  value  of  such  use.^     In  such  an  action,  on  a  quantum 


lease  took  effect,  with  interest,  as  that 
property  had  substantially  disappeared 
and  could  not  be  returned. 

(/))  That  the  market  value  of  the 
lessor's  shares  was  no  measure  of  the 
value  of  the  leased  property,  although 
it  was  its  entire  plant. 

(c)  That  the  lessor  was  not  entitled 
to  recover  anything  for  the  breaking  up 
of  its  business. 

For  other  cases  as  to  the  proper 
remedy,  see  Louisiana  v.  Wood,  102 
U.  S.  294  (1880)  ;  Davis  v.  Old  Colony 
R.  Co.,  131  Mass.  258  (1881);  New 
Castle  Northern  R.  Co.  v.  Simpson,  23 
Fed.  214  (1885). 

1  Pullman  Car  Co.  v.  Central  Transp. 
Co.,  171  U.  S.  138  (1898),  (18  Sup. 
Ct.  Rep.  808);  Central  Transp.  Co. 
V.  Rullman  Car  Co.,  139  U.  S.  60 
(1891),  (11  Sup.  Ct.  Rep.  478) ;  Oregon 
R.,  etc.  Co.  V.  Oregonian  R.  Co.,  130 
U.  S.  1  (1889),  (9  Sup.  Ct.  Rep.  409); 
Pennsylvania  R.  Co.  v.  St.  Louis,  etc.  R. 
Co.,  118  U.  S.  290  (1886),  (6  Sup.  Ct. 
Rep.  1094);  Brunswick  Gas  Light  Co. 
V.  United  Gas,  etc.  Co.,  85  Me.  532 
(1893),  (27  Atl.  Rep.  525,  35  Am.  St. 
Rep.  389).  See  also  Union  Bridge  Co. 
V.  Troy,  etc.  R.  Co.,  7  Lans.  (N.  Y.) 
240  (1872),  although  this  case  is  not 
in  accordance  with  later  New  York 
authorities. 

In   Olcott  V.  International,  etc.   R. 

Co.  (Tex.   1894),  28  S.    W.   Rep.    728, 

referred  to  in  the  last-section,  the  court 

denied    a    lessor    compensation   based 

23 


either  upon  the  lease  or  upon  a  quantum 
meruit.  For  reasons  already  pointed 
out,  this  decision  is  as  far  removed  from 
good  law  as  it  is  from  just  principles. 

2  Brunswick  Gas  Light  Co.  v.  United 
Gas,  etc.  Co.,  85  Me.  532  (1893),  (27  Atl. 
Rep.  525,  35  Am.  St.  Rep.  389)  ;  Man- 
chester, etc.  R.  Co.  V.  Concord  R.  Co., 
66  N.  H.  100  (1890),  (20  Atl.  Rep. 
383).  While  the  Supreme  Court  of  the 
United  States  has  not  decided  the  pre- 
cise question  whether  a  recovery  can 
be  had  upon  a  quantum  vieruit  for  past 
use  under  an  ultra  vires  lease,  it  is  ap- 
parent from  its  language  in  Pullman 
Car  Co.  V.  Central  Transp.  Co.,  171 
U.  S.  150  (1898),  (18  Sup.  Ct.  Rep.  808), 
and  Central  Transp.  Co.  v.  Pullman 
Car  Co.,  139  U.  S.  60  (1891),  11  Sup. 
Ct.  Rep.  478),  that  should  the  case  come 
before  it  such  recovery  would  be  al- 
lowed. Thus  in  the  latter  case  the 
Court  said  :  "  A  contract  ultra  vires 
being  unlawful  and  void,  not  because 
it  is  in  itself  immoral,  but  because  the 
corporation,  by  the  law  of  its  creation, 
is  incapable  of  making  it,  the  courts, 
while  refusing  to  maintain  any  action 
upon  the  unlawful  contract,  have  always 
striven  to  do  justice  between  the  parties, 
so  far  as  could  be  done  consistently  with 
adherence  to  law,  by  permitting  prop- 
erty or  money,  parted  with  on  the  faith 
of  the  unlawful  contract,  to  be  re- 
covered back,  or  compensation  to  be 
made  for  it.  In  such  case,  however, 
the  action  is  not  maintained  upon  the 

353 


§  244  INTERCORPORATE   RELATIONS.  [PART   III. 

meruit,  the  lease  may  be  introduced  in  evidence  as  in  tlie 
nature  of  an  admission  of  wliat  is  a  reasonable  rental,  but  it 
is  held  that  it  cannot  govern  or  control  the  amount  to  be 
allowed.^ 

On  the  other  hand,  it  is  held  by  other  courts,  under  the 
leadership  of  the  New  York  Court  of  Appeals,  upon  prin- 
ciples of  estoppel,  that  the  lessee  is  bound  by  the  terms  of 
the  lease  for  the  time  he  remains  in  possession,  and  that 
recovery  of  past  due  rent  may  be  obtained  by  the  lessor,  in  an 
action  on  the  lease,  although  it  may  Ijc  void  as  to  the  public.^ 
As  said  by  Cliief  Judge  Andrews  in  Buth  Gas  Light  Co.  v. 
Claffu :^  "The  State  has  not  intervened,  and  the  possession 
of  the  property  has  now  been  restored  to  its  original  pro- 
prietors. The  contract  has  been  terminated  as  to  the  future, 
and  all  that  remains  undone  is  the  payment  by  the  lessee  of 
the  unpaid  rent.  We  think  the  demands  of  public  policy  are 
fully  satisfied  by  holding  that,  as  to  the  public,  the  lease  was 
void,  but  that,  as  between  the  parties,  so  long  as  the  occupa- 
tion under  the  lease  continued,  the  lessee  was  bound  to  pay 
the  rent,  and  that  its  recovery  may  be  enforced  by  action  on 

unlawful  contract,  nor  according  to  its  Gas,  etc.  Co.,  85  Me.  532  (1893),  (27 
terms ;  hut  on  an  implied  contract  of  Atl.  Rep.  5:i5,  35  Am.  St.  Rep.  389). 
the  defendant  to  return,  or,  failing  to  '  Bath  Gas  Light  Co.  v.  Claffy,  151 
do  that,  to  make  compensation  for  N.  Y.  24  (1896),  (45  N.  E.  Rep.  390); 
property  or  money  which  it  has  no  Woodruff  v.  Erie  R.  Co.,  93  N.  Y.  609 
right  to  retain.  To  maintain  .such  an  (1883)  ;  Camden,  etc.  R.  Co.  v.  May's 
action  is  not  to  affirm,  but  to  disaffirm,  Landing,  etc.  R.  Co.,  48  N.  J.  L.  530 
the  unlawful  contract."  Citing  Pitts-  (1886),  (7  Atl.  Rep.  523). 
burgh,  etc.  R.  Co.  v.  Keokuk,  etc.  »  Bath  Gas  Light  Co.  v.  Claffy,  151 
Bridge  Co.,  131  U.  S.  371  (1881),  N.  Y.  34(1896),  (45  N.  E.  Rep.  390). 
(9  Sup.  Ct.  Rep.  770)  ;  Salt  Lake  City  In  his  opinion  in  thisca.se,  Chief  Judge 
V.  Hollister,  118  U.  S.  263  (1886),  Andrews  also  declared  that  the  de- 
(6  Sup.  Ct.  Rep.  1055)  ;  Chapman  i*.  cisions  of  the  Supreme  Court  of  the 
Douglas  Co.,  107  U.  S.  355  (1882),  United  States,  already  referred  to,  carry 
(2  Sup.  Ct.  Rep.  62) ;  l*arkersburgh  r.  the  doctrine  of  ultra  vires  to  an  unjust 
Brown,  106  U.S.  503  (1882),  (1  Sup.  Ct.  extent,  "and  the  rank  injustice  which, 
Rep.  442)  ;  Louisiana  r.  Wood,  102  as  it  seems  to  us,  these  cases  sanction, 
U.  S.  299  (1880)  ;  Hitchcock  v.  Galves-  justifies  the  observation  of  Lord  St. 
ton,  96  U.  S.  350  (1887).  Leonards  in  the  ca.se  of  Eastern  Conn- 
See  also  cases  collected  in  dissenting  ties  R.  Co.  v.  Hawkes,  5  H.  L.  Cas. 
opinion  of  Vann,  J.,  in  Bath  Gas  Light  370  (1855),  that  "the  safety  of  men  in 
Co.  V.  Claffy,  151  N.  Y.  45  (1896),  (45  their  daily  contracts  requires  that  the 
N.  E.  Rep.  390).  doctrine  of  ultra  vires  should  be  confined 
1  Brunswick  Gas  Light  Co.  v.  United  within  narrow  limits." 

354 


CHAP.    XXII.]  ULTRA    VIRES   LEASES.  §  245 

the  covenant.  Public  policy  is  promoted  by  the  discourage- 
ment of  fraud,  and  the  maintenance  of  the  obligations  of 
contracts,  and  to  permit  a  lessee  of  a  corporation  to  escape 
the  payment  of  rent  by  pleading  the  incapacity  of  the  cor- 
poration to  make  the  lease,  although  he  has  had  the  undis- 
turbed enjoyment  of  the  property,  would  be,  we  think,  most 
inequitable  and  unjust.  .  .  .  We  think  the  rule  which  should 
be  applied  is  that  the  lessee  is  bound  by  the  contract  so  long 
as  he  remains  in  possession." 

Notwithstanding  this  reasoning  it  seems  to  follow  as  a 
necessary  conclusion  from  the  premise  tliat  an  ultra  vires 
lease  is  void  that  no  action  of  any  kind  can  be  maintained 
upon  it,  and  that  no  principles  of  estoppel  can  give  it  vitality. 
To  hold  that  an  ultra  vires  lease  is  void,  and,  at  the  same  time, 
that  it  governs  the  rights  of  the  parties  in  the  matter  of  rent, 
that  it  is  valid  as  to  the  past  and  void  as  to  the  future,  is 
illogical,  and  gives  a  controlling  effect  to  a  void  contract. 
"  A  void  instrument  governs  nothing."  ^  Nor  is  it  necessary 
to  adopt  the  New  York  rule  in  order  to  do  justice  to  the 
parties.  If  the  lessee  pays,  and  the  lessor  receives,  what  the 
use  of  the  property  is  reasonably  worth,  the  result  is  equitable, 
although  the  one  or  the  other  may  lose  the  benefit  of  the 
stipulations  of  an  illegal  contract. 

§  245.  Improvements  made  by  Lessee  under  Ultra  Vires 
Lease.  —  Asa  general  rule,  a  lessee  corporation  cannot  re- 
cover from  the  lessor  for  improvements  made  upon  the  leased 
property  during  its  occupancy  under  an  unauthorized  lease.^ 
This  rule  necessarily  applies  in  every  case  where  an  action 
for  such  recovery  must  be  based  upon  the  illegal  contract. 

1  Brunswick  Gas  Light  Co.  v.  United  State  v.  McMinnville,  etc.  R.  Co., 
Gas,  etc.  Co.,  85  Me.  541  (1893),  (27  6  Lea  (Teun.),  .369  (1880),  (4  Am.  & 
Atl.  Rep.  525,  35  Am.  St.  Rep.  389).  Eng.  R.   Cas.   95),  was  the  case  of  a 

2  In  Middlesex,  etc.  R.  Co.  v.  Bos-  lease  by  a  receiver  without  authority, 
ton,  etc.  R.  Co.,  115  Mass.  347  (1874),  and,  under  the  circumstances  stated  in 
(7  Am.  Ry.  Rep.  469),  it  was  held  that  the  opinion,  the  Court  was  justified  in 
a  lessee  under  an  ultra  vires  lease  could  saying  (p.  379)  :  "The  tenant  volun- 
not  recover  from  the  lessor  expenses  of  tarily  takes  his  chances  of  being  per- 
renewing  the  road.  mitted  to  enjoy  the  expenditures  lie  has 

See  also  East  Tennessee,  etc.  R.  Co.     made  upon  the  land  of  another." 
V.  Nashville,  etc.  R.  Co.  (Tenn.  1897), 
(51  S.  W.  Rep.  202). 

355 


§  246  INTERCORPORATE   RELATIONS.  [PART   III. 

It  is  clear,  however,  upon  the  principle  stated  by  the  Supreme 
Court  of  the  United  States  that  "  a  contract  ultra  vires  being 
unlawful  and  void,  not  because  it  is  in  itself  immoral,  but 
because  the  corporation,  by  the  law  of  its  creation,  is  incap- 
able of  making  it,  the  courts,  while  refusing  to  maintain  any 
action  upon  the  unlawful  contract,  have  always  striven  to  do 
justice  between  the  parties,^^  ^  that  exceptions  to  the  rule  may 
be  established  where  it  is  not  necessary  to  rely  upon  the 
lease.  Thus,  where  improvements  of  a  permanent  nature 
have  been  made  by  a  lessee,  with  the  approval  of  the  lessor, 
who  then  terminates  the  lease  on  account  of  its  ultra  vires 
character,  the  courts  would  undoubtedly  allow  the  lessee  to 
set  off  against  the  lessor's  demand  for  comj)cnsation  for  the 
use  of  the  property,  compensation  for  improvements  made 
upon  it. 

§  246.  Effect  of  Ultra  Vires  Lease  upon  Stock  Subscriptions. 
—  If  a  railroad  company  has  power  to  lease  its  railroad, 
subscriptions  to  its  capital  stock  must  be  regarded  as  having 
been  made  in  view  of  the  possible  exercise  of  the  power.  If 
a  lea.se  is  unauthorized  it  is  void,  and  without  effect  upon 
contracts  of  subscription.  In  neither  case  —  under  author- 
ized or  unauthorized  lease  —  is  a  subscriber  discharged  upon 
his  obligation  to  pay  calls  and  fulfil  his  contract.^ 

The  conclusion  that  an  tiltra  vires  lease,  being  void,  has 
no  effect  upon  stock  subscriptions  is,  obviously,  logical.  It  ia 
in  marked  contrast  to  the  conclusion  reached,  in  the  decisions 
examined  in  an  earlier  part  of  this  treatise,  that  an  un- 
authorized consolidation,  although  wholly  void,  discharges 
subscribers.^ 

^  Central  Transp.  Co.   v.    Pullman  pellees  must  have  known  the  fact  when 

Car  Co.,  139  U.  S.  60  (1891),  (11   Sup.  ther  subscribed,  and   the  exerci.se  of  a 

Ct.  Rep.  478).  power  granted  by  the  charter  must  be 

2  Ottawa,   etc.  R.  Co.   i'.  Black,  79  presumed  to    have   been   contemplated 

111.   268  (1875):  "If  the  company  had  by  the  appellees  when  they  gave  their 

no  power  to  lease  the  road  and  its  fran-  note." 

chises,  then  the  lease  is  void,  and  the  See   also   Hayes  i'.  Ottawa,  etc.   R. 

appellees  can,  when  they  receive  their  Co.,  61  111.424(1871);  Troy,  etc.  R.  Co. 

stock,  apply  to  a  court  of  equity,  and  v.  Kerr,  17  Barb.  (N.  Y.)  581  (1854). 
have   the  lease   cancelled.     If,   on   the  '  See  ante,  §  47  :  '"  Rights  ajid  Rem- 

other  hand,  the  charter  empowers  the  edies  of  Dissenting  Subscribers." 
company  to  make  such  a  lease,  then  ap- 

356 


CHAP.  XXII.]  ULTRA   VIRES   LEASES.  §  248 

§  247.  Guarantee  of  Ultra  Vires  Lease  void.  —  Where  the  Con- 
tracting corporations  to  a  lease  of  a  railroad  are  without 
authority  to  enter  into  it,  an  agreement  by  another  corpora- 
tion guaranteeing  its  performance,  it  is  equally  without 
authority.  A  guarantee  of  a  void  contract  is  itself  void.  A 
contract  to  fulfil  for  another  corporation  obligations  which  it 
has  no  power  to  assume  is  of  no  legal  effect.^ 

In  Pennsylvania  Co.  v.  St.  Louis,  etc.  R.  Co.,  Mr.  Justice 
Miller  said  i^  "There  is  no  power  shown  in  any  of  these  com- 
panies to  accept  a  lease  of  the  complainant  such  as  the  one  in 
the  present  case,  and  perform  its  conditions,  and  they  cannot, 
therefore,  become  parties  to  such  a  contract  with  a  road 
outside  the  State  which  chartered  them  any  more  than  the 
principal  company.  If  these  guaranteeing  companies  had 
executed  the  original  contract  of  lease  it  would  have  been 
void  for  want  of  authority  from  the  legislature  of  Indiana, 
or  of  any  other  State  by  whose  laws  they  are  incorporated 
or  endowed  with  corporate  power.  No  such  power  is  shown 
in  them  to  lease  roads  beyond  their  own  States.  Indeed, 
while  there  may  be  a  just  claim  of  authority  for  some  kind  of 
running  arrangement  between  two  connecting  roads  under 
the  Indiana  statutes,  there  is  no  connection  between  the 
plaintiff's  road  and  any  road  of  a  guaranteeing  company. 
The  connection,  even  by  traffic,  is  remote.  These  companies 
might  as  well  have  assumed  the  power  to  loan  them  money, 
or  to  indorse  their  notes,  or  any  other  commercial  transaction, 
as  to  guarantee  the  performance  of  a  void  contract  by  one 
company  to  another." 

§  248.  Voidable  Railroad  Leases.  —  Officers  of  a  railroad 
company  stand  in  a  fiduciary  relation  to  the  corporation. 
They  cannot,  themselves,  take  a  lease  of  its  property  nor  lease 
property  to  it.^     They  cannot,  as  directors  of  one  corporation, 

1  Pennsylvania  R.  Co.  v.  St.  Louis,  See  also  Pearce  v.  Madison,  etc.  R. 

etc.  R.  Co.,' 118  U.  S.  290  (1885),  (6  Sup.  Co.,  21  (How.  (U.  S.)  441  (1858). 

Ct.   Rep.    1094)  ;    Coleman  v.   Eastern  ^  Pennsylvania  Co.  v.  St.  Louis,  etc. 

Counties   R.    Co.,    10  Beav.  1    (1846);  R.  Co.,  118  U.  S.  314   (1885),  (6  Sup. 

Madison,  etc.  Plank  Road  Co.  v.  Water-  Rep.  1094). 

town,  etc.  Plank  Road  Co.,  7  Wis.  59  ^  In  Wardell   v.  Railroad  Co.,   103 

(1858).  U.  S.  658  (1880),  the  Supreme  Court  of 

357 


§248 


INTERCORPORATE   RELATIONS. 


[part   III. 


lease  its  railroad  to  another  corporation  to  which  they  stand 
in  similar  relation.  The  rule  is  based  upon  considerations 
of  public  policy  and  works  independently  of  fraud  or  good 
intention.  Any  such  lease  is  voidable  at  the  option  of  either 
corporation.^  It  is  not  void,  and  may  become  valid  by 
acquiescence.'"^ 

The  majority  of  the  stockholders  of  a  railroad  company,  in 
controlling  its  ailairs,  stand  in  a  similar  {)osition  of  trust 
towards  the  minority  stockholders.^  They  cannot  authorize 
the  officers  of  the  corporation  to  lease  its  railroad  to  another 


the  United  States  laid  down  the  fulluw- 
ing  general  principles  relating  to  the 
obligations  of  ofhcers  of  curpi^rations : 
"  It  is  among  the  rudiments  of  the  law 
that  the  same  person  cannot  act  for  him- 
self, and  at  the  same  time,  with  respect 
to  the  same  matter,  as  the  agent  of 
another  whose  interests  are  conflicting. 
.  .  .  The  law,  therefore,  will  always  con- 
demn the  transactions  of  a  party  on  his 
own  beiialf,  where,  in  respect  to  the 
matter  concerned,  he  is  the  agent  of 
otiiers,  and  will  relieve  against  tliem 
whenever  their  enforcement  is  season- 
ably resisted.  Directors  of  corpora- 
tions, and  all  persons  who  stand  in  a 
fiduciary  relation  to  other  parties,  and 
are  clotiied  with  power  to  act  for  them, 
are  sul)ject  to  this  rule.  They  are  not 
permitted  to  occupy  a  position  which 
will  conflict  with  the  interests  of  the 
parties  they  represent  and  are  bound  to 
protect.  They  cannot,  as  agents  or  trus- 
tees, enter  into  or  authorize  contracts 
on  behalf  of  others  for  whom  they  are 
appointed  to  act,  and  then  personally 
participate  in  the  benefits.  Hence  all 
arrangements  by  directors  of  a  railroad 
company  to  secure  an  undue  advantage 
to  themselves  at  its  expense  by  the  for- 
mation of  a  new  company  as  auxiliary 
to  the  original  one,  with  an  understand- 
ing that  they,  or  some  of  them,  shall 
take  stock  in  it,  and  then  that  valuable 
contracts  shall  be  given  to  it,  in  the 
profits  of  which  they,  as  stockholders 
in  the  new  company  are  to  share,  are 
80    manj  unlawful  devices  to   enrich 

358 


themselves  to  the  detriment  of  the  stock- 
h<dders  and  creditors  of  the  original 
company,  and  will  bo  condemned  when- 
ever j>roperly  brougiit  before  the  court 
for  consideration." 

>  Barr  v.  New  York,  etc.  R.  Co.,  125 
N.  Y.  2G3  (1891),  (26  N.  E.  Kep.  145)  ; 
Jessup  i;.  Illinois  Central  U.  Co.,  43  Fed. 
483  (1890);  Meeker  v.  Winthrop  Iron 
Co.,  17  Fed.  48  (1883).  See  also  ante, 
§  108  :  "  Voidable  Leases." 

Stockholders  cannot  sue  for  the  prof- 
its arising  from  a  lease  of  a  railroad 
to  their  corporation,  in  which  the  direc- 
tors wrongfully  participated,  unless  they 
also  take  steps  to  rescind  the  lease. 
Hitchcock  V.  Barrett,  50  Fed.  653 
(1892). 

In  Wallace  i\  Long  Island  R.  Co. 
12  Hun  (N.  Y.),  464  (1877),  the  Court 
.said  :  "  The  mere  fact  that  the  same 
persons  were  directors  of  the  corpora- 
tion which  made  the  lease,  and  of  that 
whif  h  took  it,  is  not  of  itself  sufficient 
to  avoid  the  contract  at  the  instance  of 
one  or  more  stockholders,  against  the 
will  of  the  corporation.  That  fact  alone 
might  entitle  either  corporation  to  avoid 
the  lease,  but  I  apprehend  it  does  not 
give  that  right  to  a  stockholder." 

2  Barr  v.  New  York,  etc.  R.  Co.,  125 
N.  Y.  263  (1891),  (26  N.  E.  Rep.  145, 
Jessup  V.  Illinois  Central  R.  Co.,  43  Fed. 
483  (1890). 

3  See  post,  §  300 :  "  Trust  Relation 
of  Controlling  Corporation  to  Minority 
Stockholders." 


CHAP.  XXII.]  ULTRA   VIRES   LEASES.  ^  §  250 

corporation,  owned  or  controlled  by  them,  unless  they  act 
with  the  utmost  good  faith  towards  the  whole  body  of 
stockholders.  Courts  of  equity  will  protect  the  interests  of 
minority  stockholders.^ 

§  249.  Leases  of  Railroads  for  Purpose  of  suppressing  Com- 
petition. —  Combinations  of  railroad  companies  for  the  pur- 
pose of  extinguishing  competition  are  contrary  to  public 
policy.  The  form  of  combination  is  immaterial.  That  in 
the  form  of  a  lease  is  as  invalid  as  any  other. 

This  subject  is  considered  at  length  in  the  concluding  part 
of  this  treatise.^ 

§  250.  Remedy  of  State  —  Quo  Warranto.  —  When  a  railroad 
company,  without  legislative  authority,  leases  its  railroad  and 
franchises  for  an  extended  term  to  another  corporation,  it 
thereby  abandons  the  use  of  its  franchises,  and  its  charter 
becomes  subject  to  forfeiture  in  quo  ivarranto  proceedings.^ 

In  State  v.  Atchison,  etc.  R.  Co^  the  Supreme  Court  of 
Nebraska  said :  "  While  a  lessee  in  a  proper  case,  or  assignee 
or  purchaser,  will  take  a  road  burdened  with  the  conditions, 
obligations  and  duties  assumed  by  the  original  corporation, 
yet  there  can  be  no  such  transfer  by  lease,  assignment,  or 
sale  without  express  statutory  authority,  and,  as  we  find  no 

^  Pondir  v.  New  York,  etc.  R.  Co.,  v.  Minnesota  Central  R.  Co.,  36  Minn. 

72  Hun   (N.  Y.),  384  (1893),  (25  N.  Y.  246  (1886),  (30  N.  W.  Rep.  816). 
Supp.  560).    See  also  Miner  v.  Belle  Isle         In  Eel  River  R.  Co.  v.  State,  155  Ind. 

Ice  Co.,  93  Mich.  97  (1892),  (53  N.  W.  433  (1900),  (57  N.  E.  Rep.  388),  it  was 

Rep.  218,  17  L.  R.  A.  412);  Meeker  v.  held  that  the  acts  of  a  domestic  rail- 

Winthrop  Iron   Co.,  17  Fed.  48  (1883).  road  company  in   turning  over  all  its 

See    also    ante,    §    168:     "Voidable  property  and  franchises  to  a  rival  com- 

Leases."  pany  under  a  lease  in  perpetuity,  and 

^2  See  post,  Part  V :  "  Covibinations  in  acquiescing  in  the  destruction  of  a 

of  Corporations."  portion    of    its    railroad    in    order    to 

*  State  V.  Atchison,  etc.  R.  Co.,  24  destroy    competition,    were     sufBcient 

Neb.   143   (1888),  (38  N.  W.   Rep.  43,  grounds   to  authorize   a  forfeiture    of 

8  Am.  St.  Rep.   164);    Commissioners  its  franchises. 

of  Tippecanoe  Co.  v.  Lafayette,  etc.  *  State  v.  Atchison,  etc.  R.  Co.,  24 
R.  Co.,  50  Ind.  85  (1875).  In  East  Neb.  163  (1888),  (38  N.  W.  Rep.  43, 
Line,  etc.  R.  Co.  «.  State,  75  Tex.  434,  8  Am.  St.  Rep.  164).  In  this  case, 
(1889),  (12  S.  W.  Rep.  690),  quo  war-  however,  the  Court  said  that  forfeiture 
ranto  was  sustained,  forfeiting  the  char-  would  not  be  enforced  iu  the  first  in- 
ter of  the  defendant  railroad  company  stance,  and  the  lease  was  declared 
because  of  an  illegal  transfer  of  its  void. 
railroad  and  franchises.    See  also  State 

359 


§  251  INTERCORPORATE   RELATIONS.  [PART   III. 

such  authority,  and  the  defendant  has  been  guilty  of  misuser 
and  non-user  of  its  franchises,  they  are  subject  to  forfeiture."  ^ 

§  251.  Remedy  of  State  —  Injunction.  —  As  already  shown, 
the  remedy  of  the  State,  in  the  cu^u  of  ultra  vires  acts  com- 
mitted by  a  corporation,  is  quo  warranto,  and,  in  the  case  of 
private  corporations,  this  remedy  is  exclusive.^  Courts  of 
C(|uity  are  not  open  to  the  State  for  the  exercise  of  visitorial 
])0\vt>rs  over  sucli  corporations,  and  injunction  is  not  a  proper 
remedy  to  restrain  their  unauthorized  acts.  Lord  Cowper,  in 
a  very  early  English  case,^  denied  the  attorney  general  a 
remedy  in  ccjuity  a,«;;iinst  a  corporate  excess  of  powers  upon 
the  ground  that  ''it  would  usurp  too  much  on  the  king's 
bench  ;"  and  such  is  substantially  the  reason  of  the  rule  at  the 
present  time  —  adequate  remedy  at  law. 

This  rule  is  also,  undoubtedly,  apjilicablc,  in  the  case  of  a 
(/iirt«z-public  corporation,  where  the  ultra  vires  act  relates 
merely  to  the  internal  affairs  of  the  corporation  ;  but  where 
it  involves  the  relations  of  the  corporation  to  the  State  and 
may  injuriously  affect  the  public  interests,  it  is  inapplicable  ; 
and  the  State  may  file  a  bill  in  equity  and  obtain  an  injunction 
restraining  the  exercise  of  the  power  usurped.*     This  remedy 

1  Evcu  the  consent  of  the  State  to  a  Teoplo  v.  B.allard,  134  N.  Y.  2G9  (1892), 
transfer  may  not  prevent  forfeiture  (32  N.  E.  Hep.  .')4).  In  Attorney  Gen- 
undcr  certain  circumstances.  Tliis  eral  v.  Tudor  Ice  Co.,  104  Mass.  239 
principle  is  illustrated  in  State  i*.  St.  (1870),  where  an  injunction  to  restrain 
I'aul,  etc.  II.  Co.,  33  Minn.  22.5  (1886),  an  ice  company  from  imj>orting  teas 
(28  N.  W.  Rep  3)  :  "  The  consent  of  was  refused,  the  cases  bearing  upoD 
the  State  may  not  prevent  a  forfeiture  the  rights  of  the  State  in  a  court  of 
of  the  corporate  franchise,  where  the  equity  are  collected  and  carefully  con- 
corporation  disposes  of  and  abandons  sidered. 

all   its   business    and    operating    fran-  *  Attorney     General     v.    Reynolds, 

chise.'^,   so   that   there   is    nothing   left  1   Eq.  Cas.  Ab.  (3d  Ed.)    131   (1705). 
wiiich  it  can  lawfully  do,  and  so  that  ♦  The    attorney    general    has    the 

there  can  be  no  reason  for  keeping  it  right,  when   the   property  of  the   sov- 

longer  in  life."  ereign,  or  the  interests  of  the  public 

'■*  Attorney  General  i'.  Utica  Ins.  are  directly  concerned,  to  institute  suit 
Co.,  2  Johns.  Ch.  371  (1817).  In  this  for  their  protection,  by  information  at 
case  Chancellor  Kent  declined  to  en-  law  or  in  equity,  without  a  relator, 
join  an  insurance  company  from  doing  Attorney  General  v.  Delaware,  etc.  R. 
a  banking  business.  The  equitable  Co,  36  N.  J.  Eq.  631  (1876). 
remedy  is,  however,  now  open  to  the  In  Attorney  General  v.  Great  North- 
State,  in  New  York,  under  the  Code  of  ern  R.  Co.,  1  Dr.  &  Sm.  1.54  (1860),  a 
Civil  Procedure,  in  relation  to  the  railroad  company  was  restrained  from 
"  judicial  supervision  "  of  corporations,  trading  in  coal  in  large  quantities.     See 

360 


CHAP.  XXII.] 


ULTRA   VIRES   LEASES. 


§251 


is  especially  available  in  the  case  of  railroad  companies,  which 
exercise  the  power  of  eminent  domain  by  delegation  from  the 
State ;  and  an  ultra  vires  lease  of  a  railroad  and  franchises, 
forbidden  by  public  policy,  may  be  restrained  in  its  exe- 
cution and  performance  at  the  suit  of  the  State.  Where  such 
a  lease  is  not  only  unauthorized  but  is  forbidden  by  statutory  ^ 
or  constitutional  ^  provisions,  or  tends  to  the  creation  of  a 
monopoly,^  the  inadequacy  of  quo  warranto  as  a  preventive 
remedy  is  apparent. 


also  State  v.  Dodge,  etc.  R.  Co.,  53  Kan. 
377  (1894),  (36  Pac.  Rep.  747) ;  Attor- 
ney General  v.  Jamaica  Pond  Aque- 
duct, 133  Mass.  361  (1882);  United 
States  V.  Western  Union  Tel.  Co.,  50 
Fed.  Rep.  28  (1892),  affirmed,  160  U.  S. 
53  (1895),  (16  Sup.  Ct.  Rep.  210); 
Attorney  General  v.  Chicago,  etc.  R. 
Co.,  35  Wis.  425  (1874)  ;  Buck  Moun- 
tain Coal  Co.  V.  Lehigh  Coal,  etc.  Co., 
50  Pa.  St.  91  (1865) ;  Attorney  General 
V.  Mid-Kent  R.  Co.,  L.  R.  3  Ch.  App. 
100  (1867);  Ware  i;.  Regent's  Canal 
Co.,  3  De  Gex  &  J.  212  (1858) ;  Hare  v. 
London,  etc.  R.  Co.,  2  Johns.  &  Hem. 
80  (1861).  Compare,  however,  Attor- 
ney General  i'.  Great  Eastern  R.  Co., 
L.  R.  11  Ch.  D.  449  (1879). 

1  In  Stockton  v.  Central  R.  Co., 
50  N.  J.  Eq.  52  (1892),  (24  Atl.  Rep. 
964),  the  Attorney  General  of  New  Jer- 
sey filed  a  bill  in  equity  to  have  the 
lease  of  the  Central  Railroad  Company 
of  New  Jersey  to  the  Port  Reading 
Railroad  Company,  a  small  New  Jersey 
coporation  controlled  by  the  Philadel- 
phia and  Reading  Railroad  Company, 
declared  to  be  ultra  vires  and  void,  and 
for  an  injunction  against  taking  posses- 
sion thereunder.  The  Court  held  that 
the  lease  was,  in  effect,  a  lease  to  the 
Philadelphia  and  Reading  Railroad 
Company  —  a  foreign  corporation ;  that 
it  was  not  only  unauthorized,  but  'for- 
bidden by  the  New  Jersey  statute ;  that 
its  effect  was  to  partially  destroy  com- 
petition in  the  production  of  sale  of 
anthracite  coal;  that  it  was  ultra  vires, 


and  tended  to  a  monopoly ;  and  granted 
the  relief  prayed  for.  It  is  of  interest 
to  note  that  the  Central  Railroad  Com- 
pany of  New  Jersey  is  now  controlled 
by  the  Reading  Railroad  Company 
through  the  ownership  of  stock  upon 
which  it  has  issued  collateral  trust 
bonds  —  a  convenient  alternative  to  a 
lease. 

-  The  State  may  maintain  a  suit  to 
enjoin  a  railroad  company  from  pur- 
chasing the  j)roperty  and  lines  of  other 
companies,  in  violation  of  Kentucky 
Constitution,  §201,  providing  that  no 
railroad  company  shall  acquire,  by  pur- 
chase or  otherwise,  any  parallel  or  com- 
peting line.  Louisville,  etc.  R.  Co.  v. 
Commonwealth,  97  Ky.  675  (1895), 
(31  S.  W.  Rep.  476)  (affirmed  sub  mm. 
Louisville,  etc.  R.  Co.  v.  Kentucky, 
161  U.  S.  677),  (1896),  (16  Sup.  Ct.  Rep. 
714),  where  the  Court  said  (p.  695): 
"It  is  contended  injunction  is  not  the 
proper  remedy.  But  it  seems  to  us  if 
the  Commonwealth  of  Kentucky  can 
sue  at  all  for  act  ultra  vires  by  a  cor- 
poration, there  is  no  room  for  disputing 
its  right  to  a  preventive  injunction  in 
this  case.  For,  according  to  very  repu- 
table authority,  and,  we  think,  upon 
principle,  a  court  of  equity  has  jurisdic- 
tion, and  may,  in  an  action  by  the 
State,  enjoin  a  corporation  from  ex- 
ceeding its  chartered  powers,  or  doing 
acts  otherwise  illegal  and  injurious  to 
the  public." 

«  Stockton  V.  Central  R.  Co.,  50  N. 
J.  Eq.  52  (1892),  (24  Atl.  Rep.  964). 


361 


§  252  INTEBCOUPOEATE   RELATIONS.  [PART    III. 

CHAPTER  XXIII. 

LEASES   TO   FOREIGN   CORPORATIONS. 

§  252.     Authority   to   lease   must   be   derived   from    State   where    Railroad    is 

located. 
§  253.     Autliority  to  lease  to  Foreign  Corporation. 
§  254.     SUitus  of  Foreign  Corporation  k-asiug  Kailroad. 

§  2.')2.  Authority  to  lease  must  be  derived  from  State  •where 
Railroad  is  located.  — The  charter  of  a  corporation  granted  by 
a  State  has  no  binding  force  proprio  vigore  outside  its  terri- 
torial limits.  As  said  in  an  early  case  :  ''  Every  power  which  a 
corporation  exercises  in  another  State,  depends  for  its  validity 
npon  the  laws  of  the  sovereignty  in  which  it  is  exercised."  ^ 

While,  by  the  comity  between  States,  a  foreign  railroad 
company  may  be  |)eriuittcd,  within  a  State,  to  make  contracts 
and  exercise  ordinary  powers  in  the  general  transaction  of 
business,  such  a  corporation  cannot  lease  or  take  a  lease  of 
a  railroad,  without  the  consent  of  the  State  in  which  it  is 
located.^  The  State,  in  authorizing  the  building  of  a  railroad 
within  its  borders,  reserves  the  right  to  control  its  transfer. 

The  rule  that  a  railroad  lease  is  invalid  unless  each  corpo- 
ration is  authorized  thereto  by  the  State  of  its  creation,  requires 

1  Runyan  v.  Coster's  Lessee,  14  Pet.  out  of  its   franchise,  such   as   making 

(U.  S.)  122  (1840).  contracts  in  regard  to  the  transaction 

*  Briscoe  v.  Southern  Kansas  R.  Co.,  of    its   business,   as   was    tlie    cise   in 

40  Fed.  280  (1889):  "It  is  decided  in  Railroad    Company    v.    Gebhard,     109 

Bank  v.  Earle,  13  Pet.  524  (1839),  that  U.  S.  527  (1883),  (3  Sup.  Ct.  Rep.  363). 

courts  of  justice  have  always  expounded  But  when  it  undertakes,  by  a  lease  of 

and  executed  contracts  according  to  the  its  road,  to  get  rid  of  its  responsibility, 

law  of    the   place   iu    which   they   are  or   liabilities   to   the    public,   which   it 

made,  provided  that  the  law  was  not  assumed  when  it  accepted  the  franchise, 

repugnant  to  the  laws  or  policy  of  their  it   would    be   exercising   an   extraordi- 

own  country.     The  court,  in  the  above  nary  power,  which  may  be  greatly  prej- 

case,  held  the  rule  to  be  '  that,  by  the  ndicial  to  the  puldic,   and  therefore  is 

comity  of  nations,  foreign  corporations  contrary  to  the  known  policy  of  a  State, 

are  allowed  to  make  contracts   under  and  injurious  to  its  interests,  and  can- 

their  respective  limits  not  contrary  to  not  be  exercised  unless  the  State,  by  ex- 

the  known  policy  of  such  nations,  or  press  authority  conferred,  authorizes  it 

injurious  to  their  interests.'     This  gives  to  be  done."    See  also  Howard  v.  Chesa- 

a  railroad  corporation  the  right  to  ex-  peake,  etc.  R.  Co.,  1 1  App.  Cas.  (D.  C) 

ercise  all  its  ordinary  powers  growing  300  (1897). 

362 


CHAP.    XXIII.]       LEASES   TO    FOREIGN    CORPORATIONS.  §  253 

the  additional  provision  that  the  State  in  which  the  raih'oad 
is  situated  shall  give  its  approval.  Only  in  a  case  where  a 
railroad  company  owns  a  railroad  in  a  foreign  State  will  the 
additional  requirement  impose  an  additional  obligation. 

This  limitation  upon  the  power  of  a  corporation  in  a  foreign 
State  is  not  founded  upon  the  principle  of  ultra  vires.  A  cor- 
poration may  be  expressly  authorized  by  its  charter  to  trans- 
act business  in  foreign  countries  and  States.^  Its  articles  of 
association  —  when  formed  under  general  laws  —  may,  in 
terms,  authorize  it  to  lease  railroads  in  other  States.  The 
power  so  granted  or  assumed  can  be  exercised  only  by  per- 
mission of  the  foreign  State.  It  is  not  so  much  a  question  of 
corporate  power  as  of  the  right  to  exercise  it.^ 

§  253.  Authority  to  lease  to  Foreign  Corporation.  —  As 
shown  in  the  last  section,  a  corporation  created  by  one  State 
cannot  take  a  lease  of  a  railroad  situated  in  another  State 
without  its  permission.  Many  States  have  passed  general 
laws  granting  this  permission  to  foreign  railroad  companies, 
which  have  already  been  referred  to.^ 

Under  such  statutes,  a  lease  of  a  railroad  may  be  lawfully 
taken  by  a  foreign  corporation  provided  it  is,  itself,  acting 
within  the  powers  conferred  by  the  State  of  its  creation. 
Thus,  under  the  New  York  statute  authorizing  railroad  com- 
panies "  to  contract  with  each  other,"  it  was  held  that  a  New 
York  corporation  might  take  a  lease  of  a  railroad  in  Vermont, 
owned  and  operated  by  a  corporation  of  that  State,  where  such 
corporation  was  given  by  its  charter  power  to  enter  into  such 
a  contract.^ 

1  An  examination  of  broad  charters  in  Oregon.  Power  to  act  in  foreign 
granted  by  certain  States  will  disclose  countries  cannot  be  so  created  by  the 
the  curious  fact  that  corporations  are  parties  themselves.  Oregon  R.,  etc. 
often  authorized  to  exercise  most  ex-  Co.  v.  Oregonian  R.  Co.,  130  U.  S.  1 
traordinary  powers,  provided  they  do  (1889),  (9  Sup.  Ct.  Rep.  409),  revers- 
not  exercise  them  within  the  limits  of  ing  22  Fed.  245  (1884),  and  23  Fed. 
the  State  granting  them.  232  (1885). 

2  Where  the  incorpsrators  under  an  ^  See  ante,§  180:  "What  Railroads 
English  Companies'  Act  inserted  in  the  may  be  leased.  Statutory  Provisions." 
articles  of  association  a  power  to  lease  *  Day  v.  Ogdensburgh,  etc.  R.  Co., 
railroads  in  foreign  countries,  it  was  107  N.  Y.  129  (1887),  (13  N.  E.  Rep. 
held  that  the  corporation  acquired  765) :  "  It  is  next  argued  for  the  re- 
thereby  no  authority  to  lease  a  railroad  spondents    that    the  arrangement  ex- 

363 


§253 


INTERCORPORATE   RELATIONS. 


[part  III. 


Upon  the  principle  that  power  to  lease  to  a  foreign  corpo- 
ration must  be  clearly  expressed,  the  Supreme  Court  of  New 
Jersey  held  that  a  statute  of  that  State  authorizing  a  rail- 
road and  canal  company  to  make  arrangements  for  connection 
or  consolidation  of  business  by  agreement,  contract  or  lease 
"  with  any  other  railroad  or  canal  company  in  this  State  or 
otherwise  "  did  not  authorize  a  lease  to  a  corporation  not  of 
that  State. ^  The  Court  said  :  "  No  power  is  given  to  lease  to 
a  company  out  of  this  State  unless  the  word  '  otherwise,' 
■which  is  nut  an  adverb  of  place,  is  held  to  mean  '  otherwhere.* 
It  is  an  inappropriate  word  to  express  such  meaning."  ^ 

A  Minnesota  statute  providing  that  "any  railroad  corpora- 
tion may  lease  or  purchase  any  part  or  all  of  any  railroad 
constructed  by  another  corporation  whose  lines  of  road  are 
continuous  or  connected  with  its  own"  has  been  held,  in  view 
of  its  title  and  other  statutory  provisions,  to  confer  authority 
only  for  a  lease  between  corporations  of  that  State.^ 


pressed  throup;h  these  instruments,  so 
far  as  tlie  Ogdoiishargli  &  Lake  Cham- 
plain  Haiiroiul  Company  is  concerned, 
is  beyond  the  capacity  and  power  of 
that  corporation.  We  have  seen  that 
the  Vermont  Railroad  Company  had 
corpor.ate  powers,  and  among  those 
expressly  given  by  its  charter  is  a 
power  to  lease  its  road.  It  had,  there- 
fore, contracting  capacity,  and  was  a 
good  party  to  deal  with.  The  (^gdens- 
burgh  &  Lake  Champlain  Railroad,  on 
its  part,  lacked  no  power  expressly 
given  by  statute  to  similar  corporations 
in  this  State,  nor  any  which,  as  inci- 
dent and  necessary  thereto,  might  en- 
able it  to  carry  on  the  objects  of  the 
incorporation.  .  .  .  Unless  we  are  to 
.  .  .  say  that  its  operation  must  be  con- 
fined to  contracts  with  roads  operat- 
ing in  and  under  the  laws  of  this  State, 
the  lease  must  be  held  valid  between 
the  parties.  We  see  no  reason  for  such 
restriction  nor  any  principle  of  public 
law  which  requires  it.  We  are  not  at 
liberty  to  create  it.  It  would  be  legis- 
lation, not  construction.  A  corpora- 
tion given  capacity  to  contract,  may 
exercise  that  capacity  with  any  party 

364 


in  or  outside  the  limits  of  the  State, 
unless  the  law-making  power  of  that 
other  State  forbids."  Comjun-e  Briscoe 
V.  Southern  Kan.  R.  Co.,  40  Fed.  273 
(1889). 

1  Black  V.  Delaware,  etc.  Canal  Co., 
24  N.  J.  Eq.  47.5  (1873).  Compare 
Stewart  i'.  Lehigh  Valley  R.  Co.,  38 
N.  J.  L.  505  (1875). 

The  New  Jersey  act  of  1885,  forbid- 
ding any  lease  of  a  railroad  to  a  foreign 
corporation  without  the  consent  of  the 
legislature,  could  not  be  evaded  by  a 
nominal  lease  to  a  domestic  corporation 
whose  stock  was  owned  by  a  foreign 
corporation,  which  was  the  real  lessee. 
Stockton  V.  Central  R.  Co.,  50  N.  J. 
Eq.  75  (1892),  (24  Atl.  Rep.  964). 

2  Notwithstanding  the  reasoning  of 
the  Court  it  seems  entirely  clear 
that  the  legislature  did  use  the  word 
"  otherwise  "  precisely  in  the  sense  of 
"  otherwhere,"  and  intended  to  include 
corporations  within  and  without  the 
State. 

3  Freeman  v.  Minneapolis,  etc.  R. 
Co.,  28  Minn.  443  (1881),  (10  N,  W. 
Rep.  594). 

In  St.  Louis,  etc.  R.  Co.  v.  Terre 


CHAP.    XXIII.]      LEASES   TO    FOREIGN    CORPORATIONS. 


§254 


§  254.  Status  of  Foreign  Corporation  leasing  Railroad.  — 
Statutes  authorizing  the  leasing  of  railroads  located  within 
the  State  to  corporations  of  another  State  often  define  the 
status,  and  prescribe  the  rights  and  duties,  of  the  foreign  lessee 
corporation.^ 

In  the  absence  of  express  statutory  provision,  a  corpora- 
tion of  another  State,  operating  a  domestic  railroad,  takes 
it  subject  to  all  the  conditions  and  burdens  attaching  to  it, 
and  to  the  obligations  respecting  the  operation  of  railroads 
imposed  by  the  laws  of  the  State  in  which  it  is  located  upon 
railroad  companies  generally.^ 


Haute,  etc.  K.  Co.,  33  Fed.  440  (1888), 
affirmed  145  U.  S.  393  (1892),  (12  Sup. 
Ct.  Rep.  9.53),  it  was  held  that  a  lease  of 
a  railroad,  executed  by  an  Illinois  rail- 
way company  to  an  Indiana  company, 
was  invalid,  because  the  latter  company 
was  not  authorized  to  accept  a  lease 
from  an  Illinois  corporation. 

1  The  following  contains  the  sub- 
stance of  several  statutes  relating  to 
foreign  lessee  corporations  : 

Arkansas.  San.  &  H.  Dig.  1894, 
§  6334 :  A  corporation  of  another  State 
being  a  lessee  of  a  railroad  in  this  State, 
shall  likewise  be  held  liable  for  violation 
of  laws  of  this  State,  and  may  be  sued 
and  sue  in  all  cases,  and  for  the  same 
causes  and  in  the  same  manner,  as  a 
corporation  of  this  State. 

Ka7isas.  G.  S.  1897,  ch.  70,  §  96  :  A 
railroad  company  of  another  State 
which  shall  lease  a  railroad  in  this 
State  shall  possess,  in  this  State,  all  the 
rights,  powers,  privileges  and  fran- 
chises conferred  by  the  laws  of  this 
State  upon  a  railroad  company  of  this 
State. 

Michigan.     P.  A.  1901,  Act  No.  30, 


page  50 :  "  The  foreign  railroad  com- 
pany so  leasing  shall  operate  and  hold 
the  railroad  subject  to  all  the  duties 
and  obligations  and  with  all  the  rights 
and  privileges  prescribed  by  the  general 
railroad  law  of  this  State." 

Missouri.  R.  S.  1899,  §  1060:  If  a 
railroad  company  of  another  State  shall 
lease  a  railroad  in  this  State  it  shall  be 
held  liable  for  the  violation  of  any  laws 
of  this  State,  and  may  sue  and  be  sued 
for  the  same  causes  and  in  the  same 
manner  as  a  corporation  of  this  State. 

Nebraska.  Comp.  Stat.  1901,  §  1768  : 
A  railroad  company  of  another  State 
which  shall  lease  a  railroad  in  this 
State  shall  possess  all  rights,  powers, 
privileges  and  franchises  possessed  by 
corporations  of  this  State. 

South  Dakota.  Anno.  Stat.  1901, 
§3906:  Similar  to  Nebraska  statute, 
supra. 

Wyoming.  R.  S.  1899,  §  3206  : 
Similar  to  Nebraska  statute,  supra.  Also 
confers  the  right  of  eminent  domain. 

2  McCandless  v.  Richmond,  etc.  R. 
Co.,  38  S.  C.  103  (1892),  (16  S.  E.  Rep. 
429). 


365 


§  255  INTERCORPORATE    RELATIONS.  [PART    III. 


CHAPTER  XXIV. 

TRACKAGE   CONTRACTS. 

§  255.  Nature  of  a  Trackage  Contract. 

§  256.  Express  Authority  not  neoc.xsary  for  Execntion  of  Trackage  Contract. 

§  257.  Execution  of  Trackage  Contracts. 

§  258.  As.siguability  of  Trackage  Contracts. 

§  259.  Construction  of  Trackage  Contracts. 

§  2G0.  Specific  Performance  of  Trackage  CDUtracts. 

§  261.  Liahiiity  of  Proprietary  Ct>nipauy  to  Third  Persons. 

§  262.  Liability  of  Licensee  Conii)any  to  Thini  Persons. 

§  263.  Liability  to  Employees. 

§  255.  Nature  of  a  Trackage  Contract.  —  A  trackage  con- 
tract is  an  agreement  l»y  which  one  railway  company  lct8  an- 
other company  into  a  joint  use  of  a  portion  of  its  tracks.  It 
is  clearly  distinguishahlc  from  a  lease  in  that  it  conveys  no 
estate  in  the  ])roperty  and  no  right  to  its  exclusive  possession.^ 
It  is  in  the  nature  of  a  license  —  although  non-revocable  and 
enforceable  —  or  a  grant  of  a  privilege  for  hire.^ 

Trackage  contracts  may  be  made  upon  any  basis  the  con- 
tracting corporations  determine.  Coutracts  upon  a  "  wheel- 
age  "  or  "mileage"  basis  are  common. 

1  Union  Pacific  R.  Co.  r.  Chicago,  Co.  v.  New  York,  etc.  R.  Co..  132  N.  Y, 

etc.R.  Co.,  163  U.S.  583  (1895),  (If)  Sup.  445  (1892),  (30  N.  E.  Rep.  855). 
Ct.  Rep.  1173)  :    "The  contract  in  this  ^  jy   Coney    Island,  etc.   R.  Co.  v. 

regard   was   really   an   agreement   for  Brooklyn   Cahle  Co.,  53   Ilun  (N.  Y.), 

trackage  rights,  for  running  arrange-  170  (1889),   (6  N.   Y.  Supp.   108),  the 

ments,    a    '  terminal     contract  '   with  Court  said  :   "  The  contract  here  is  a 

compensation     upon    a    'mileage'    or  mere  license  or  privilege  for  hire.    It  is 

'  wheelage  '   basis  ...  (p.   593).    The  not  a  lea-i^e  conveying  an  interest  in  the 

stipulation.'^  of  the  contract  relating  to  realty  but    an    agreement    containing 

the  use  of    the    Rock    Lsland    tracks  mutual  .stipulations  in  the  nature  of  a 

between  Sonth  Omaha  and  Lincoln  by  license.     It  is  clear  the  intent  was  to 

the  Pacific  Company  did  not  embrace  permit  the  first  licensee  to  run  its  cars 

the  acquisition  of  right  of  way  or  real  over  the  tracks  mentioned.    Had  it  been 

estate."  designed  to  cover  any  more  than  such  a 

A  statutory  right  in  one  corporation  privilege  other  terms  would  have  been 

to  use  the  land  of  another  company  for  used  to  indicate  such  an  intention." 
the  purpose  of  making  connections  has,  See  also  Richmond,  etc.  R.  Co.  v. 

however,  been  held  to  be  an  "  interest  Durham,  etc.   R.  Co.,   104   N.    C.  658 

in  lands"  within  the  provision  of  the  (1889),  (40  Am.  &  Eng.  R.  Cas.  488,  10 

Statute  of  Frauds.     Port  Jervis,  etc.  R.  S.  E.  Kep.  659). 

366 


CHAP.    XXIV.]  TRACKAGE   CONTRACTS.  §  256  • 

In  England,  the  right  of  a  railway  company  to  work  its 
traffic  over  a  portion  of  the  line  of  another  company  does  not, 
as  a  general  rule,  depend  upon  the  ability  of  the  two  corpora- 
tions to  agree  upon  a  contract.  Many  railway  acts  grant 
the  right  to  one  company  to  exercise  "  running  powers  "  —  as 
they  are  designated  —  over  the  tracks  of  another  and  provide 
that,  in  case  of  disagreement  as  to  the  compensation  to  be 
paid,  the  matter  shall  be  submitted  to  arbitration.^ 

Similar  statutes  compelling  railroad  companies  to  furnish 
facilities  to  intersecting  roads  for  the  purpose  of  making  track 
connections,  and  providing  for  the  ascertainment  of  compensa- 
tion therefor,  have  been  enacted  in  many  American  States.^ 

§  256.  Express  Authority  not  necessary  for  Execution  of 
Trackage  Contract,  —  Express  authority  is  not  necessary  to 
enable  a  railroad  company  to  enter  into  a  trackage  contract 
granting  to  another  company,  in  common  with  itself,  the  right 
to  use  a  portion  of  its  tracks  and  facilities,  not  required  for  the 
exercise  of  its  own  franchises.  The  rule  that  a  railroad  com- 
pany cannot,  without  legislative  authority,  alienate  its  fran- 
chises, or  property  necessary  for  the  discharge  of  its  duties  to 

1  For  general  statute  see   Railway  Parliament  granting   running    powers 

Clauses  Act  of  1845,  §  92.  and  providing  for  the  ascertainment  of 

Where    an    ace    provided   that  the  compensation    see   Midland   R    Co.  v. 

running  powers  granted  were  to  be  ex-  Neath,  etc.  R.  Co.,  2  Ry.  &  C.  T.  Cases, 

ercised  upon  ^en«s  to  be  agreed  upon,  or  366  (1876);  Caledonia  R.  Co.  v.  North 

in  default  of  agreement  to  be  settled  by  British  R.  Co.,  2  Ry.  &  C.  T.  Cases,  271 

arbitration,  and  the  owners  of  the  rail-  (1875)  ;  Taff  Vale  R.  Co.  v.  Ryhmney 

way  were  to   make   all    arrangements  R.  Co.,  2  Ry.  &  C.  T.  Cases,  176  (1875) ; 

required  by  the  agreement  or  arbitra-  South  Devon   R.  Co.  v.  Devon,  etc.  R. 

tion,  it  was  held  that  "  terms  "  included  Co.,  2  Ry.  &  C.  T.  Cases,  348  (1876). 

the  necessary  arrangements  for  regulat-  ^  See  New  York  statute  construed  in 

ing  the  joint  traffic.     Swansea,  etc.  R.  Port  Jervis,  etc.  R.  Co.  v.  New  York, 

Co.  I'.  Swansea,   etc.  R.  Co.,  3  Ry.  &  etc.  R.  Co.,  132  N.  Y.  439  (1892),  (30 

C.  T.  Cases,  339  (1879).  N.  E.   Rep.    855).     Also   Pennsj/lvania 

Where  an  act  gave  a  railway  com-  statute  construed  in  Altoona,  etc,  R. 
pany  running  powers  over  part  of  the  Co.  v.  Beech  Creek  R.  Co.,  177  Pa.  St. 
line  of  another  company  for  "local  443  (1896),  (35  Atl.  Rep  734). 
traffic"  it  was  held  that  that  phrase  An  0/»'o  statute  authorizing  railroad 
meant  "traffic  from  one  known  station  companies  to  make  "running  arrange- 
to  anotlier  on  the  line."  Midland  R.  ments"  with  other  companies  is  con- 
Co.  V.  Manchester,  etc.  R.  Co.,  22  L.  T.  strued  in  Stanley  v.  Cleveland,  etc.  R. 
Rep.  601  (1870).  See  also  Plymouth,  Co.,  18  Ohio  St.  552  (1869) 
etc.  R.  Co.  V.  Great  Western  R.  Co.,  For  charter  provision  see  Olcott  v, 
6  Ry.  &  C.  T,  Cases  101  (1889).  Tioga  R.  Co.,  27  N.  Y.  546  (1863). 


For  other  cases  construing  acts  of 


367 


§  256  INTERCOllPORATE    RELATIONS.  [PART    III. 

the  public,  has  no  application.  The  owner  of  the  railroad 
under  such  a  contract  transfers  no  franchise,  parts  with  no 
property  and  is  not  excluded  from  the  use  and  enjoyment  of 
its  property  and  franchises.  It  merely  grants  the  surplus  use 
of  its  tracks.^ 

In  Union  Pacific  R.  Co.  v.  Chicago,  etc.  R.  Co?  the  Supreme 
Court  of  the  United  States  said  :  "  13y  the  contract  the  Pacific 
Company  parted  with  no  franchise,  and  was  not  excluded 
from  any  part  of  its  property  or  the  full  enjoyment  of  it. 
What  it  agreed  to  do  was  to  let  the  Rock  Island  into  such  uso 
of  the  bridge  and  tracks  as  it  did  not  need  for  its  own  pur- 
poses. This  did  not  alien  any  property  or  right  necessary  to 
the  discharge  of  its  public  obligations  and  duties,  but  simply 
widened  the  extent  of  the  use  of  its  property  for  the  same 
purposes  for  which  that  pro{)erty  was  ac(iuired,  to  its  own 
profit  so  far  as  that  use  was  concerned,  and  in  the  furtherance 
of  the  demands  of  a  wise  pul)lic  policy.  If,  by  so  doing,  it 
may  have  assisted  a  com{)etitor,  it  docs  not  lie  in  its  mouth  to 
urge  that  as  rendering  its  contract  illegal  as  opposed  to  public 
I)olicy.  Ability  to  perform  its  own  immediate  duties  to  the 
public  is  the  limitation  on  its  jus  disponcndi  we  are  consider- 
ing, and  that  limitation  had  no  application  to  such  a  use  as 
that  in  question." 

One  railroad  company,  however,  has  no  implied  power  to 
grant  to  another  company  such  extensive  running  privileges  as 
to  amount,  practically,  to  turning  over  the  control  of  its  road.^ 


^  See  ante,  §  172  :  "  Leases  of  Sur-  arrangements,    whatever    their    form, 

plus  Property."  however  disguised,  are  ultra  vires  and 

2  Union  Pacific  R.  Co.  v.  Chicago,  void."     Green's  Brice's  Ultra  Vires  427. 

etc.  R.  Co,  163  U.  S.  589  (1896),  (16  See  also  Earle  r.  Seattle,  etc.  R.  Co.,  46 

Sup.  Ct.  Rep.  l\73),  per  Fuller,  C.  J.,  Fed.   909  (1893)  ;  Ohio,  etc.   R.  Co.  v. 

affirming  51  Fed.  309  (1892).  Indianapolis,  etc.  R.  Co.,  5  Am.  L.  Reg. 

8  "  Corporations  may  make  all  neces-  (k.  s.)  733  (1866)  ;  Attorney  General  i-. 

sary  arrangements  for  cheaply  and  ex-  Great  Eastern  R.  Co.,  L.  R.  11  Ch.  Div. 

peditiously  developing  or  carrying  on  449(1879);  Johnson  p.  Shrewsbury,  etc. 

their    particular    business;    but    it    is  R.  Co.,  3  De  Gex,  M.  &  G.  914  (1853) ; 

another   thing,   going  beyond  this,  to  Gardner  v.  London,  etc.  R.  Co.,  L.  R. 

enter   into   contracts,  for   instance,  by  2  Ch.  App.  212  (1867)  ;  Beman  v.  Ruf- 

which    the    exclusive    control    or   the  ford,  6  Eng.  L.  &  Eq.  106  (1851),  (15 

exclusive  right  of  working  the  line  is  Jur.  914). 
handed  over  to  other  parties.    All  such         Under  the  English  Railway  Clauses 

.  368 


CHAP.    XXIV.]  TRACKAGE   CONTRACTS.  §  257 

The  power  of  a  railroad  company  to  accept  a  grant  of 
running  privileges  depends  upon  the  limitations  of  its  charter. 
It  cannot  exercise  running  powers  over  a  railroad  beyond  its 
authorized  termini.  It  cannot  use  a  trackage  contract  as 
a  means  of  extending  the  limits  within  which  it  may  operate 
a  railroad.^  But  within  the  limits  prescribed  by  its  charter,  a 
railroad  company  has  implied  power  to  acquire  running  privi- 
leges over  the  railroad  of  another  company,  wherever  such 
privileges  furnish  it  an  advantageous  means  of  reaching  a 
desired  point.^ 

§  257.  Execution  of  Trackage  Contracts.  —  The  corporate 
power  —  implied  or  expressly  conferred  —  involved  in  the 
authorization  and  execution  of  a  trackage  contract  may  be 
exercised  by  the  board  of  directors  of  a  railroad  company  in 
the  management  of  the  regular  business  of  the  corporation. ^ 
The  power  of  the  directors,  however,  is  not  so  exclusive  as  to 
preclude  action  by  the  stockholders.* 

The  New  York  Court  of  Appeals  has  intimated  that  the 
right,  provided  by  a  statute  authorizing  a  railroad  company  to 
"  intersect,  join  and  unite  its  railroad  with  any  other  railroad  " 
upon  the  property  of  the  company  owning  the  latter  railroad, 
and  requiring  sucli  company  "  to  grant  the  facilities  "  needed 
for  the  purpose,  is  an  interest  in  lands  which  can  only  be 


Consolidation  Act  (8  and  9  Vict.  ch.  20),  Button  Co.,  24  Conn.  482  (1856)  ;    Lon- 

it  lias  been  held  that  one  railroad  com-  don,  etc.  R.  Co.  v.  London,  etc.  R.  Co., 

pany  may  make  a  contract  with  another  4  De  G.  &  J.  362  (1859);  Simpson  v. 

for  the  use  of  its  line  and  may  pay  tolls  Denison,  10  Hare,  51  (1852)  ;  Ohio,  etc. 

sufficient  to  make  dividends  upon  the  R.  Co.  v.  Indianapolis,  etc.  R.  Co.,  5  Am. 

preference  stock  of  the  latter.     South  L.Reg,  (n.  s.)  733  (1866). 
Yorkshire  R.,  etc.  Co.  v.  Great  Northern  '^  Midland  R.  Co.  v.  Great  "Western 

E.    Co.,    9   Exch.    55    (1853).     Contra,  R.  Co.,  L.  R.  8  Ch.  App.  841   (1873); 

Simpson  r.  Denison,  10  Hare,  51  (1852) ;  Great  Northern  R.  Co.  U.Manchester, 

Compare  Green  Bay,  etc.  R.  Co.  i'.  Union  etc.  R.  Co.,  5  De  Gex  &Sm.  138  (1851). 
Steamboat   Co.,   107  U.    S.   98  (1882),  3  Elkins  v.  Camden,  etc.  R.  Co.,  36 

(2  Sup.  Ct.  Rep.  221).  N.  J.  Eq.  241  (1882).     See  also  Nashua, 

In  Charlton  I'.  Newcastle,  etc.  R.  Co.,  etc.  R.  Co.  v.  Boston,  etc.  R.  Co.,  27 

5  Jur.  (n.   s.)   1096  (1859),  a  contract  Fed.    821     (1886),    reversed    on     other 

for  the  joint  use  of  railroads  and  divi-  grounds,  136  U.  S.  356  (1890),  (10  Sup. 

Bion  of  profits,  antecedent  to  an  amalga-  Ct.  Rep.  1004). 

mation,  was   declared   ultra    vires   and  *  Union  Pacific  R.  Co.  v.  Chicago, 

void.  etc.  R.  Co.,  163  U.  S.  564  (1895),  (16 

1  Naugatuck  R.  Co.  v.   "Waterbury  Sup.  Ct.  Rep.  1173). 

24  369 


§258 


INTERCORPORATE  RELATIONS. 


[part  DI. 


created  by  a  written  instrument.^  It  may  well  be  doubted, 
however,  upon  principle,  whether  a  mere  trackage  contract  — 
independent  of  any  statute  and  running  for  less  than  a  year  — 
comes  within  the  Statute  of  Frauds.^ 

§  258.  Assignability  of  Trackage  Contracts.  —  A  trackage 
contract,  upon  consideration,  while  partaking  of  the  nature 
of  a  license,  is,  essentially,  a  valid  and  enforceable  contract 
between  the  parties.^ 

It  is,  however,  a  license  in  the  sense  that  it  confers  a  per- 
sonal privilege.  A  railroad  company  in  letting  another 
corporation  into  the  use  of  its  tracks  agrees  only  that  that 
particular  corporation  may  exercise  the  privilege.  A  track- 
age contract  creates  no  transferable  interest,  and,  without  a 
stipulation  to  that  effect,  is  not  assignable* 


1  Port  Jervis,  etc.  K.  Co.  v.  New 
York,  etc.  R.  Co.,  132  N.  Y.  439  (1892), 
(30  N.  E.  Rep.  855,  52  Am.  &  Eug.  R. 
Cas.  107). 

2  Where  an  oral  agreement  for  track- 
age right.s  has  been  executed  an  action 
will  lie  for  use  and  occupation. 

South  Carolina  Terminal  Co.  i;.  South 
Carolina,  etc.  R.  Co.,  52  S.  C.  1  (1898), 
(29  S.  E.  Rep.  565). 

'  Louisville,  etc.  R.  Co.  v.  Kentucky, 
etc.  R.  Co.,  95  Ky.  550  (1894),  (26  S.  W. 
Hep.  532). 

*  Coney  Island,  etc.  R.  Co.  ».  Brook- 
lyn Cable  Co.  53  Hun  (N.  Y.),  171  (1889), 
(6  N.  Y.  Supp.  108)  :  "  The  question  is 
not  whether  a  corporation  can  sell  or 
assign  its  franchises,  but  whether  the 
agreement  in  question  became  vested  in 
the  defendant  so  that  it  can  enforce  it 
against  the  plaintiff.  .  .  .  This  agree- 
ment was  not  a  lease,  and  is,  therefore, 
not  a  subject  of  subletting  to  different 
parties  to  be  conjointly  used  with  the 
original  parties." 

South  Side,  etc.  R.  Co.  v.  Second 
Avenue  R.  Co.,  191  Pa.  St.  509  (1899), 
(43  Atl.  Rep.  346)  :  "The  Pittsburgh 
and  Birmingham  Company  was  the 
owner  of  the  tracks  (de  facto  at  least 
for  a  term  of  years)  and  the  Second 
Avenue  Passenger  Railway  Company 
was  a  licensee,  or  at  most  a  sub-lessee. 

370 


The  latter  had  no  rights  but  those  the 
agreement  gave  it,  the  former  had  all 
the  rights  of  ownership  that  the  agree- 
ment did  not  part  with.  This  is  explic- 
itly recognized  in  the  provision  that  if 
it  should  allow  any  other  company  as 
licensee  to  use  its  tracks  a  proportionate 
credit  should  be  allowed  the  Second 
Avenue  con)pany.  The  allowance  of 
another  company  to  come  in  as  a  li- 
censee was  by  virtue  of  the  rights  of 
ownership.  The  latter  company  had  no 
such  rights,  and  could  not  divide  or 
share  or  part  with  its  privileges,  except 
to  an  a.ssignee  within  the  terms  of  the 
agreement." 

Under  a  contract  for  the  use  of  ter- 
minal facilities,  tracks,  etc.,  by  one  rail- 
road company  witli  another,  containing 
a  provision  that  the  grantee  should  not, 
by  any  contract  with  any  other  railroad 
corporation,  give  to  such  corporation 
the  right  for  its  trains  to  pass  over  or 
use  the  railroad  of  the  grantor  without 
its  consent,  it  was  held  that  the  right  to 
nse  such  tracks,  etc.,  did  not  pass  to  the 
successors  or  assigns  of  the  grantee 
without  the  consent  of  the  grantor 
under  the  provisions  of  the  contract. 
Terre  Haute,  etc.  R.  Co.  v.  Peoria,  etc. 
R.  Co.,  61  in.  App.  405  (1895). 

Where  a  trackage  contract,  in  terms, 
runs  to  the  assignees  of  the  parties,  and 


CHAP.    XXIV.] 


TRACKAGE   CONTRACTS. 


§259 


§  259.  Construction  of  Trackage  Contracts.  —  Tlie  term  of 
a  trackage  contract  is  fixed  by  the  stipulations  therein.  When 
no  time  is  stated  it  seems  clear,  as  a  general  rule,  that  the 
contract  is  terminable  at  the  option  of  either  party  after 
reasonable  notice.  An  intention  to  make  a  perpetual  arrange- 
ment should  be  clearly  expressed.^ 

In  an  English  case,  however,  it  was  held  that  an  agreement 
between  two  railway  companies  wherein  one  was  granted 
running  powers  and  the  other  certain  facilities  for  making 
shipments,  and  containing  mutual  stipulations  as  to  the  ship- 
ment of  goods  over  each  other's  lines,  but  not  containing  any 
provision  as  to  the  time  for  which  it  should  endure,  was  a  per- 
manent and  not  a  terminable  contract,  and  that  a  notice  to 
terminate  was  invalid.^     But  as  this  contract  was  authorized 


both  parties  recognize  another  company 
as  the  successor  in  interest  of  one  of 
them,  "  a  court  of  equity  will  treat  the 
assignee  in  fact  as  the  legal  assignee, 
possessed  of  the  rights  and  charged 
with  the  obligations  of  the  original 
party  to  the  contract."  Chicago,  etc. 
R.  Co.  V.  Denver,  etc.  R.  Co.,  143  U.  S. 
608  (1891),  (12  Sup.  Ct.  Rep.  479),  af- 
firming  45  Fed.  304  (1891),  s.  c.  46  Fed. 
145  (1890). 

1  In  Boston,  etc.  R.  Co.  v.  Boston, 
etc.  R.  Co.,  5  Cush.  (Mass.)  375  (1850), 
it  was  held  that  the  right  granted  by 
the  legislature  to  one  railroad  company 
to  use  the  tracks  of  another  did  not  be- 
come, upon  its  exercise,  a  permanent 
contract  between  the  corporations,  for 
such  use,  perpetual  iu  its  character,  but 
that  "  it  was  rather  iu  the  nature  of  a 
lease  for  an  indefinite  period  of  time, 
with  liability  to  pay  as  long  as  it  might 
be  used."  It  was  also  held  that  no 
perpetual  obligation  to  use  the  tracks 
could  be  inferred  from  an  obligation 
imposed  upon  the  proprietary  company 
to  make  expensive  and  permanent  addi- 
tions to  its  property  to  accommodate 
such  use.  See  also  Canal,  etc.  R.  Co.  v. 
St.  Charles  Street  R.  Co.,  44  La.  Ann. 
1069  (1892),  (11  So.  Rep.  702). 

A  trackage  contract  is  not  invalid 
because,  within  its  prescribed  duration, 


the  charter  of  one  of  the  companies 
expires  by  limitation,  provision  being 
made  in  the  contract  for  such  contin- 
gency. Union  Pacific  R.  Co.  v.  Chicago, 
etc.  R.  Co.,  163  U.  S.  592  (1895),  (16 
Sup.  Ct.  Rep.  1173). 

2  Llanelly,  etc.  R.  Co.  v.  London, 
etc.  R.  Co.,'  L.  R.  7  H.  L.  Cas.  550 
(1875),  (45  L.  J.  Ch.  D.  539,  23  W.  R. 
927,  32  L.  T.  575).  In  this  case  Lord 
Cairns  compared  trackage  contracts 
with  contracts  of  partnership  and  of 
hiring  and  service  in  respect  to  their 
terminable  nature  (p.  559) :  "  Refer- 
ence was  made  to  the  well-known  cases 
of  contracts  of  hiring  and  service  and 
contracts  of  partnership.  These  cases 
appear  to  me  to  have  no  analogy  what- 
ever to  the  present.  With  regard  to 
contracts  of  hiring  and  service,  assign- 
ing to  each  of  them  certain  notices  by 
which  they  can  be  terminated  ;  and  they 
are,  besides,  engagements  which  depend 
upon  the  personal  confidence  which  one 
of  the  parties  reposes  in  the  other  and 
which  in  their  nature  cannot  be  sup- 
posed to  be  of  a  perpetual  character. 
With  regard  to  contracts  of  partuership 
they  also  are  already  ruled  and  settled, 
by  law,  to  be  capable  of  termination  at 
any  moment  unless  a  definite  limit  is 
prescribed  upon  the  face  of  them.  And, 
the  law  being  well  settled,  when  you 

371 


§259 


INTERCORPORATE  RELATIONS. 


[part  III. 


by  the  Railway  Clauses  Act,  under  which,  in  case  any  differ- 
ences arose  in  its  working,  they  might  be  made  the  subject 
of  arbitration,  the  decision  cannot  be  considered  of  general 
application. 

Where  one  railroad  company  grants  to  another  the  right  to 
use  a  portion  of  its  line,  it  necessarily  undertakes  to  furnish 
those  facilities  necessary  to  the  exercise  of  the  privilege 
granted.  Thus,  in  an  English  case,  where  one  railroad  com- 
pany had  acquired  running  powers  over  the  line  of  another 
and  had  equipped  it  with  the  block  signal  system,  it  was  held 
that  the  latter  company  was  bound  to  work  the  system  — 
that  it  was  a  reasonable  facility  which  the  company  was 
bound  to  afford.^ 

Where  two  railroad  companies  entered  into  a  contract 
wherein  the  use  of  certain  tracks  and  terminal  facilities  was 
granted,  it  was  held  that  the  expenses  necessary  to  such  use, 
and  the  exercise  of  such  facilities,  must  be  borne  entirely  by 
the  grantor  comi)any.2 

The  rights  of   the  parties,  under  a  trackage  contract,  are 


have  a  contract  of  that  kind,  you  apply 
the  understood  law,  and  you  hold  that 
the'parties  knowing  what  the  law  was, 
must  be  supposed  to  have  intended  to 
enter  iuto  a  partnership  which  could 
at  any  time  be  terminated  if  they 
did  not  provide  upon  the  face  of  tlicir 
contract  that  it  should  be  a  continuing 
partnership." 

In  Railway  Co.  v.  Neel,  56  Ark.  279 
(1892),  (19  S.  W.  Rep.  963),  a  trackage 
contract  was  held  not  to  constitute  a 
partnership  between  the  railroad  com- 
panies, and  not  to  make  one  comjjany 
the  agent  of  the  other  for  the  purjiose 
of  receiving  freight.  The  Court  said 
(p.  287):  "The  contract  between  the 
two  railway  companies  did  not  consti- 
tute a  partnership  between  them  nor 
did  it  make  the  Swan  Lake  railroad  the 
agent  of  the  appellant  company  for  the 
purpose  of  receiving  freight  for  and  on 
its  behalf.  ...  The  contract  plainly 
intended  to  confer  a  license  upon  the 
Swan  Lake  railroad  to  run  its  trains 

372 


over  the  appellant  company's  track 
between  Rob  Roy  and  Pine  Bluff. 
It  created  no  other  right,  unless  it 
was  to  limit  the  appellant's  rights  to 
make  certain  charges  for  freight  and 
passengers." 

1  Great  Western  R.  Co.  r.  Bristol 
Tort  R.,  etc.  Co.,  5  Ry.  &  C.  T.  Cases,  94 
(1885). 

-  Elmira  Rolling  Mill  Co.  v.  Erie  R. 
Co.,  28  N.  J.  Eq.  400  (1877),  (14  Am. 
Ry.  Rep.  199). 

A  contract  by  which  one  company 
granted  to  another  a  running  privilege 
into  a  city  provided  for  the  payment  of 
a  certain  sum  for  each  car  drawn  over 
the  first  company's  track,  "  excepting 
only  empty  freight  cars  and  such  loaded 
freight  cars  as  .  .  .  are  hauled  over  said 
first  party's  line  of  railroad."  Held, 
that  the  exemption  was  not  ambiguous, 
and  that  the  first  clause  covered  all 
freight  cars.  Louisville,  etc.  Co.  v. 
Louisville  S.  R.  Co.,  100  Ky.  690  (1897), 
(39  S.  VV.  liep.  42). 


CHAP.    XXIV.]  TRACKAGE   CONTRACTS.  §  259 

measured,  with  respect  to  the  use  of  track,  by  the  terms  of  the 
contract,  and  the  provisions  of  the  Interstate  Commerce  Act 
apply  to  the  situation  and  cannot  authorize  a  different  use 
of  the  track.i 

A  stipulation  in  a  contract  between  three  railroad  com- 
panies respecting  the  use  of  a  common  yard  that  the  "  neces- 
sary expenses "  should  be  equally  shared  among  them,  did 
not  include  the  extraordinary  expense  of  a  judgment  obtained 
against  one  of  the  companies  for  injuries  sustained  by  an 
employee,  through  its  negligence.^  But,  under  an  agreement 
between  the  parties  to  such  a  contract  that  the  cost  of  main- 
taining the  tracks  jointly  used  should  be  jointly  borne,  it  was 
held  that  damages  paid  to  employees,  injured  while  engaged  in 
the  work  of  maintenance,  were  a  part  of  the  cost  of  mainte- 
nance and  properly  chargeable  to  the  joint  account.^ 

A  provision  in  a  trackage  contract  between  two  street  rail- 
road companies  that,  in  case  the  licensee  company  should  use 
steam  as  a  motive  power,  either  party  might  terminate  the 
contract  upon  six  months'  notice  was  held  not  to  authorize 
such  termination  upon  the  ground  that  the  licensee  had  in- 
stalled an  electrical  svstem.* 


1  The  duty  of  a  railroad  company,  op-  the  company  permit  other  railroad  com- 
erating  its  own  road,  to  serve  the  local  panies  to  use  the  track,  on  paying  a  pro 
stations  on  its  lines,  does  not  apply  to  a  rata  share  of  the  cost  of  construction, 
company  that  has  only  a  running  priv-  without  placing  any  limit  on  the  time 
ilege  for  through  trains  over  a  part  of  when  other  roads  may  come  in,  or  their 
the  road  of  another  company  which  it  number,  a  delay  in  making  application 
does  not  control.  In  such  a  case  the  of  nine  years  after  its  completion,  dur- 
company  is  not  required  to  disregard  ing  which  two  other  roads  have  come 
the  conditions  of  its  agreement,  and  in,  is  no  ground  for  excluding  an  appli- 
does  not  violate  the  provisions  of  the  cant.  Louisville,  etc.  R.  Co.  v.  Missis- 
Interstate  Commerce  Act  by  not  receiv-  sippi,  etc.  R.  Co.,  92  Tenn.  681  (1893), 
ing  and  discharging  traffic  on  the  tracks  (22  S.  W.  Rep.  920). 

of  the  proprietary  company.     Alford  v.  ^  Louisville,   etc.  R.   Co.  v.   Chesa- 

Chicago,  etc.  R.  Co.,  2  Int.  Com.  Rep.  peake,  etc.  R.  Co.,  21   Ivy.  Law  Rep. 

771  (1890).  875  (1899),  (53  S.  W.  Rep.  277). 

2  Gulf,  etc.  R.  Co.  V.  Galveston,  etc.  *  Prospect  Park,  etc.  R.  Co.  v.  Coney 
R.  Co.,  83  Tex.  509  (1892),  (18  S.  W.  Island,  etc.  R.  Co.,  144  N.  Y.  152  (1894), 
Rep.  956,  52  Am.  &  Eng.  R.  Cas.  99).  (39  N.  E.  Rep.  17). 

Under  a  contract  by  a  city  with  a  As   to   construction    of   a   trackage 

railroad    company    by    which     it  per-  contract   in    view    of    consolidation  — 

mits  the  company  to  construct  a  track  whether    it   extends    to    subsequently 

through   its   streets,  on  condition  that  acquired  lines,  see  Lancashire,  etc.  R. 

373 


§  200  INTERCORPORATE   RELATIONS.  [PART    III. 

§  260.  Specific  Performance  of  Trackage  Contracts.  —  Track- 
age contracts  are  of  such  a  nature  that,  as  a  general  rule,  a 
judgment  for  damages  would  furnish  an  inadequate  remedy 
for  their  breach.  When  such  a  contract  is  not  unconscionable 
or  inequitable  and  the  company  secicing  its  enforcement  has 
acted  in  good  faith,  a  court  of  equity  will  decree  its  specific 
performance.  It  is  not  an  objection  to  such  a  decree  that  it 
involves  continuous  acts  and  constant  supervision.  The  court 
will  adapt  the  remedy  to  the  wrong. ^ 

In  Union  Pacific  R.  Co.  v.  Chicago,  etc.  R.  Co?  Mr.  Chief 
Justice  Fuller  said :  "  The  jurisdiction  of  courts  of  equity  to 
decree  the  specific  performance  of  agreements  is  of  a  very 
ancient  date,  and  rests  on  the  ground  of  the  inadequacy  and 
incompleteness  of  the  remedy  at  law.  Its  exercise  prevents 
the  intolerable  travesty  of  justice  involved  in  permitting  parties 
to  refuse  performance  of  their  contracts  at  pleasure  by  electing 
to  pay  damages  for  the  breach.  It  is  not  contended  that 
multiplicity  of  suits  to  recover  damages  for  the  refusal  of 
defendants  to  perform  would  afford  adequate  relief,  nor  could  it 
be,  for  such  a  remedy,  under  the  circumstances,  would  neither 
be  plain  nor  complete,  nor  a  sufficient  substitute  for  the  rem- 
edy in  equity,  nor  would  the  interests  of  the  public  be  subserved 
thereby.  But  it  is  objected  that  equity  will  not  decree  specific 
performance  of  a  contract  requiring  continuous  acts  involving 
skill,  judgment  and  technical  knowledge,  nor  enforce  agree- 
ments to  arbitrate,  and  that  this  case  occupies  that  attitude. 
We  do  not  think  so.  The  decree  is  complete  in  itself,  is  self- 
Co.  V.  East  Lancashire,  etc  R.  Co.,  land,  etc.  R.  Co.,  98  Ala.  400  (1893),  (13 
5  H.  L.  Cas.  792  (1856),  (2  Jur.  (n.  s.)  So.  Rep.  682). 
767,  25  L.  J.  Ex.  278).  New  York:    Prospect  Park,  etc.  R. 

1  United  States :  Union  Pacific  R.  Co.  v.  Coney  Island,  etc.  R.  Co.,  144 
Co.  i;.  Chicago,  etc.  R.  Co.,  163  U.  S.  N.  Y.  152  (1894),  (39  N.  E.  Rep.  17)  ; 
564  (1895),  (16  Sup.  Ct.  Rep.  1173),  Lawrence  r.  Saratoga  Lake  R.  Co.,  36 
affirming  51  Fed.  309  (1892);    s.  c.  47     Hun,  467  (1885). 

Fed.  15  (1891)  ;  Joj' y.  City  of  St.  Louis,  England:    Wolverhampton,  etc.  R. 

138  U.  S.  1  (1891),  (11   Sup.  Ct.   Rep.     Co.  v.  London,   etc.   R.   Co.,  L.  R.  16 
243);  affirming  s.  c.  sub  nom.   Central     Eq.  433  (1873). 

Trust  Co.  V.  Wabash,  etc.   R.  Co.,  29  2  Union  Pacific  R.  Co.  v.  Chicago, 

Fed.  546  (1886)  ;  Railroad  Co.  v.  Ailing,     etc.  R.  Co.,  163  U.  S.  600  (1895),  (16  Sup. 
99  U.  S.  463  (1878).  Ct.  Rep.  1173). 

Alabama  :  South,  etc.  R.  Co.  v.  High- 

374 


CHAP.    XXIV.]  TRACKAGE   CONTRACTS.  §  261 

operating  and  self-executing,  and  the  provision  for  referees  in 
certain  contingencies  is  a  mere  matter  of  detail  and  not  ot 
the  essence  of  the  contract.  It  must  not  be  forgotten  that, 
in  the  increasing  complexities  of  modern  business  relations, 
equitable  remedies  have  necessarily  and  steadily  been  ex- 
panded, and  no  inflexible  rule  has  been  permitted  to  circum- 
scribe them.  As  has  been  vs^ell  said,  equity  has  contrived  its 
remedies  '  so  that  they  shall  correspond  both  to  the  primary 
right  of  the  injured  party,  and  to  the  wrong  by  which  that 
right  has  been  violated ; '  and  '  has  always  preserved  the  ele- 
ments of  flexibility  and  expansiveness,  so  that  new  ones  may 
be  invented,  or  old  ones  modified,  in  order  to  meet  the  re- 
quirements of  every  case,  and  to  satisfy  the  needs  of  a  pro- 
gressive social  condition  in  which  new  primary  rights  and 
duties  are  constantly  arising  and  new  kinds  of  wrongs  are 
constantly  committed.' "  ^ 

§  261.  Liability  of  Proprietary  Company  to  Third  Persons.  — 
Upon  the  principle  that  a  corporation  owing  duties  to  the 
public  cannot  shift  the  responsibility  for  their  performance 
without  the  consent  of  the  State,  a  railroad  company,  permit- 
ting another  company  to  use  its  tracks,  remains  liable  for 
injuries  to  third  persons  —  passengers,  travellers  at  crossings 
and  others  —  caused  by  the  negligence  of  employees  of  the 
latter  company  in  running  its  trains,  to  the  same  extent  as  if 
they  were  its  own  employees  upon  its  own  trains.  The  negli- 
gence of  the  licensee  company  is  the  negligence  of  the  pro- 
prietary company  .2 

1  Pom.  Eq.  Jur.  §  111.  held  liable  for  the  negligence  of  the 

*  Georgia :    Central   R.,  etc.   Co.   v.  latter  company. 
Perry,  58  Ga.  461  (1877).  Indiana:    Indianapolis,  etc.    R.  Co. 

Illinois:  Pennsylvania  Co.  v.  Ellett,  v.  Solomon,  23  Ind.  534  (1864). 
132  111.  6.'}4  (1890),  (24  N.  E.  Rep.  559) ;  Minnesota  :  Heron  v.  St.  Paul,  etc. 

Peoria,  etc.  R.  Co.  v.  Lane.  83  111.  448  R.  Co.,  68  Minn.  542  (1897),  (71  N.  W. 

(1876) ;  Toledo,  etc.  R.  Co.  v.  Rumbold,  Rep.  706). 

40  111.  143  (1866);  Pennsylvania  R.  Co.  Missouri:  Sinclair  v.  Missouri,  etc. 

V.  Greso,  79  111.  App.  127  (1898) ;  Cleve-  R.  Co.,  70  Mo.  App.  588  (1897). 
land,  etc.  R.  Co.  v.  Bender,  69  111.  App.  New  York :   Compare  Cain  v.  Syra- 

262  (1896).  cuse,  etc.  R.  Co.,  20  Misc.  459  (1897), 

In  Pittsburgh,  etc.  R.  Co.  v.  Camp-  (45  N.  Y.  Snpp.  538),  affirmed  27  App. 

bell,  86  111.  443  (1877),  the  lessee  of  a  Div.  376  (1898),  (50  N.  Y.  Supp.  1). 
railroad,    who,   by  contract,   permitted  North  Carolina ;  Aycock  v.  Railroad 

another  company  to  use  its  road,  waa  Co.,  89  N.  C.  321  (1883).     Compare  Sel- 

375 


§  262  INTERCORPORATE   RELATIONS.  [PART   III. 

In  Pennsylvania  Co.  v.  Ellett^  the  Supreme  Court  of  Illinois 
said  :  "  The  law  has  become  settled  in  this  State,  by  an  un- 
broken line  of  decisions,  that  the  grant  of  a  franchise,  giving 
the  right  to  build,  own  and  operate  a  railway,  carries  with  it 
the  duty  to  so  use  the  property  and  manage  and  control  the 
railroad  as  to  do  no  unnecessary  damnge  to  the  person  or  f)rop- 
erty  of  others ;  and  where  injury  results  from  the  negligent 
or  unlawful  operation  of  tlie  railroad,  whether  by  the  corpo- 
ration to  which  the  franchise  is  granted,  or  by  another  corpo- 
ration, or  by  individuals  whom  the  owner  authorizes  or  permits 
to  use  its  tracks,  the  company  owning  the  railway  and  fran- 
chise will  be  liable.  .  .  .  The  public  may  look  for  indemnity 
for  injury  resulting  from  the  wrongful  or  unlawful  operation 
of  the  road,  to  that  corporation  to  which  tlioy  have  granted 
the  franchise,  and  thus  delegated  a  portion  of  the  public 
service;  and  for  this  purpose  the  comj^any  whom  it  permits 
to  use  its  tracks,  and  its  servants  and  employees,  will  be  re- 
garded as  the  servants  and  agents  of  the  owner  company."  ^ 

§  202.  Liability  of  Licensee  Company  to  Third  Persons. — A 
railroad  company  operating  trains  upon  the  tracks  of  another 
company  under  a  trackage  contract  is  liable  for  its  own  negli- 
gence.^    Its  responsibility  for  its  acts  and  omissions  is  not 

lars  V.  Kichmond,  etc.  R.  Co.,  94  N.  C.  '^  The  fact  that  a  railroad  company 

654   (1886),   (25   Am.  &  Eng.  R.   Cas.  grants  to  anotlier  company  aright  to 

451)  —  a  case  in  which  a  correct  re.<>ult  use  its  tracks  does  not  furnish  an  owner 

is  reached  through  a  manifestly  errone-  of  land  over  which  the  proprietary  com- 

ous  course  of  reasoning.  pany  lias  acquired  a  fight  of  way,  any 

England:  In  England  as  railway  ground  for  claiming  additional  dam- 
companies  arc  compelled  to  grant  run-  ages.  Miller  r.  Green  Bay,  etc.  R.  Co., 
ning  powers  to  other  companies,  an  ab-  59  Minn.  169  (1894),  (60  N.  W.  Rep. 
solute  liability  for  the  negligence  of  the  1006). 

working  company  is  manifestly  inequi-  ^  ///jVioj's  ;  Penn.«ylvaniaCo.  v.  Ellett, 

table.      The  rule  of  liability  there  is  :  132  111.  654  (1890),  "(24  N.  E.  Rep.  559) ; 

The  proprietary  company  is  prima  facie  Wabash,  etc.  R.  Co.  v.  Peyton,  106  111. 

liable  for  injuries  received  upon  its  lines,  5-34  (1883) ;  Peoria,  etc.  R.  Co.  t-.  Lane, 

but  is  entitled  to  show  that  the  injury  83  111.  448  (1876) ;  Toledo,  etc.   R.  Co. 

was   caused    by  the  negligence   of  an-  i'.  Rumbold,   40  111.    143    (1866)  ;    St. 

other  company  in  violation  of  the  lat-  Louis,   etc.   R.  Co.  v.   Rowley,  90  111. 

ter's  agreement  to  provide  for  the  safety  A  pp.  653  (1900);  Pennsylvania  R.  Co. 

of  its  trains.     Ayles  v.  South   Eastern  r.  Greso,  79  111.  App.  127  (1898);  Cleve- 

R.  Co.,  L.  R.  3  Ex.  146  (1868),  (37  L.  J.  land,  etc.  R.  Co.  !•.  Bender,  69  111.  App. 

Ex.104).  262(1896). 

1  Pennsylvania  Co.  r.  Ellett,  132  111.  The  fact  that  the  company  owning  a 

659  (1890),  (24  N.  E.  Rep.  559).  railroad  track  upon  which   a  collision 

376 


CHAP.   XXIV.] 


TRACKAGE   CONTRACTS. 


§  262 


affected   by  the  fact  tliat  the  proprietary  company  is  also 
liable. 

A  licensee  railroad  company  is  liable  for  something  more 
than  the  negligence  of  its  own  employees.  When  it  obtains 
the  riglit  to  run  its  trains  over  the  tracks  of  another  company 
it  makes  the  tracks  so  used  its  own,  to  the  extent  that  it  is 
responsible,  to  persons  injured  upon  or  by  its  trains,  for  any 
failure  to  maintain  the  tracks  in  a  safe  condition.^  It  is  like- 
wise liable  to  persons  so  injured  for  the  negligence  of  the 
employees  of  the  proprietary  company  in  the  operation  of  that 
portion  of  the  road  over  which  it  has  running  privileges.  To 
that  extent  they  become  its  employees.^ 


occnrred  was  also  negligent,  does  not 
excuse  the  negligence  of  another  com- 
pany using  such  track  under  an  agree- 
ment with  the  owner.  Cliicago,  etc.  R. 
Co.  V.  Jlitchell,  70  111.  App.  188  (1897). 

Indiana :  Cleveland,  etc.  R.  Co.  v. 
Berry,  152  Ind.  607  (1899),  (53  N.  E. 
Rep.  415);  Pittsburgh,  etc.  R.  Co.  r. 
Thompson,  21  Ind.  App.  355  (1898),  (50 
N.  E.  Rep.  828).  Compare  Cincinnati, 
etc.  R.  Co.  V.  Paskins,  36  Ind.  380 
(1871),  (5  Am.  Ry.  Rep.  570);  Cincin- 
nati, etc.  R.  Co.  V.  Townsend,  39  Ind. 
38  (1872). 

Kansas:  Chicago,  etc.  R.  Co.  t'. 
Posten,  59  Kaa.  449  (1898),  (53  Pac. 
Rep.  465) ;  Chicago,  etc.  R.  Co.  v. 
Martin,  59  Kan.  437  (1898),  (53  Pac. 
Rep.  461);  Chicago,  etc.  R.  Co.  v. 
Groves,  56  Kan.  601  (1896),  (44  Pac. 
Rep.  628). 

Missouri:  Sinclair  v.  Missouri,  etc. 
R.  Co.,  70  Mo.  App.  588  (1897). 

Neiv  Yo7-k :  McGrath  v.  New  York 
Central,  etc.  R.  Co.,  63  N.  Y.  522  (1876) ; 
Leonard  v.  New  York  Central,  etc.  R. 
Co.,  10  J.  &  S.  (Sup.  Ct.)  225  (1877). 

1  Where  a  railroad  company  pro- 
cures, by  contract  with  another  com- 
pany, the  right  of  running  its  trains 
into  and  out  of  a  depot  over  the  track 
of  the  latter,  it  thereby  makes  that  por- 
tion of  the  track  so  used  its  own,  in  so 
far  that  it  will  be  responsible  for  all 
injuries    resulting  from  negligence  in 


keeping  or  permitting  it  to  be  in  an 
unsafe  condition.  Wabash,  etc.  R.  Co. 
V.  Peyton,  106  111.  534  (1883). 

In  St.  Louis,  etc.  R.  Co.  v.  Rowley, 
90  111.  App.  656  (1900),  the  Court  said  : 
"  The  right  of  way  of  the  track  upon 
which  plaintiff  in  error's  train  was  run- 
ning, belonged  to  the  C.  P.  &  St.  L.  Ry. 
Co.,  which  company  managed  and  cared 
for  it,  the  defendant  in  error  paying  for 
using  the  rails  upon  a  wheelage  basis. 
This  fact  would  not,  however,  excuse  de- 
fendant in  error  for  damages  caused  by 
the  condition  of  the  right  of  way.  When 
it,  as  a  common  carrier,  used  the  tracks 
upon  such  right  of  way,  it  became  liable 
for  damages  caused  by  its  improper  con- 
dition to  the  same  extent  as  if  it  owned 
or  leased  it."  Semble  that  a  licensee 
company  is  liable  for  damages  occa- 
sioned by  a  failure  to  maintain  fences, 
Toledo,  etc.  R.  Co.  v.  Rumbold,  40  111. 
143  (1866).  And  see  Pittsburgh,  etc. 
R.  Co.  !'.  Thompson,  21  Ind.  App.  355 
(1898),  (50  N.  E.  Rep.  828)  (under  the 
Indiana  Statute).  See  also  Sinclair  v. 
Missouri,  etc.  R.  Co.,  70  Mo.  App.  588 
(1897). 

■■2  In  Leonard  v.  New  York  Central 
etc.  R.  Co.,  10  J.  &  S.  233  (1877),  the 
New  York  Supreme  Court  said  :  "  When 
various  companies  run  trains  over  the 
same  road  in  a  large  city  intersected  by 
the  crossings  of  streets,  the  protection 
of  citizens   in   the   use   of  the   streets 

377 


§203 


INTERCORPORATE   RELATIONS. 


[part   III. 


The  rule  of  liability  is,  clearly,  that  a  railroad  company, 
operating  under  a  trackage  contract,  is  liable  to  a  passenger, 
or  person  lawfully  upon  the  tracks,  injured  by  its  trains,  to  the 
same  extent  as  if  it  owned  the  road. 

§  263.  Liability  to  Employees.  —  Where  One  railroad  com- 
pany has  the  right,  under  a  trackage  contract,  to  run  its 
trains  over  the  track  of  anotiicr  company,  the  latter  company 
is  liable  to  employees  of  the  former  company  for  injuries 
occasioned  by  the  negligence  of  its  switchmen  and  employees 
engaged  in  the  work  of  maintaining  and  protecting  the 
tracks.*  The  proprietary  company,  under  a  trackage  contract, 
is  bound  to  furnish  a  safe  track  for  the  trains  of  the  licensee 
and  is  responsible  to  employees  of  the  licensee  for  any  injuries 
caused  by  defects  in  the  tracks  or  roadbed.^ 


should  not  depend  upon  inquiries  to  be 
made  of  the  sigii.illing  flagmen  of  the 
road,  as  to  which  company  em])loj3 
them,  or  whether  they  were  duly  author- 
ized to  signal  danger  or  safety  as  this 
or  that  train  passes.  It  must  be  as- 
sumed in  such  exigencies,  that  when  a 
company  chooses  to  run  trains  over  a 
road  guarded  by  flagmen  that  it  elects 
to  be  protected  by  these  flagmen  prop- 
erly discharging  their  duties,  and  to  be 
made  liable  in  case  they  neglect  them. 
.  .  .  The  law  does  not  give  immunity 
from  liability  to  a  company  operating 
its  trains  negligently,  because  it  appears 
that  it  operates  them  upon  a  road  and 
with  a  signal  service  that  belongs  to 
another  company.  As  far  as  the  per- 
son injured  in  passing  over  the  crossing 
by  such  company's  train  is  concerned,  it 
is  immaterial  to  whom  the  road  or  its 
signal  service  or  its  other  appurtenances 
belong  that  are  in  use  at  the  crossing. 
The  duty  primarily  devolves  upon  the 
company  running  the  train,  that  there 
shall  be  no  negligence  in  respect  to 
these  matters  as  far  as  persons  crossing 
are  affected." 

See  also  McGrath  v.  New  York  Cen- 
tral, etc.  R.  Co.,  63  N.  Y.  .V22  (1876); 
Chicago,  etc.  R.  Co.  v.  Posten,  59  Kan. 
449  (1898),  (53  Pac.  Rep.  465) ;  Wabash, 

378 


etc.  R.  Co.  V.  Peyton,  106  111.  534 
(1883);  Pennsylvania  R.  Co.  v.  Greso, 
79  111.  App.  127  (1898). 

A  nailroad  company  using  the  tracks 
of  another  company  is  liable  for  the 
negligence  of  its  employees,  although 
they  operate  the  train  under  the  orders 
of  the  other  company.  Chicago,  etc.  R. 
Co.  V.  Martin,  59  Kan.  437  (1898),  (53 
Pac.  Rep.  461).  See  also  Chicago,  etc. 
R.  Co.  V.  Groves,  56  Kan.  601  (1896), 
(44  Pac.  Rep.  628). 

In  Patterson  v.  Wabash,  etc.  R.  Co., 
54  Mich.  91  (1884),  (19  N.  W.  Rep.  761, 
18  Am.  &  Eng.  R.  Cas.  130),  a  passen- 
ger recovered  judgment  again.st  the  cor- 
poration with  which  he  had  contractual 
relations  for  injuries  caused  by  the  negli- 
gence of  a  corporation  using,  in  common 
with  it,  tracks  of  a  third  corporation. 

1  Merrill  v.  Railroad  Co.,  54  Vt. 
200  (1881). 

2  Killian  v,  Augusta,  etc.  R.  Co., 
79  Ga.  2.34  (1867),  (4  S.  E.  Rep.  165). 

In  Clark  v.  Chicago,  etc.  R.  Co.,  92 
m.  43  (1879),  the  Court  held  that  an 
employee  of  a  proprietary  company, 
injured  through  the  negligence'  of 
employees  of  a  licensee  company,  in  vio- 
lating the  rules  of  the  proprietary  com- 
pany, could  not  recover  damages  from 
the    proprietary  company  —  the    acci- 


CHAP.    XXIV.]  TRACKAGE    CONTRACTS.  §  263 

The  licensee  is,  of  course,  liable  to  its  own  employees  for 
any  defects  in  its  engines  and  cars. 

Where  several  railroad  companies  have  running  privileges 
over  the  tracks  of  another  company,  the  proprietary  company 
is  not  liable  to  employees  of  one  licensee  company  for  injuries 
received  through  the  negligence  of  employees  of  another 
licensee  company.  Redress  for  such  injuries  must  be  fur- 
nished by  the  corporation  whose  employees  are  at  fault.^ 

dent  arising  from  a  peril  of  the  service         i  Georgia  R.,  etc.  Co.   v.  Friddell, 
of  which  the  employee  had  knowledge,     79  Ga.  234  (1887),  (7  S.  E.  Rep.  214). 
and   not   from  any  negligence  of   the 
proprietary  company. 


379 


§  264  INTERCORPORATE   RELATIONS.  [PART    IV. 


PART   IV. 

CORPORATE    STOCKHOLDING   AND  CONTROL. 


CHAPTER  XXV. 

POWER  OF  CORPORATION  TO  HOLD  STOCK  IN  OTHER  CORPORATIONS. 

I.    Rule  that  Statutory  Authority  is  essential. 
§  264.     Necessity  for  Statutory  Authority  to  purchase  Stoclt.     Rule  in  United 

States. 
§  265.     Necessity  for  Statutory  Authority  to  purchase  Stock.     Rule  in  England. 
§  266.     Neces.sity  for   Statutory  Authority  to   subscribe  for   Stock. 
§  267.     Subscrii)tions  or  Purcha.ses  througli  Trustees  or  Agents. 
§  268.     Similar  Nature  of  Corporations  does  not  affect  Application  of  Rule. 
§  269.     Expediency  of  Purchase  of  Stock  immaterial. 
§  270.     Assumption  of  Power  to  hold  Stock  in  Articles  of  Association. 

II.    Express  Power  to  acquire  Stock. 
§  271.     Corporations  may  acquire  Stock  in  other  Corporations  when  authorized. 

Statutory  Provisions. 
§  272.     Power  to  subscribe  for  Stock  in  Foreign  Corporations. 
§  273.     Construction  of  Statutes. 
§  274.     Construction  of  Constitutional  Prohibitions. 

III.    Incidental  Power  to  acquire  Stock. 
§  275.     In  General. 

§  276.     Incitiental  Power  to  make  Investments  in  Stocks. 
§  277.     Incidental  Power  to  take  Stock  in  Satisfaction  of  Debt. 
§  278.     Incidental  Power  to  take  Stock  as  Collateral. 
§  279.     Incidental  Power  to  acquire  Stock  in  Connection  with  Consolidation  or 

I'urchase. 
§  280.     Incidental  Power  to  take  Stock  upon  a  Reorganization. 
§  281.     Incidental  power  to  take  Stock  in  Exchange  for  Corporate  Assets. 
§  282.     Miscellaneous  Instances  of  Incidental  Power  to  acquire  Stock. 
§  283.     Presumption  of  Power  to  hold  Stock. 

I.     Mule  that  Statutory  Authority  u  essential. 

§  264.    Necessity  for  Statutory  Authority  to  purchase  Stock. 
Rule  in  United  States,  —  The  charter  of  a  corporation  is  the 
measure  of  its  powers.     It  can  exercise  only  such  powers  as 
380 


CHAP.   XXV.]     POWER   OF   CORPORATION   TO   HOLD   STOCK.      §  264 

are  conferred  upon  it,  either  in  express  terms  or  by  neces- 
sary implication,  in  the  law  of  its  creation.^ 

The  purchase  of  stock  in  another  corporation  involves  a 
participation  in  a  new  and  distinct  enterprise.  A  corporation 
can  make  such  a  purchase  only  when  expressly  authorized  to 
do  so  by  statute,  or  when  the  power  can  be  implied  as  in- 
cidental to  the  powers  specifically  granted.^ 


1  Chief  Justice  Marshall  in  the 
Dartmouth  College  Case  (Dartmouth 
College  y.  Woodward,  4  Wheat.  (U.  S.) 
636  (1819))  said:  " A  corporation  .  .  . 
being  the  mere  creature  of  law,  it  pos- 
sesses only  those  properties  which  the 
charter  of  its  creation  confers  upon  it, 
either  expressly  or  as  incidental  to  its 
very  existence." 

For  cases  stating  this  elementary 
principle  as  applicable  to  the  power  to 
purchase  sliares,  see  People  v.  Chicago 
Gas  Trust  Co.,  130  111.  268  (1889),  (22 
N.  E.  Rep.  798,  17  Am.  St.  Rep.  319) ; 
Franklin  Co.  v.  Lewiston  Savings  Inst., 
68  Me.  431  (1877),  (28  Am.  Rep.  9). 

2  United  States:  De  la  Vergne  Co. 
V.  German  Savings  Inst.,  175  U.  S.  40 
(1899),  (20  Sup.  Ct.  Rep.  20)  ;  Califor- 
nia Bank  v.  Kennedy,  167  U.  S.  362 
(1897),  (17  Sup.  Ct.  Rep.  831) ;  Louis- 
ville, etc.  R.  Co.  V.  Kentucky,  161  U.S. 
698  (1896),  (16  Sup.  Ct.  Rep.  714); 
First  Nat.  Bank  v.  Nat.  Exch.  Bank, 
92  U.  S.  122  (1875)  ;  Citizens  State 
Bank  v.  Hawkins,  71  Fed.  369  (1896); 
McCutcheon  v.  Merz  Capsule  Co.,  71 
Fed.  787  (1896);  Easuu  v.  Buckeye 
Brewing  Co.,  51  Fed.  156  (1892) ;  Ham- 
ilton V.  Savannah,  etc.  R.  Co.,  49  Fed. 
412  (1892) ;  Mackintosh  i;.  Flint,  etc. 
R.  Co.,  34  Fed.  582  (1888)  ;  Sumner  v. 
Marcy,  3  Wood  &  M.  105  (1847). 

California  :  Knowles  v.  Sandercock, 
107  Cal.  629  (1895),  (40  Pac.  Rep. 
1047). 

Connecticut :  Byrne  v.  Schuyler  Elec- 
tric Mfg.  Co.,  65  Conn.  336  (1895), 
(31  Atl.  Rep.  833). 

Georgia :  Central  R.  Co.  v.  Collins, 
40  Ga.  582  (1869) ;  Hazlehurst  v.  Savan- 
nah, etc.  R.  Co.,  43  Ga.  13  (1871). 


Illinois:  People  v.  Pullman  Car 
Co.,  175  111.  125  (1898),  (51  N.  E.  Rep. 
664)  ;  People  v.  Chicago  Gas  Trust  Co., 
130  111.  268  (1889),  (22  N.  E.  Rep.  798, 
17  Am.  St.  Rep.  319) ;  Martin  v.  Ohio 
Stove  Co.,  78  111.  App.  105  (1898). 

Maine :  Franklin  Co.  v.  Lewiston 
Savings  Inst.,  68  Me.  43  (1877),  (28  Am. 
Rep.  9)  :  "  In  the  United  States,  cor- 
porations cannot  purchase,  or  hold,  or 
deal  in  the  stocks  of  other  corporations, 
unless  expressly  authorized  to  do  so  by 
law."  Quoting  Green's  Brice's  Ultra 
Vires  (2d.  Am.  Ed.),  91  note. 

New  Hampshire:  Pearson  v.  Con- 
cord R.  Corp.,  62  N.  H.  537  (1883). 

Neiv  Jersey  :  Elkins  v.  Camden,  etc. 
R.  Co.,  36  N.  J.  Eq.  5  (1882). 

New  York :  Milbank  v.  New  York, 
etc.  R.  Co.,  64  How.  Pr.  20  (1882); 
Talmage  v.  Pell,  7  N.  Y.  328  (1852); 
Nassau  Bank  v.  Jones,  95  N.  Y.  115 
(1884),  (47  Am.  Rep.  14). 

Ohio :  Franklin  Bank  v.  Commercial 
Bank,  36  Ohio  St.  354  (1881);  Colum- 
bus, etc.  R.  Co.  V.  Burke,  19  Weekly 
Law  Bull.  27  (1887). 

Tennessee :  Marble  Co.  v.  Harvey, 
92  Tenn.  115  (1892),  (20  S.  W.  Rep. 
427). 

The  rule  that  one  corporation,  with- 
out statutory  authority,  cannot  pur- 
chase the  stock  of  another,  is  manifestly 
inapplicable  to  stockholders  in  corpo- 
rations. As  said  in  State  v.  Butler,  86 
Tenn.  627  (1888),  (8  S.  W.  Rep.  586)  : 
"  We  know  ot'  no  principle  of  law  that 
would  prevent  the  stockholders  in  an 
insurance  company  from  becoming,  at 
the  same  time,  stockholders  in  a  bank, 
even  where  the  same  stockholders  own 
all  the  stock  in  the  two  corporations." 

381 


INTERCORPORATE  RELATIONS, 


[part  IV, 


§  265,  Necessity  for  Statutory  Authority  to  purchase  Stock. 
Rule  in  England.  —  The  rule  that  purchases  by  one  corpora- 
tion of  stock  in  another,  without  legislative  authority,  are 
ultra  vires  has  not  been  adopted  to  its  fullest  extent  in  Eng- 
land. The  rule  there  seems  to  be  that  a  strictly  private 
corporation  "  may  deal  in  the  shares  of  other  corporations, 
without  express  power  so  to  do,  provided  the  nature  of  its 
business  be  such  as  to  render  such  transactions  conducive  to 
its  prosperity.''  ^ 

With  respect  to  railroad  companies  and  other  ^urtst'-public 
corporations,  however,  the  English  courts  strictly  apply  the 
American  rule.  Such  corporations  cannot,  without  statutory 
authority,  purchase,  take  or  deal  in  the  stock  of.  other 
corporations.^ 


1  Green's  Brice's  Ultra  Vires  (2J 
Am.  Kd.),  91. 

The  rule,  however,  seems  by  no 
means  well  settled,  and  is  based,  prin- 
cipally, upon  dicta  of  the  judges. 

In  re  Barnard's  Banking  Co.,  L.  R. 

3  Ch.  App.  105  (1867),  Lord  Cairns 
said  :  "  There  is  no  apparent  or  prima 
facie  objection  to  a  corporation  so  join- 
ing [by  purchase  of  shares]  with  an- 
other corporation  in  trade.  A  trading 
corporation,  as  we  well  know,  may  enter 
into  trade  or  partnership  along  with  an 
individual.  There  is  no  reason  at  com- 
mon law,  60  far  as  I  know,  why  one 
corporation  should  not  become  a  mem- 
ber of  another  corporate  body."  The 
real  question  at  issue  was,  however, 
whether  an  express  power  to  purchase 
shares  was  contrary  to  the  statutes 
governing  trading  companies. 

In  KQval  Bank  of  India's  Case,  L.  R. 

4  Ch.  App.  257  (1869),  Lord  Selwyn, 
after  approving  the  judgment  of  Lord 
Cairns  in  the  above  case,  said  :  "  Look- 
ing at  the  question  as  a  mere  abstract 
question,  in  my  judgment  there  is 
nothing  to  prevent  a  corporation  from 
being  a  shareholder  in  another  trading 
corporation." 

Lord  Giffard  said  (p.  262)  :  "  I  quite 
agree  that  the  Roi/al  Bank  of  India  had 
no  authority  to  speculate  in  shares,  and 

382 


that  if  it  had  gone  upon  the  Stock  Ex- 
change and  bought  shares  as  a  specula- 
tion, such  proceeding  would  have  been 
ultra  vires."  In  this  case  the  transaction 
was  a  pledge,  and  the  bank,  under  the 
American  rule,  had  implied  power  to 
buy  in  the  stock. 

In  re  Financial  Corporation,  28  W. 
R.  760  (1880),  it  was  held  that  a  cor- 
poration had  power  to  purchase  shares 
of  other  companies  when  it  was  organ- 
ized for  the  purpose  of  "  undertaking, 
assisting  and  participating,  in  financial, 
commercial  and  industrial  operations 
.  .  .  both  singly,  and  in  connection  with 
other  persons,  firms,  companies  and 
corporations." 

See  also  Canada  Life  Assur.  Co. 
V.  Pell  Mfg.  Co,,  26  Grants  Ch. 
(Canada)  486  (1879).  Compare  Joint 
Stock  Discount  Co.  i;.  Brown,  L.  R. 
8  Eq.  381  (1869). 

2  In  Great  Eastern  R.  Co.  i-.  Turner, 
L.  R.  8  Ch.  152  (1872),  Lord  Sel- 
borne  said:  "There  is  no  authority  to 
purchase  [shares  in  another  corpora- 
tion] either  in  the  name  of  the  company, 
or  in  the  name  of  the  chairman,  or 
in  any  other  name.  The  company  is 
a  mere  abstraction  of  law.  All  that 
it  does,  all  that  the  law  imputes  to  it  as 
its  act,  must  be  that  which  can  legally 
be  done  within  the  powers  vested  in  it 


CHAP.    XXV.]      POWER   OF   CORPORATION   TO    HOLD    STOCK.      §  266 


.  In  Maryland,  the  English  rule  concerning  private  corpora- 
tions has  been  adopted  and  applied  to  all  corporations.^ 

§  266,  Necessity  for  Statutory  Authority  to  subscribe  for 
Stock.  —  Statutes  authorizing  "  persons  "  to  accept  a  charter, 
or  form  a  corporation  under  general  laws,  confer  the  privilege 
upon  individuals  and  not  upon  corporations.^  Upon  this 
principle,  and  upon  the  general  principle  that  the  powers  of  a 
corporation  are  measured  by  the  laws  under  which  it  is  organ- 
ized, it  follows  that  a  corporation,  unless  authorized  by  stat- 
ute, cannot  make  a  valid  subscription  to  the  capital  stock  of 
another  corporation.^ 


by  law.  Consequently,  a  thing  which 
is  ultra  vires,  and  unauthorized,  is  not 
an  act  of  the  company  in  such  a  sense 
as  that  the  consent  of  the  company  to 
that  act  can  be  pleaded." 

In  Great  Northern  R.  Co.  v.  Eastern 
Counties  R.  Co.,  21  L.  J.  (Ch.)  840 
(1851),  one  corporation  desired  to  pur- 
chase stock  in  another,  with  the  object 
of  controlling  the  corporation.  The 
Court  said  that  it  was  an  "attempt  to 
carry  into  effect,  without  the  interven- 
tion of  Parliament,  what  cannot  law- 
fully be  done  except  by  Parliament, 
in  the  exei'cise  of  its  discretion  with 
reference  to  the  interest  of  the  public." 

See  also  Great  Western  R.  Co.  r. 
Metropolitan  R.  Co.,  32  L.  J.  Ch.  382 
(1863),  9  Jur.  (n.  s.)  562;  Maunsell 
V.  Midland  Great  Western  R.  Co., 
1  Kern  &  M.  130  (1863). 

1  In  Booth  V.  Robinson,  55  Md.  419 
(1880),  it  was  held  that  one  steam 
packet  company  might  purchase  the 
shares  of  another  steam  packet  com- 
pany. The  Court  said  (p.  433),  that, 
"  having  money  to  loan,  or  invest,  there 
would  appear  to  be  no  reason  why  it 
may  not  invest  in  stock  of  other  corpo- 
rations as  well  as  in  other  funds,  pro- 
vided it  be  done  bona  fide,  and  with  no 
sinister  or  unlawful  purpose."  This 
decision  is  based  upon  the  dicta  in  the 
English  cases  cited  in  note  1,  p.  382 
supra.  See  also  Davis  v.  United  States 
Electric  Power,  etc.  Co.,  77  Md.39  (1893), 
(25  Atl.  Rep.  982).     Also  Elysville  Mfg. 


Co.  V.  Okisko  Co.,  1  Md.  Ch.  Dec.  392 
(1849),  affirmed  5  Md.  152  (1853). 

'■^  A  corporation  is  not  a  "person" 
within  the  meaning  of  the  Louisiana 
statute  authorizing  the  formation  of  a 
corporation  by  any  number  of  "  per- 
sons "  not  less  than  six.  Factors,  etc. 
Ins.  Co.  V.  New  Harbor  Protection  Co., 
37  La.  Ann.  233  (1885). 

Under  a  Washington  statute  provid- 
ing that  two  or  more  "persons"  may 
form  a  corporation,  it  has  been  held 
that  although  another  statute  provides 
tliat  "  person "  shall  be  construed  to 
include  a  corporation,  a  corporation 
cannot  become  a  subscriber  to  shares  in 
another  corporation.  Denny  Hotel  Co. 
V.  Schram,  6  Wash.  134  (1893),  (32  Pac. 
Rep.  1002,  36  Am.  St.  Rep.  137).  See 
also  Valley  R.  Co.  v.  Lake  Erie  Iron 
Co.,  46  Ohio  St.  44  (1888),  (18  N.  E. 
Rep.  486,  1  L.  R.  A.  412,  26  Am.  & 
Eng.  Corp.  Cas.  56).  See  also  Lagrone 
V.  Zimmerman,  46  S.  C.  372  (1895), 
24  S.  E.  Rep.  290). 

3  United  States :  Pauly  v.  Coronado 
Beach  Co.,  56  Fed.  428  (1893). 

Alabama:  Lanier  Lumber  Co.  v. 
Rees,  103  Ala.  622  (1893),  (16  So.  Rep. 
637) ;  Commercial  Fire  Ins.  Co.  v. 
Montgomery  County,  99  Ala.  1  (1891), 
(14  So.  Rep.  490,  42  Am.  St.  Rep.  17). 

California:  Knowles  v.  Sandercock, 
107  Cal.  629  (1895),  (40  Pac.  Rep.  1047). 

Connecticut :  Mechanics  Sav.  Bank 
V.  Merideu  Agency  Co.,  24  Conn.  159 
(1855). 

883 


§  267 


INTERCORPORATE   UELATIO>'S. 


[part  IV. 


Any  such  subscription  made  by  a  corporation,  without  statu- 
tory authority,  is  an  ultra  vires  executory  contract  and  is  wholly 
void.^  As  said  by  the  Supreme  Court  of  Ohio  in  Valley  R. 
Co.  V.  Lake  Erie  Iron  Co."^:  "  We  think  it  is  well  settled,  as 
a  result  of  the  decisions  in  this  State,  as  well  as  elsewhere, 
that  an  incorporated  company  cannot,  unless  authorized  by 
statute,  make  a  valid  subscription  to  the  capital  stock  of 
another;  that  such  subscription  is  ultra  vires,  and  void." 

§  267.  Subscriptions  or  Purchases  through  Trustees  or  Agents. 
—  The  rule  that  one  corporation  cannot,  without  statutory 
authority,  become  an  incorporator  or  stockholder  in  another 
cannot  be  evaded  by  subscriptions  or  purchases  made  by 
persons  in  their  own  names  but  in  behalf  of  a  corporation.^ 


Genrfjia :  Military  Inter.'itato  Ass'n 
i;.  Saviuinaii,  etc.  K.  Co.,  105  Ga.  4120 
(1898),  (31  S.  K.  Rep.  200). 

Illinois  :  Pe.shtigo  Co.  v.  Great  West- 
ern Tel.  Co.,  50  111.  App.  624  (1893). 

Louisiana :  New  ( )rleaii3,  etc.  Steam- 
ship Co.  V.  Ocean  Dry  Dock  Co.,  28 
La.  Ann.  173  (1876),  (2*6  Am.  Rep.  90). 
See  also  Factors,  etc.  Ins.  Co.  v.  New 
Harbor  Protection  Co.,  37  La.  Ann. 
233  (1885). 

Missouri:  Newlaiid  Hotel  Co.  v. 
Lowe  Furniture  Co.,  73  Mo.  App.  135 
(1898). 

New  Jersey :  Central  R.  Co.  v.  Penn- 
sylvania R.  Co.,  31  N.  J.  Eq.  475 
(1879). 

New  Yorlc :  Berry  v.  Yates,  24  Barb. 
199  (1857). 

Ohio:  Valley  R.  Co.  v.  Lake  Erie 
Iron  Co.,  46  Ohio  St.  44  (1888),  (18  N. 
E.  Rep.  486,  1  L.  R.  A.  412,  26  Am.  & 
Eng.  Corp.  Cas.  56) ;  Smith  v.  Newark, 
etc.  R.  Co.,  8  Ohio  Cir.  Ct.  Rep.  583 
(1894). 

Pennsylvania:  McMillan  v.  Carson 
Hill  Union  Min.  Co.,  12  Phila.  404 
(1878). 

Washington :  Denny  Hotel  Co.  v. 
Schram,  6  Wash.  1.34  (1893),  (.32  Pac. 
Rep.  1002,  36  Am.  St.  Rep.  137). 

^  In  Lanier  Lumber  Co.  v.  Rees, 
103  Ala.  627  (1893),  (16  So.  Rep.  637), 
the  Court  said.:   "  It   is  equally   clear, 

^       38-4 


upon  principle  and  authority,  that  all 
such  subscription.^,  or  contracts  of  sub- 
scription [for  .stock  in  other  corpora- 
tions], are  not  voidable,  but  utterly 
void." 

See  also  Peshtigo  Co.  v.  Great  West- 
ern Tel.  Co.,  50  111.  App.  624  (1893); 
Valley  R.  Co.  f.  Lake  Erie  Iron  Co., 
4C  Ohio  St.  44  (1888),  (18  N.  E.  Rep. 
486,  1  L.  R.  A.  412,  26  Am.  &  Eng. 
Corp.  Cas.  56) ;  New  Orleans,  etc. 
Steamsliip  Co.  v.  Ocean  Dry  Dock  Co., 
28  La.  Ann.  173  (1876),  (26  Am.  Rep. 
90) ;  Berry  v.  Yates,  24  Barb.  (N.  Y.) 
199  (1857). 

■^  Valley  R.  Co.  v.  Lake  Erie  Iron 
Co.,  46  Ohio  St.  49  (1888),  (18  N.  E. 
Rep.  486,  1  L.  R.  A.  412,  26  Am.  & 
Eng.  Corp.  Cas.  56),  per  Mlnshall,  J. 

^  Lanier  Lumber  Co.  v.  Rees,  103  Ala. 
627  (1893),  (16  So.  Rep.  637) :  "  And  it 
is  too  well  settled  to  require  discu.ssion, 
that  without  such  [statutory]  authority 
one  corporation  cannot  subscribe  for, 
or  invest  its  own  capital  in  the  shares 
of  other  corporations,  either  directly, 
as  by  becoming  in  its  own  name  an 
incorporator  of  a  new  corporation,  or 
indirectly,  by  subscriptions  in  the  names 
of  persons  acting  as  agents  and  holding 
as  trustees." 

Martin  v.  Ohio  Stove  Co.,  78  HI. 
App.  108  (1898):  "A  corporation  can- 
not become  a  stockholder  in  another 


CHAP.    XXV.]      POWER   OF    CORPORATION   TO    HOLD    STOCK. 


§  268 


A  corporation,  cannot,  by  indirection,  transcend  its  chartered 
powers. 

In  Central  R.  Co.  v.  Pennsylvania  R.  Co.^  Chancellor 
Runyon  said :  ^  "A  corporation  cannot  in  its  own  name 
subscribe  for  stock,  or  be  a  corporator  under  the  general 
railroad  law  ;  nor  can  it  do  so  by  a  simulated  compliance  with 
the  requirements  of  the  law  through  its  agents  as  pretended 
corporators  and  subscribers  for  stock." 

§  268.  Similar  Nature  of  Corporations  does  not  affect  Appli- 
cation of  Rule. — The  rule  that  corporations,  in  the  absence 
of  statutory  authority,  cannot  acquire  stock  in  other  corpora- 
tions, having  its  foundation  in  the  limitations  imposed  upon 
corporate  powers,  is  applicable  both  to  corporations  of  a 
similar  and  a  dissimilar  nature.^     A  corporation  has  no  more 


corporation,  especially  when  the  object 
to  be  attained  is  the  control  of  the  lat- 
ter. In  the  absence  of  express  statu- 
tory authority,  it  cannot  become  an 
incorporator  by  subscribing  for  shares 
of  a  new  corporation,  and  it  cannot  do 
this  indirectly  through  persons  acting 
as  its  agents  or  tools.  .  .  .  To  permit 
the  corporation,  by  its  directors,  to 
make  the  subscriptions  in  the  indi- 
vidual names  of  the  latter,  thereby 
giving  a  semblance  of  compliance  with 
the  statute  sufficient  to  secure  the  issu- 
ance of  a  certificate  of  incorporation,  as 
was  done  in  this  case,  and  tlien  by  pro- 
ceedings like  the  present,  instituted  by 
a  person  in  pari  delicto,  compel  the 
stockholders  to  transfer  their  shares  to 
the  corporation  itself,  would  be  to  per- 
mit a  person  to  take  advantage  of  his 
own  wrong  to  perpetuate  a  fraud  upon 
tb.e  law,  and  to  use  a  court  of  equity  to 
aid  in  evading  the  law  and  setting  it  at 
naught." 

See  also  Central  R.  Co.  r.  Pennsyl- 
vania R.  Co.,  31  N.  J.  Eq.  475  (1879) ; 
Marble  Co.  v.  Harvey,  92  Tenn.  118 
(1892),  (20  S.  W.  Rep.  427);  Nassau 
Bank  v.  Jones,  95  N.  Y.  115  (1884); 
Logan  V.  Courtown,  12  Beav.  22  (1850). 

1  Central    R.   Co.   v.   Pennsylvania 
R.  Co.,  31  N.  J.  Eq.  494  (1879). 

In  Tecumseh,  etc.  Bank  v.  Russell, 
25 


50  Neb.  277  (1897),  (69  N.  W.  Rep.  763), 
it  was  held  that  where  the  cashier  of  a 
bank  uses  its  funds  to  pay  for  stock  in 
another  bank,  courts  will  hold  that  su«h 
stock  belongs  to  the  former  bank, 
except  as  against  bona  fide  purchasers. 

2  I.   Corporations  of  Similar 
Naturp:. 

A.   Railroad  Companies. 

Central,  etc.  R.  Co.  v.  Collins,  40  Ga. 
636  (1869):  "A  railroad  company, 
without  express  authority  given  by 
the  legislature  to  make  the  purchase, 
cannot  purchase  stock  in  another  rail- 
road company."  See  also  Hazlehurst 
V.  Savannah,  etc.  R.  Co.,  43  Ga.  13 
(1871),  holding  that  a  railroad  company 
cannot  buy  stock  in  another  in  order 
to  influence  its  management.  Also 
]\Iilbank  v.  New  York,  etc.  R.  Co.,  64 
How.  Pr.  (N.  Y.)  20  (1882).  Pearson 
V.  Concord  R,  Corp.,  62  N.  H.  537 
(1883). 

B.    Gas  Companies. 

In  People  v.  Chicago  Gas  Trust  Co., 
130  111.  283  (1889),  (22  N.  E.  Rep.  798), 
Judge  Magruder  said :  "  Where  a  char- 
ter, in  express  terms,  confers  upon  a 
corporation  the  power  to  maintain  and 
operate  works  for  the  manufacture  and 

385 


§  2G8 


INTERCORPORATE  RELATIONS. 


[part   IV, 


power  to  purchase  the  stock  of  another  corporation  having  a 
similar  object  to  its  own  than  it  has  to  make  such  purchase 


sale  of  gas,  it  is  not  a  necessary  impli- 
cation therefrom  that  the  power  to 
purchase  stock  in  other  gas  companies 
should  also  exist.  There  is  no  neces- 
sary connection  between  manufacturing 
gas  and  buying  stocks.  If  the  purpose 
for  which  a  gas  company  has  been  cre- 
ated is  to  make  and  sell  gas,  and  oper- 
ate gas  works,  the  jjurchase  of  stock  in 
other  gas  companies  is  not  necessary 
to  accomplish  such  purpose.  '  The  riglit 
of  a  corporation  to  invest  in  shares  of 
another  company  cannot  be  implied 
because  botli  companies  are  engaged  in 
a  similar  kind  of  business.'"  (1  Mora- 
witz  Priv.  Corp.  §  431). 

C.   Mining  Companies. 

A  corporation  having  the  right  to 
mine,  in  organizing  another  corpora- 
tion for  mining  purposes,  acts  without 
the  scope  of  its  powers.  McMillan  v. 
Carson  Hill  Union  Miu.  Co.,  12  Phila. 
(Pa.)  404  (1878). 

D.   Manufacturing  Companies. 

The  purchase  by  a  foreign  manufac- 
turing corporation  of  the  stock  of  a 
domestic  corporation  for  the  purpose 
of  controlling  it,  is  ultra  vires,  though 
tliey  are  engaged  in  a  similar  business. 
Marble,  etc.  Co.  i'.  Harvey,  92  Tenn. 
115  (1892),  (20  S.  W.  Rep.  427,  18 
L.  R.  A.  252).  See  also  Byrne  v. 
Schuyler  Electric  Mfg.  Co.,  63  Conn. 
336  "(1895),  (31  Atl.  Rep.  833);  Mc- 
Cutcheon  v.  Merz  Capsule  Co.,  71  Fed. 
787  (1896).  Manufacturing  Company 
cannot  purchase  stock  in  subsidiary 
manufacturing  company.  People  v. 
Pullman  Car  Co.,  175  111.  125  (1898), 
(51  N.  E.  Rep.  664). 

E.   Insurance  Companies. 

Berry  v.  Yates,  24  Barb.  (N.  Y.)  199 
(1857);  Pierson  v.  McCurdy,  33  Hun 
(N.  Y.),  520  (1884).  Ex  parte  British 
Nation,  etc.  Ass'n,  L.  R.  8  Ch.  679 
(1878). 

386 


F.    Banks. 

A  national  bank  cannot  hold  stock 
in  a  .savings  bank  not  taken  as  security, 
or  aci|uired  in  due  course  of  business. 
California  Bank  i'.  Kennedy,  167  U.  S. 
362  (1897),  (17  Sup.  Ct.  Rep.  831). 

II.  Corporations  of  Different 

Nature. 

(a)  Bank  cannot  hold  stock  of  rail- 
road Company  :  Nassau  Bank  r.  Jones, 
95  N.  Y.  1  (1 884) ;  nor  of  insurance  com- 
p.any :  Bank  of  Commerce  v.  Hart,  37 
Neb.  197  (1893),  (55  N.  W.  Rep.  631); 
nor  of  manufacturing  company  :  Frank- 
lin Co.  V.  Lewiston  Sav.  Inst.,  68  Me. 
43  (1877),  (28  Am.  Rep.  9). 

(/))  Insurance  company  cannot  hold 
stock  in  bank.  Commercial  Fire  Ins. 
Co.  V.  Montgomery  County,  99  Ala.  1 
(1892),  (14  So.  Rep.  498) ;  State  >:  But- 
ler, 86  Tenn.  614  (1888),  (8  S.  W.  Rep. 
586). 

(c)  Manufacturing  company  cannot 
sub.scrihc  for  or  purchase  stock  of 
bank.  Summer  v.  Marcy,  3  Woodb.  & 
Minot  (U.  S.),  105  (1848);  nor  of  rail- 
road company :  Valley  R.  Co.  v.  Lake 
Erie  Iron  Co.,  46  Ohio  St.  44  (1888), 
(18  N.  E.  Rep.  486,  1  L.  R.  A.  412, 
26  Am.  &  Eng.  Corp.  Cas.  56). 

{d)  Note-selling  company  cannot 
hold  stock  in  bank.  Joint  Stock  Dis- 
count Co.  V.  Brown,  L.  R.  8  Eq.  381 
(1869). 

(e)  Railroad  company  cannot  pur- 
chase stock  of  mining  company.  Col- 
umbus, etc.  R.  Co.  V.  Burke,  19  Ohio 
Week.  Law  Bull.  27  (1887). 

{/)  Furniture  company  cannot  sub- 
scribe for  stock  in  hotel  company. 
Knowles  v.  Sandercock,  107  Cal.  629 
(1895),  (40  Pac.  Rep.  1047)  ;  Newland 
Hotel  Co.  r.  Lowe  Furniture  Co.,  73 
Mo.  App.   135   (1898). 

(g)  Dry  dock  company  cannot  sub- 
scribe for  stock  of  steamship  company. 
New  Orleans,  etc.  S.  Co.  v.  Ocean  Dry 


CHAP.    XXV.  ]      POWER   OF   CORPORATION   TO   HOLD   STOCK.     §  269 

in  the  case  of  a  corporation  formed  for  an  entirely  different 
purpose. 

The  underlying  principle,  however,  is  not  precisely  the 
same  in  both  cases.  A  corporation  cannot  acquire  stock  in 
another  corporation  organized  for  similar  purposes,  because 
it  must  manage  its  funds  directly  through  its  own  officers, 
and  not  indirectly  by  becoming  a  stockholder  in  another  cor- 
poration. A  corporation  cannot  purchase  stock  in  another 
corporation  created  for  the  accomplishment  of  essentially 
different  objects,  not  only  for  the  reason  just  stated,  but,  pri- 
marily, because  it  cannot  invest  its  funds  and  engage  in  a 
business  entirely  foreign  to  the  purposes  for  which  it  was 
created.  "  Were  this  not  so,"  said  the  Supreme  Court  of 
Ohio  in  Franklin  Bank  v.  Commercial  Bank}  "  one  corpora- 
tion by  buying  up  the  majority  of  the  shares  of  the  stock  of 
another,  could  take  the  entire  management  of  its  business, 
however  foreign  such  business  might  be  to  that  which  the 
corporation  so  purchasing  said  shares  was  created  to  carry 
on.  A  banking  corporation  could  become  the  operator  of  a 
railroad,  or  carry  on  the  business  of  manufacturing,  and  any 
other  corporation  could  engage  in  banking  by  obtaining  the 
control  of  the  bank's  stock." 

§  269.  Expediency  of  Purchase  of  Stock  immaterial.  —  The 
operation  of  the  rule  that  a  corporation,  without  statutory 
authority,  cannot  subscribe  for  or  purchase  stock  in  another 
corporation  is  in  no  way  affected  by  the  fact  that  such  pur- 
chase or  subscription  may  be  of  benefit  to  it.  An  ultra  vires 
agreement  is  not  made  intra  vires  by  being  profitable.  The 
contract  of  association  cannot  be  enlarged  to  take  in  a  new 
adventure  because  the  transaction  seems  expedient.^ 

Dock  Co.,  28  La.  Ann.  173  (1876),  (28  i  Franklin     Bank    v.     Commercial 

Am.  Rep.  90).  Bank,  36  Ohio  St.  35.5  (1881),  (38  Am. 

(A)   Lumber   company  cannot    sub-  Rep.  594). 
scribe  for  stock  of  telegraph  company.  2  Central,  etc.  R.  Co.  v.  Collins,  40 

Peshtigo  Co.  v.  Great  Western  Tel.  Co.,  Ga.  582  (1869) ;  Valley  R.  Co.  v.  Lake 

50  111.  App.  624  (1893).  Erie  Iron  Co.,  46  Ohio  St.  44  (1888), 

(/)    Land  company  has  no  authority  (18  N.  PL  Rep.  486  1  L.  R.  A.  412,  26 

to  subscribe  for  stock  of  manufacturing  Am.  &  Eng.  Corp.  Cas.  56.) 
company.     Pauly    i;.    Coronado    Beach 
Co.,  56  Fed.  428  (1893). 

387 


§  271  INTERCORPORATE   RELATIONS.  [PART    IV. 

In  Central,  etc.  R.  Co.  v.  Collins'^  the  Supreme  Court  of 
Georgia  said  :  "  We  'do  not  think  the  profitableness  of  this 
contract,  to  the  stockholders  of  the  Central  and  Southwestern 
Railroad  has  anything  to  do  with  the  matter.  These  stock- 
holders have  a  right.,  at  their  pleasure,  to  stand  on  their  con- 
tract. If  the  charters  do  not  give  to  these  companies  the 
riffht  to  go  into  this  new  enterprise  any  one  stockholder  has 
a  right  to  object.  He  is  not  to  be  forced  into  an  enterprise 
not  included  in  the  charter.  That  it  will  be  to  his  interest  is 
no  excuse ;  that  is  for  him  to  judge." 

§  270.  Assumption  of  Pow^er  to  hold  Stock  in  Articles  of 
Association.  —  A  stream  can  rise  no  higher  that  its  source. 
The  powers  of  corporations  organized  under  general  incor- 
poration acts  can  be  such  only  as  are  mentioned  in  those  acts. 
The  power  to  hold  stock  in  other  corporations  exists  only 
when  granted  by  legislative  authority.  Unless  such  power  is 
specifically  conferred  upon  corporations  formed  under  general 
laws,  incorporators  take  nothing  by  assuming  to  themselves 
the  power  in  their  articles  of  association.  Even  the  inci- 
dental powers  of  a  corporation  are  not  increased  by  such  an 
assumption.^ 

In  People  v.  Chicago  Gas  Trust  Co.,^  Judge  Magruder  said  : 
"  To  hold  that  they  [the  incorporators]  could  confer  such 
power  by  writing  it  down  in  the  statement  would  be  to  hold 
that  the  general  assembly  could  clothe  them  with  a  part  of  its 
legislative  functions." 

II.     Express  Power  to  acquire  Stock. 

§  271.  Corporations  may  acquire  Stock  in  other  Corporations 
when     authorized.       Statutory    Provisions.  —  The     statutes    of 

1  Central,  etc.  R.  Co.  v.  Collins,  40  to  the  articles  not  authorized  by  the 
Ga.  617  (1869).  incorporation  act  are  wholly  void. 

2  People  V.  Chicago  Gas  Trust  Co.,  Oregon  R.,  etc.  Co.  v.  Oregouian  R. 
130  111.  268  (1889),  (22  X.  E.  Rep.  798,  Co.,  130  U.  S.  1  (1889),  (9  Sup.  Ct.  Rep. 
17  Am.  St.  Rep.  319).  Compare  Market  409);  Medical  College  Case,  3  Whart. 
St.  R.  Co.  V.  Hellman,  109  Cal.  590  (Pa.)  445  (1838) ;  Eastern  Plank  R.  Co. 
(1895),  (42  Pac.  Rep.  225).  v.  Vaughan,  14  N.  Y.  546  (1856) ;  Heck 

Articles  of  association  are  construed     v.  McEven,  12  Lea  (Tenn.),  97  (1S83). 
strictly  against  the  grantee  and  in  favor  ^  People  v.  Chicago  Gas  Trust  Co., 

of  the  public,  and  any  provisions  added     130  111.  287  (1889),  (22  N.  E.  Rep.  798, 


388 


17  Am.  St.  Rep.  319). 


CHAP.  XXV.]      POWER   OF   CORPORATION   TO    HOLD    STOCK.       §  271 


the  different  States  authorizing  corporations  to  take  stock  in 
other  corporations  are  collected  in  the  foot-note.^ 


1  Alabama.  Acts  1900-01,  p.  530: 
"  Any  corporation  ...  of  any  other 
State  or  Territory  of  the  United  States, 
or  any  foreign  country,  or  territory, 
...  is  hereby  authorized  ...  to  ac- 
quire, by  subscription  to  the  capital 
stock,  or  by  purcliase,  or  otherwise,  and 
to  hold,  own  and  vote  shares  of  the 
capital  stock  of  any  corporation  .  .  . 
of  the  State  of  Alabama  "  —  provided 
that  such  foreign  corporation  has  power 
under  its  charter,  etc.,  to  acquire  stock 
in  other  corporations. 

Code  1896,  §  1170  authorizes  rail- 
road ct)mpanies  to  subscribe  for  stock  in 
aid  of  construction  of  connectiug  roads. 

Arizona.  R.  S.  1901,  par.  864,  p.  336  : 
"  Any  railroad  company  now  or  here- 
after existing  under  tlie  laws  of  this 
Territory  .  .  .  may  buy  the  stock  and 
bonds  ...  of  any  "  foreigu  or  domes- 
tic corporation. 

Arkansas.  Sand.  &  Hills'  Digest, 
1894,  §  6321 :  "  Any  railroad  company 
in  this  State  .  .  .  may  buy  .  .  .  the  stock 
...  of  any  railroad  company  or  com- 
panies incorporated  or  organized  within 
or  without  this  State  whenever  the  roads 
of  such  companies  shall  form,  in  the 
operation  thereof,  a  continuous  line  or 
lines." 

lb.  §  6322  :  "  Any  railroad  company 
...  of  any  other  State  or  Territory 
may  .  .  .  buy  the  stock  ...  of  any  rail- 
road company  ...  of  this  State,  when- 
ever the  roads  of  such  companies  shall 
form  in  the  operation  thereof  a  contin- 
uous line  or  lines."     See  also  ib.  §  6328. 

Colorado.  Session  Laws  1899,  ch.  125, 
p.  313 :  "  Any  railroad  company  .  .  . 
of  this  State  may  .  .  .  acquire  and 
may  hold  the  .  .  .  stock  of  other  com- 
panies owning  or  operating  any  "  rail- 
road which  sliall  connect  with  the  "  line 
of  road  which  such  company  is  .  .  . 
authorized  to  purchase,  or  which,  under 
the  laws  of  this  State,  it  is  authorized 
to  lease,  or  .  .  .  consolidate  "  with. 

Connecticut.  Pub.  Acts,  1895,  ch.  138  : 
'•  Any     corporation     incorporated     in 


this  State,  and  not  prohibited  by  any 
provision  in  its  own  charter  or  by  the 
general  statutes  of  this  State,  may  ac- 
quire, purchase,  and  hold  the  stock  or 
securities  of  any  other  corporation  in- 
corporated by  or  doing  business  under 
the  laws  of  this  State ;  .  .  .  The  pro- 
visions of  this  act  shall  not  apply  to 
any  savings  bank,  trust  company  or  life 
insurance  company." 

G.  S.  1888,  §  3442  :  "No  other  rail- 
road company  shall  subscribe  for,  take, 
or  hold  any  stock  or  bonds  of  any  rail- 
road company  established  under  the 
provisions  of  this  chapter,  either  di- 
rectly or  indirectly,  unless  specially 
authorized  by  the  General  Assembly." 
As  to  appraisal  and  purchase  of  minority 
stock  interests,  see  P.  A.  1895,  ch.  232, 
p.  576. 

Delaware.  Laws  1901,  ch.  67,  §  136, 
p.  352  :  "  Any  corporation  ...  of  this 
State  .  .  .  may  .  .  .  purchase,  hold, 
sell,  assign,  transfer,  mortgage,  pledge 
or  otherwise  dispose  of,  the  shares 
of  the  capital  stock  of  .  .  .  any  otlier 
corporation  or  corporations  of  this  State, 
or  any  State,  country,  nation  or  govern- 
ment, and  while  owner  of  said  stock 
may  exercise  all  the  rights,  powers  and 
privileges  of  ownership  including  the 
right  to  vote  thereon." 

Florida.  R.  S.  1891,  §  2248:  "Any 
railroad  or  canal  company  in  this  State 
sliall  have  power  ...  to  purchase  the 
stock  ...  of  any  other  company." 

Georgia.  For  Georgia  constitutional 
provision  against  corporate  stockhold- 
ing, see  ante,  §  32,  note. 

Idaho.  R.  S.  §  2686  (as  amended  by 
Sess.  Laws,  1899,  p.  11)  :  "  Any  railroad 
corporation,  whether  ...  of  this  State 
or  of  the  Territory  of  Idaho,  or  of  the 
United  States,  or  of  any  other  State  or 
Territory,  may  take,  purchase,  hold, 
sell,  and  dispose  of  .  .  .  the  bonds  and 
securities  of  any  other  railroad  corpo- 
ration whose  line  of  railroad  is  continu- 
ous of  or  otherwise  connected  with  its 
own." 

389 


§  271 


INTERCORPORATE    RELATIONS. 


[part  IV. 


Tlie  effect  of  tlicse  statutes  is  to  enlarge  the  powers  of  the 
corporations  to  wliicli  they  apply.     There  is  nothing  in  the 

Illinois,     li.  S.  1901,  p.  494  :    "  Any  hiliited  by  law,  subscribe  to  the  capital 

corporation  .  .  .  of  this  State  for  miu-  stoclv  of  any  other   railroad    companv 

iug  or  mauufacturin;,'  purposes  ...  is  ...  of  this  or  any  other  State,  with  the 

hereby   authorized    to   own    and    hold  assent  of  sucli  coniijuny  ;  and  anv  coni- 

pliares  of  tiie  capital  stock  ...  of  any  pany  ...  of   this   or   any  other  State 

Fiiilroad    company  or  companies  wiien  may,  unless  proliibitcd  by  law,  subscribe 

sucli  railroad  or  railroads  shall  connect  to  the  capital  stock  of  any  company  .  .  . 

the  different  plants  of  such  mininj^  and  of  this  State   with   the  assent  of  such 


nianufacturinj;  companies  with  e.ich 
other,  or  with  the  other  railro.id  or 
harbors.  Provided,  tliat  said  mininj; 
or  manufacturing  companies  shall  not 
.  .  .  hold  stock  in  more  than  one  rail- 
road connecting  the  same  points." 


com|)any. 

For  special  provisions  concerning 
bridije  companies,  see  ib.  §  849. 

Maine.  Laws  1897,  p.  219,  ch.  186, 
§  1  :  "A  railroad  corporation,  which 
h.is  a  lease  of,  or  wliich  operates  tiie 


Jiulitina.  Horner's  Anno.  Stat.  1901,  railroad  of  anotiier  railroad  corjwration, 
§  4013:  "Any  railroad  company  in  may  purdi.ase  and  hold  shares  of  tho 
tliis  State  and  organized  under  tho  .  .  .  capital  stock  of  such  corporation." 
laws  of  this  State  "  may  "  subscribe  and  Il>.  §2:  "A  railroad  corporation, 
take  stock  in  .'\ny  railroad  liridge  com-  which  owns  a  majority  of  tlie  capital 
panv  on  the  route  of  said  railroad  or  at  stock  of  another  railroad  corporation, 
the  terminus  of  said  railroad,  for  the  may  purchase  further  shares  of  the  cap- 
use  and  benefit  of  said  road."                .  ital  stock  of  such  corporation  and  hold 

For  Indiana  statutes  relating  espe-  tlie  same  togetlier  with  the  shares  whicli 

cially  to   gas   light   and    water   works  it "  now  owns. 

companies,  see  Stat.  1894,  §§  5059  and  Maryland.      Laws     1900,    ch.    217, 

5087.  p.  321  :  "  Any   railroad   company  .  .  . 

loifa.     Code   1897,    §  2047:    "Any  of  this  State  "  may  "  acquire,  own  and 

railway  corporation  ...  of  this  State,  hold,  pledge,  sell  or  otherwise  dispose 

or  operating  a  road  tlierein,  under  the  of  .  .  .  stocks,  ...  of    otiier   railroad 

authority  of  the  laws  thereof,  may  ac-  companies  of  this  or  any  other  State, 

quire,  own  and  hold  either  the  whole  or  and  of  any  inland,  coast  or  ocean  trans- 

any  part  of  the  stock  ...  of  any  other  portation  company  or  companies." 
railroad  company  of  this  or  any  adjoin-  Gen.  Laws  1888,  Art."  23,  §  203,  au- 

ing  St.ate."  thorizes  railroad  companies  to  purcliase 

Kansas.  G.  S.  1897,  p.  747,  §  34  :  stock  in  stcamsiiip  companies. 
"Any  railroad  company  ...  of  this  Mnxsarhnsctts.  Pub.  Stat.  1S82, 
State"  may  "purcliase  and  hold  the  ch.  112,  §74:  "Except  by  special  au- 
Btock  and  bonds,  or  either,  ...  of  any  thority  of  the  general  court  or  as  author- 
other  railroad  company  or  companies,  ized  in  the  following  .sections,  no  railroad 
the  line  of  whose  railroad,  constructed  corporation  shall  .  .  .  subscribe  for, 
or  being  constructed,  connects  with  its  take,  or  hold  shares  in  the  stock  .  .  . 
own."  For  other  statutes  conferring  of  any  other  corporation  or  coni- 
power  upon  railroad  companies  to  pur-  pany." 

chase  stocks,  see  ib.  p.  751,  §  51 ;  p.  762,  Ib.  §  75,  authorizes  a  railroad  com- 

§  95.     For  statute  authorizing  corpora-  pany  to  hold  stock  to  a  limited  amount 

tions  to   become    members   of   mutual  in    a    telegraph    company  whose   line 

fire  insurance  companies,  see  ih.  ch.  74,  connects  two   or   more    places    on   its 

§  133.  railroad. 

Kentucky.    Stat.  1899,  §  769  :  "Any  lb.  §  80,  authorizes  a  railroad  corn- 
railroad  company  .  .  .  mav,  unless  pro-  pany  to  subscribe  for  a  limited  amount 

390 


CHAP,  XXV.]     POWER   OF   CORPORATION  TO    HOLD    STOCK.      §  271 


nature  of  a  corporation  which  renders  it  incapable  of  holding 
stock  in  other  corporations  and  questions  of  public  policy  are 
determined  by  the  legislature  in  granting  the  power. 


of  stock  to  aid  in  the  construction  of  a 
braucli  or  connecting  railroad. 

lb.  ch.  106,  §  78,  authorizes  manu- 
facturing companies  under  certain  con- 
ditions to  hold  stock  in  gas  companies. 

Michigan.  Comp.  Laws  1897,  §  6253  : 
"  Any  railroad  company  organized  un- 
der tills  act  may  .  .  .  subscribe  to  the 
capital  stock  of  any  other  company 
organized  under  this  act  with  the  assent 
of  such  other  company ;  and  any  rail- 
road company  ...  of  this  State  may 
subscribe  to  the  capital  stock  of  any 
company  organized  under  this  act  "  not 
having  the  same  terminal  points  and  not 
being  a  competing  line,  with  the  assent 
of  the  company  for  whose  stock  such 
subscription  is  made. 

lb.  §  6327,  authorizes  a  railroad  com- 
pany to  aid  in  the  construction  of 
another  railroad  by  subscribing  for 
stock. 

lb.  §  6691  (as  amended  by  laws 
1899,  pp.  18-19),  authorizes  telephone 
and  messenger  service  corporations 
to  purchase  stock  in  certain  other 
corporations. 

lb.  §  6474,  authorizes  the  purchase 
of  stock  in  stage  companies. 

lb.  §  7011,  authorizes  mining  com- 
panies to  subscribe  for  or  purchase 
stock  in  companies  furnishing  trans- 
portation facilities  to  their  mines,  or 
power  or  light  to  be  used  in  their 
works. 

lb.  §  7012,  authorizes  mining  com- 
panies conducting  their  business  outside 
of  Michigan  to  subscribe  for  and  own 
stock  in  similar  corporations,  likewise 
doing  business  outside  the  State. 

/.').  §  8516,  authorizes  the  holding  of 
stock  in  water  companies. 

Minnesota.  G.  S.  1894,  §  2834  :  "  Any 
[mining]  corporation  organized  under 
this  act  may  take,  acquire  and  hold 
stock  in  any  other  corporation,  if  a 
majorit}'  in  amount  of  the  stockholders 
shall  so  elect." 


Mississippi.  Sess.  Laws  1900,  ch.  88, 
p.  125,  §  5:  "No  corporation  shall, 
directly  or  indirectly,  purchase,  or  own 
the  capital  stock,  or  any  part  thereof, 
of  any  other  corporation  ...  if  such 
other  corporation  be  engaged  in  the 
same  kind  of  business  and  be  a  com- 
petitor therein." 

Missouri.  R.  S.  1899,  §  1061  :  "Any 
railroad  company  .  .  .  organized  under 
the  laws  of  this  State  .  .  .  may  acquire 
any  line  of  railroad,  within  or  without 
this  State,  which  shall  form  a  continu- 
ous line  with  the  road  operated  by  such 
company  .  .  .  and  may  acquire  and  may 
hold  the  obligations  and  stock  of  other 
companies  owning  or  operating  any 
such  lines  of  road." 

lb.  §  1060,  authorizes  subscriptions 
iu  aid  of  the  construction  of  connecting 
lines. 

lb.  §  1181,  authorizes  bridge  com- 
panies to  acquire  stock  in  certain  street 
railway  companies. 

Montana.  Code  1895,  §  912:  "  Any 
railroad  corporation  whose  line  is  wholly 
or  partly  within  this  State,  or  reaches 
the  boundary  line  thereof,  ...  of  Mon- 
tana or  of  the  United  States,  or  of 
any  other  State  or  Territory,  may  take, 
purchase,  hold,  sell  and  dispose  of,  or 
guarantee  the  capital  stock  ...  of  any 
other  railroad  corporation  whose  line  of 
railroad  within  this  State  is  continuous 
of  or  connects  with  its  own  line." 

lb.  §  923,  authorizes  subscriptions 
and  purchases  of  stock  in  aid  of  the 
con.struction  of  other  railroads. 

Scss.  Laws  1899,  p.  113,  prescribe  a 
method  for  authorizing,  by  a  vote  of 
two-thirds  of  the  stock  of  the  vendor 
corporation,  the  sale  of  corporate  assets 
for  stock  iu  another  corporation. 

Nebraska.  Comp.  Stat.  1901,  §  1769, 
authorizes  a  railroad  company  to  aid  in 
the  construction  of  a  connecting  road  by 
a  subscription  to  its  stock. 

Nevada.     Comp.  Laws   1900,  §  893, 

391 


§271 


INTERCORPORATE   RELATIONS. 


[part  IV. 


It   will  be  observed  tbat  the  greater  number  of   statutes 
apply  only  to  railroad  companies,  and  that  these  are  limited 


authorize  corporations  formed  for 
"raining,  millinf^  or  ore  reduction  pur- 
poses "  to  subscribe  for  stock  in  any 
corporation  formed  for  tiie  purpose  of 
facilitating  the  developing  or  working 
of  mines. 

New  Jersey.  Stat.  Rev.  1896,  ch.  4, 
§  51:  "Any  corporation  may  pur- 
chase, hold,  sell,  assign,  niort;;age, 
jdedge,  or  otherwise  disj)ose  of  the 
.shares  of  the  capital  stock  of,  or  any 
bonds  .  .  .  created  by  any  other  cor- 
poration or  corporations  of  this  or  any 
other  State,  and  while  owner  of  such 
stock  may  exercise  all  the  rigiits,  pow- 
ers and  privileges  of  owuersliiji,  includ- 
ing the  right  to  vote  thereon." 

G.  S.  1895,  p.  903,  §  260  (General 
Corporation  Act):  "Any  corporation 
or  corporations  created  under  the  ])ro- 
visions  of  the  act  to  which  thi-*  is  a 
supplement "  may  "  purchase,  sell,  as- 
sign, transfer,  mortg.age,  pledge,  or 
otherwise  dispose  of  the  shares  of  the 
capital  stock  of  any  other  corporation 
or  corporations  created  under  the  law  of 
this  or  any  other  State,  and  "  may  "  ex- 
ercise, while  owners  of  such  stock,  all 
the  rights,  powers  and  privileges,  includ- 
ing the  right  to  vote  thereon,  which 
natural  persons,  being  the  owners  of 
such  stock,  might,  could  or  would  do." 

lb.  §  345,  p.  983  :  "  It  shall  be  law- 
ful for  any  corporation  of  this  State,  or 
of  any  other  State,  doing  business  in  this 
State  and  authorized  by  law  to  own  and 
hold  shares  of  stock  ...  of  corpora- 
tions of  other  States,  to  own  and  hold 
and  dispose  thereof  in  the  same  manner 
and  with  all  the  rights,  powers  and 
privileges  of  individual  owners  of  shares 
of  the  capital  stock  ...  of  corporations 
of  this  State." 

lb.  §  172,  p.  942,  authorizes  subscrip- 
tions by  land  and  seashore  improvement 
companies  in  aid  of  the  construction  of 
certain  railroads. 

lb.  §  351,  p.  986,  authorizes  certain 
land  and  improvement  companies  to 
purchase  stock  in  similar  corporations. 

392 


Stat.  Rev.  1890,  ch.  4,  §  50,  authorizes 
construction  companies  to  hold  stock  iii 
similar  corporations. 

New  Mexico.  Comp.  Laws  1897, 
§  3891,  authorizes  railroad  comjtauiea 
to  subscribe  for  stock  in  aid  of  tlie  con- 
struction of  connecting  roads. 

New  York.  Laws  1890,  ch.  504  (as 
amended  to  1899),  Art.  3,  §40  (Stock 
Corporation  Law)  :  "  .  .  .  Any  stock 
corporation,  domestic  or  foreign,  except 
monicd  corporations,  may  purchase,  ac- 
quire, hold  and  dispose  of  the  stocks, 
...  of  any  corporation,  domestic  or 
foreign,  and  issue  in  exchange  therefor 
its  stock  ...  if  authorized  so  to  do 
by  a  provision  in  the  certificate  of  in- 
corporation of  such  stock  cori)oratiou, 
or  any  certificate  amendatory  thereof 
or  sui)plementary  thereto,  filed  in  pur- 
suance of  law,  or  if  the  corporation 
whose  stock  is  so  purchased,  acijuired, 
held  or  disposed  of,  is  engaged  in  a 
business  similar  to  that  of  such  stock 
corporation,  or  engaged  in  the  manu- 
facture, use  or  sale  of  the  projierty,  or 
in  the  construction  or  operation  of 
works  necessary  or  useful  in  the  busi- 
ness of  such  stock  corporation,  or  in 
which  or  in  connection  with  wliich,  the 
manufactured  article.s,  product  or  prop- 
erty of  such  stock  corporation  are  or 
may  be  used,  or  is  a  corporation  with 
which  such  stock  corjjoratiou  is  or  may 
be  authorized  to  consolidate.  When  any 
such  corporation  shall  be  a  stockiiolder 
in  any  other  corporation  as  herein  pro- 
vided, its  president  or  other  officers 
shall  be  eligible  to  the  office  of  director 
of  such  corporation,  the  same  as  if  they 
were  individually  stockholders  therein, 
and  the  corporation  holding  such  stock 
shall  possess  and  exercise  in  respect 
thereof,  all  the  rights,  powers  and 
privileges  of  individual  owners  or  hold- 
ers of  such  stock." 

Railroad  Law,  §  79  (Birdseye's,  1901 ) : 
"  Any  railroad  corporation  ...  of  this 
State  .  .  .  being  the  lessee  of  the  road 
of  any  other  railroad  corporation,  may 


CHAP.   XXV.]     POWER   OP   CORPORATION   TO   HOLD   STOCK.      §  271 


in  tlieir  application  to  companies  owning  connecting  lines. 
These  railroad  statutes,  like  similar  statutes  authorizing  the 


take  a  surrender  or  transfer  of  the  cap- 
ital stock  of  the  stockholders,  or  anj  of 
them,  in  the  corporation  whose  road  is 
held  under  lease,  and  issue  in  exchange 
therefor  the  like  additional  amount  of 
its  own  capital  stock  at  par  ;  and  when- 
ever the  greater  part  of  the  capital 
stock  of  any  such  corporation  shall  have 
been  so  surrendered  or  transferred,  the 
directors  of  the  corporation  taking  such 
surrender  or  transfer  .  .  .  become  ex- 
officio  the  directors  of  tlie  corporation 
whose  road  is  held  under  lease,  and  shall 
manage  and  conduct  the  affairs  thereof 
.  .  .  and  when  the  whole  of  such  capital 
stock  has  been  so  surrendered  or  trans- 
ferred, and  a  certificate  thereof  filed  in 
the  ofBce  of  the  Secretary  of  State  .  .  . 
the  estate  .  .  .  and  franchises  of  the  cor- 
poration whose  stock  shall  have  been 
so  surrendered  or  transferred  shall  .  .  . 
vest  iu  .  .  .  the  corporation  to  whom 
such  surrender  or  transfer  is  made. 
.  .  .  Where  stock  sliall  have  been  so 
surrendered  or  transferred,  the  existing 
liabilities  of  the  corporation,  and  the 
rights  of  the  creditors  and  of  any  stock- 
holder not  surrendering  or  transferring 
his  stock,  shall  not  be  affected  tliereby." 

North  Carolina.  Laws  1885,  ch.  108, 
§2,  p.  159:  "Any  railroad  or  other 
transportation  company  may  acquire 
and  hold  or  guarantee,  or  indorse  the 
bonds  or  stocks  of  .  .  .  any  railroad  or 
branch  railroad,  or  other  transportation 
line  in  this  or  an  adjoining  State  con- 
necting with  it  directly  or  indirectly." 

Pub.  Laws  1901,  ch.  2,  §  55,  p.-vge  28 
(same  as  New  Jersey  Stat.  Rev.  1896, 
ch.  4,  §  51,  supra). 

Ohio.  Bates'  Anno.  Stat.  (1787- 
1902),  §  3300,  authorizes  railroad  com- 
panies to  subscribe  for  stock  in  aid  of 
a  connecting,  but  not  competing,  road. 
lb.  §  3546,  authorizes  railroad  companies 
to  subscribe  for  the  stock  of  certain 
bridge  companies.  lb.  §  3631,  author- 
izes certain  stock  subscriptions  by  be- 
nevolent companies ;  ih.  §  3842,  by 
elevator    companies ;    ib.    §    3863,    by 


"  mineral  and  vegetable  mining  and 
boring  companies." 

Pennsylvania.  Gen.  Laws  1894,  §  132: 
"  Any  and  all  companies  incorporated 
or  organized  under  the  laws  of  this 
Commonwealth,  .  .  .  and  .  .  .  the  di- 
rectors, managers,  or  trustees  tliereof, 
with  the  approval  of  the  stockholders," 
may  "  invest  the  surplus  or  other  funds 
or  earnings  of  such  companies  in  .  .  .; 
good  stocks  or  securities  and"  may 
"  sell  and  transfer  the  same,  and  "  may 
"  reinvest  the  proceeds  of  such  sales  in 
.  .  .  stocks  of  like  kind  and "  may 
"  prescribe,  by  resolution  of  the  direct- 
ors, or  the  bylaws  of  the  company,  or 
otherwise,  the  mode  of  making  such  in- 
vestments, purchases  and  sales,  with  the 
approval  of  the  stockholders." 

Laws  1901,  p.  62,  Act  No.  28  :  "  Any 
railroad  or  other  transportation  corpo- 
ration, of  this  Commonwealth,"  may 
"from  time  to  time  .  .  .  acquire,  own 
and  hold,  pledge,  sell  or  otherwise  dis- 
pose of,  the  stock  .  .  .  and  guarantee 
the  stock  ...  of  any  other  corporation 
of  this  Commonwealth  or  elsewhere, 
engaged  in  the  business  of  transporta- 
tion, either  on  land  or  water,  and  also 
of  any  other  warehouse,  storage  ele- 
vator or  terminal  company,  whose  busi- 
ness is  incidental  to  tlie  business  of 
transportation  in  which  the  purchasing 
or  guaranteeing  corporation  shall  be 
authorized  to  engage." 

For  other  Pennsylvania  statutes  au- 
thorizing the  purchase  of  stock  by  rail- 
road companies  see  Briglit.  Purd.  Dig. 
1894,  §§  156,  167,  168  and  182.  For 
provisions  relating  to  tlie  purchase  of 
stock  by  manufacturing  or  water  com- 
panies, see  Gen.  Laws  1894,  ch.  5,  §  44. 
For  provisions  authorizing  corporate 
purchase  of  stock  of  iron  and  steel  com- 
panies, see  ib.  title  "  Iron  and  Steel 
Companies,"  §  7.  See  also  ib.  ch.  15, 
§  129,  for  provisions  as  to  stock  of  a 
particular  steamship  company. 

South  Carolina.  Laws  1894,  p.  812; 
"  No  corporation  .  .  .  owning  or  oper- 

393 


§271 


INTERCORPOHATE   RELATIONS. 


[part  IV. 


consolidation   of   companies  owning,  and   the    purchase  and 
lease  of,  continuous  lines  of  railroad,  are  all  indicative  of  the 


ating  .  .  .  any  railroad  lying,  in  whole 
or  iu  part,  within  this  State,  or  owning 
...  a  majority  of  the  stock  of  the  cor- 
poration owning  or  controlling  .  .  .  any 
such  railroad,  shall  own  or  bo  interested 
in  the  stock  of  any  corporation  char- 
tered by  liiis  State  which  owns  or  leases 
.  .  .  any  railroad  whicli  competes  .  .  . 
witli  "  sucii  other  railroad. 

R.  S.  18'J3,  §  1624  :  "  Railroad  com- 
panies ...  of  this  St.atc  may  .  .  .  pur- 
chase and  hold  the  stock  ...  of  other 
railroad  companies  chartered  by  or 
wliose  roads  are  authorized  to  extend 
into  this  State.  .  .  .  And  any  railroad 
corporation  ...  of  this  State  may 
guarantee  the  stocks  and  bonds  ...  of 
any  otiier  railroad  corporation,  when- 
ever tlie  roads  of  such  corporations  shall 
connect  witli  each  other,  or  sliall  form 
a  continuous  line,  directly  or  by  means 
of  any  connecting  railroad,  or  by  steam- 
boat line  .  .  .  U|)on  such  terms  and 
conditions  .xs  may  be  agreed  upon  by 
the  stocklioKlers." 

South  Dakota.  R.  S.  1901,  §3906, 
authorizes  a  railroatl  company  to  sub- 
scribe for  .stock  in  aid  of  the  construc- 
tion of  another  railroad. 

Texas.  Sayles'  Civil  Stat.  ch.  16  a, 
§  744i:  "  Railway  companies  existing 
under  the  laws  of  tiiis  State  .  .  .  and 
railway  companies  ...  of  the  United 
States,  are  authorized  ...  to  subscribe 
to  the  stock  and  purchase  and  own  stock 
...  of  any  depot  company  formed 
under  authority  of  this  chapter." 

Utah.  Laws  1901,  ch.  26,  p.  22, 
confer  general  power  upon  railroad 
companies  to  purchase,  or  otiierwise 
lawfully  acquire,  the  stock  of  other 
railroad  companies. 

Vermont.  Stat.  1894,  §  3758  :"  No 
railroad  company  shall  subscribe  for, 
take,  or  hold,  directly  or  indirectly, 
stock  ...  of  a  railroad  corporation  or- 
ganized under  this  chapter,  unless 
specially  authorized  by  the  general 
assembly." 

Virginia.  Code  1887,  ch.  46,  §1070: 

394 


.  .  .  "  One  company  shall  not  subscribe 
to,  purchase  or  otherwise  acquire  the 
stock  of  another  company  unless  spe- 
cially authorized  by  act  of  legishature, 
or  by  terms  of  decree  of  court,  or  order  of 
the  judge  incorporating  the  company 
or  amending  the  charter  thereof.  If 
any  company  shall  acquire  stock  in  any 
other  company  contrary  to  the  provi- 
sions of  this  section,  it  shall  not  be  law- 
ful for  it  to  vote  such  stock  in  any  general 
or  special  meeting  of  stocklioldcrs." 

lb.  §  1071  :  "The  preceding  section 
shall  not  prevent  a  company  from  re- 
ceiving stocks  ...  in  satisfaction  of 
any  judgment,  order,  or  decree,  or  as 
collateral  security  for,  or  in  payment  of, 
any  debt,  or  from  purchasing  stocks 
.  .  .  at  any  sale  made  for  its  benefit." 

Wasltiiv/ton.  liailinger's  Codes  &. 
Stat.  1897,"  §  4311  :  "  It  siiail  be  lawful 
for  any  corporation  ...  of  tiie  Terri- 
tory or  State  of  Washington  or  ...  of 
any  other  State  or  Territory,  or  .  .  . 
of  the  United  States,  owning,  lea.sing  or 
operating  any  line  or  lines  of  railway 
within  the  State  of  Washington  ...  to 
take,  acquire,  own,  negotiate,  sell  .  .  . 
stocks  of  companies  or  corporations 
wiiich  are,  or  may  hereafter  be,  organ- 
ized for  the  purpose  of  irrigating  and 
reclaiming  lands  witliin  tliis  State." 

lb.  §  4267,  authorizes  Washington 
corporations  incorporated  before  June 
1,  1862,  to  purchase  and  deal  in  stocks. 

West  Virginia.  Code  1899,  ch.  52, 
p.  538  (Gen.  Corp.  Law),  §3:  "No 
corporation  shall  .  .  .  subscribe  for  or 
purchase  the  stocks  ...  of  any  joint 
stock  company." 

lb.  §  4  :  "  Any  manufacturing  com- 
pany may  with  the  assent  of  the  holders 
of  two-tliirds  of  its  stock,  .  .  .  subscribe 
for  or  purchase  the  stock  ...  of  any 
corporation  formed  for  the  purpose  of 
manufacturing  .  .  .  any  articles  or  ma- 
terials manufactured  .  .  .  by  such  joint 
stock  company,  or  constructing  a  rail- 
road .  .  .  through  or  into  the  county 
in  whicli  the  principal  place  of  business 


CHAP.    XXV.]     POWER   OF   CORPORATION   TO   HOLD   STOCK.      §  272 

policy  of  affording  facilities  for  the  uniting  of  short  con- 
necting roads  into  the  through  line. 

The  policy  of  the  States,  in  general,  as  indicated,  positively, 
in  their  legislative  enactments,  and  negatively,  in  their  failure 
to  grant  authority  at  all,  is  clearly  opposed  to  unlimited  cor- 
porate stockholding.  New  Jersey  and  Delaware,  however, 
are  conspicuous  exceptions  to  the  rule.  In  these  States,  the 
broadest  possible  power  is  conferred  upon  domestic  corpora- 
tions to  "  purchase,  hold,  sell,  assign,  transfer,  mortgage, 
pledge  or  otherwise  dispose  of"  the  shares  of  foreign  and 
domestic  corporations  and  "  to  exercise  all  rights,  powers 
and  privileges  of  ownership,  including  the  right  to  vote 
thereon." 

A  policy  for  revenue  only  in  the  grant  of  charters  is  not 
productive  of  limitations  upon  corporate  powers.  When  an 
American  Commonwealth  goes  into  the  business  of  selling 
privileges  and  immunities,  it  must  make  its  offerings  attractive. 
But  how  far  these  privileges  will  be  recognized  in  other  States 
is  quite  a  different  question. 

§  272.  Power  to  subscribe  for  Stock  in  Foreign  Corporations. 
—  The  principle  has  been  laid  down  that,  conceding  that  cor- 
porations may  subscribe  for  stock  in  other  corporations  of 

of  such  joint  stock  company  may  be,  or  roads  or  in  companies  to  which   they 

operating  a  railroad  or  other  work  of  have  furnished  aid  for  the  construction 

internal  improvement."     Any  corpora-  of  their  roads. 

tion  may  take  stocks  in  payment  of  a'         Stat.  1898,  §  1862  a,  authorizes  street 

debt  owing  it,  etc.  railway  companies  to  purchase  and  take 

lb.    ch.   53,  §  3,  p.  544  (stock  com-  the  stock  of  other  street  railway  or  any 

pany  law),  is  the  same  as  §  4,  ch.  52,  electrical  companies. 
supra.  Wyoviing.     R.  S.  1899,  §  3040  (Gen. 

As  to  subscriptions  to  stock  of  bridge  Corp.  Law) :  "  It  shall  not  be  lawful  for 

companies,  see  ib.  ch.  44,  §  22.  such  company  to  use  any  of  its  funds  in 

Wisconsin.    R.  S.  1889,  ch.36,§  1775,  the  purchase  of  any  stock  in  any  other 

authorizes   certain   classes   of  corpora-  company  .  .  .  ;  provided,  however,  such 

tions   to   purchase   and    hold   stock    in  company  may,  in  its  di.scretiou. purchase, 

other  corporations  of  the  same  or  si  mi-  hold  and  own  any  stock,  and  to  any 

lar  nature  "  upon  the  assent  of  the  hold-  amount,  in  any  other  company  tliat  is  or 

ers  of  tiiree-fourths  of  the  capital  stock  may  be  subsidiary  or  tributary  to,  and 

of  both  the   corporation   proposing   to  that  does  contribute  to  the  objects  and 

take  such  stock  and  the  corporation  in  purposes  of  the  first  company  in  this 

which  it  is  proposed  to  betaken."   Laws  proviso  mentioned." 
1899,  ch.   191,  amending   §  1833,  Stat.  Ib.  §§  3205  and  3206,  authorize  rail- 

1808,  authorizes  the  purchase,  by  rail-  road  companies  to  subscribe  for  stock  in 

road  companies,  of  stock  in  connecting  aid  of  the  construction  of  other  roads. 

395 


§  272 


INTERCORPORATE  RELATIONS, 


[part  IV. 


the  same  nature  governed  by  the  same  laws,  such  power  can- 
not be  exercised  where  the  two  corporations  exist  under  dif- 
ferent laws  of  different  States,  and  where  the  law  governing 
the  corporation  in  which  stock  is  taken  fails  to  impose  liabil- 
ities and  create  obligations  imposed  upon  the  subscribing 
corporation.^ 

The  distinction,  however,  cannot  stand  the  test  of  analysis. 
Conceding  an  incidental  power  to  subscribe  for  stock  concedes 
a  power  which  cannot  exist.  If  such  an  express  power  exists, 
the  question  whether  it  is  broad  enough  to  permit  a  subscrip- 
tion lor  stock  in  a  foreign  corporation  is  entirely  a  question 
of  the  construction  of  the  particular  statute.  The  argument 
that  a  subscrijjtion  for  stock  in  a  foreign  corporation  is  ultra 
vires  because  the  subscribing  corporation  thereby  incurs  less 


1  Merz  Capsule  Co.  v.  U.  S.  C.ip- 
sule  Co.,  67  Foil.  417  (1893),  {affirmed 
sub  nom.  Mi-Cutclieoii  v.  Merz  Cap- 
sule Co.,  71  Fed.  787  (18"JG)):  "The 
general  rule  may  be  stated  to  he  that 
it  13  incompetent  for  a  corporation  to 
subscribe  for  stock  in  another  corpora- 
tion. It  must  be  acknowledged  that 
there  are  exceptions  to  this  rule, 
founded  upon  a  variety  of  peculiar 
circumstances,  which  it  is  not  neces- 
sary liere  to  enumerate.  I  am  unable 
to  discover  any  ground  upon  which 
this  case  can  bo  held  within  any  of 
such  exemptions.  But,  however  this 
may  be,  if  the  corporation  in  which 
the  stock  is  taken  is  a  domestic  one, 
and  subject  to  the  same  laws  and 
dominion  as  the  one  taking  such  stock, 
or  where,  if  the  corporations  are 
organized  in  different  States,  they  are 
subject  to  regulations  of  a  substantially 
identical  character,  my  opinion  is  that 
where,  as  in  this  case,  the  law  of  the 
corporation  in  which  the  stock  is  taken 
is  of  a  substantially  different  character, 
and  fails  to  impose  the  liabilities  and 
create  the  obligations  imposed  by  the 
law  of  the  corporation  subscribing  for 
the  stock,  such  subscriptions  are  u/trn 
jvV^s  of  the  latter  corporation,  and  are 
illegal  and  void.     The  laws  of  Michi- 

396 


gan,  under  which  the  complainant  is 
incorporated,  impose  restrictions,  duties, 
and  obligatiiins  upon  it  of  a  cliaracter 
which  indicate  the  purpose  and  j)olicy 
of  tlie  laws  of  the  State  of  Michigan 
in  providing  for  its  incorporation.  I 
shall  not  go  into  details  iu  respect  to 
those  provisions.  They  are  sufficiently 
obvious  upon  an  inspection  of  the 
statute.  The  general  fact  is  sufficient 
for  tlie  present  purpose.  They  are 
safeguards  erected  by  the  State,  and 
constitute  the  bounds  and  conditinns  of 
corporate  action.  It  is  quite  clear  that 
the  laws  of  New  Jersey  fail  to  make 
any  of  those  conditions  effectual  or 
obligatory  upon  corporations  organized 
thereunder,  either  in  the  original  incor- 
poration or  in  corporate  action  :  and  it 
is  clear  that  tlie  statutorv  regulations, 
in  that  regard,  of  the  State  of  New 
Jersey,  do  not  respond  to  what,  by  the 
laws  of  Michigan,  is  deemed  essential. 
By  the  agreement  in  question  the 
Michigan  corporation  conveys  substan- 
tially its  entire  assets  to  the  New  Jersey 
corporation,  abandons  its  business  as  a 
proprietor  thereof,  and  becomes  practi- 
cally a  mere  employee  of  the  New  Jersey 
corporation,  and  subject  to  its  dominion 
and  control." 


CHAP.    XXV.]     POWER   OF   CORPORATION   TO   HOLD   STOCK.      §  273 

liabilities  than  in  the  case  of  a  subscription  to  a  domestic 
corporation,  is  not  convincing. 

The  question  whether  the  transaction  is  an  unlawful  com- 
bination depends  upon  considerations  of  public  policy  and  not 
upon  the  powers  of  the  corporations. ^ 

§  273.  Construction  of  Statutes,  —  Statutes  authorizing  cor- 
porations to  acquire  and  hold  the  shares  of  other  corporations 
constitute  grants  of  power  and  require  a  reasonably  strict 
construction. 

Power  conferred  upon  a  corporation  to  "  invest "  its  money 
in  stocks  does  not  authorize  it  to  subscribe  for  stock  in  a  pro- 
jected corporation ;  ^  and,  conversely,  authority  to  subscribe 
does  not  confer  power  to  purchase.^  Upon  similar  principles, 
a  statute*  authorizing  a  railroad  company  to  aid  another  in 
the  construction  of  its  road,  by  subscribing  for  its  stock,  does 
not  authorize  the  purchase  of  the  stock  of  a  completed  road.^ 

A  statute  ^  authorizing  a  railroad  company  to  purchase  the 
stock  of  another  railroad  corporation,  of  which  it  is  lessee, 
does  not  restrict  the  application  of  a  general  statute  ^  author- 
izing corporations,  including  railroad  companies,  to  purchase 
and  hold  stock  in  other  corporations  engaged  in  a  similar 
business.^ 

Authority  to  organize  corporations  "  for  any  lawful  pur- 
pose," contained  in  a  general  incorporation  act,  has  been  held 
not  to  authorize  the  formation  of  a  corporation  for  the  express 
purpose  of  acquiring  and  holding  stock  in  other  corporations.^ 

1  See  post,  Part  V.  :   "  Combinations  conferring  power  to  subscribe  for  and 

of  Corporations."  hold  shares  in  such   company.     Whit- 

-  In    Commercial   Fire   Ins.    Co.   v.  man  v.  Watkin  (Ch.),  78  Law  T.  Rep. 

Montgomery  County,  99  Ala.  1  (1891),  188  (1897). 
(14  So.  Rep.  490,  42  Am.  St.  Rep.  17),         *  O/iio  Rev.  St.  §  3300. 
it  was  held  that  the  provision  of   the         ^  Columbus,  etc.    R.   Co.    v.   Burke 

Alabama    Code   (Code  1886,    §    J  535),  (Com.   PI.),   19   Weekly  Law  Bull.  27 

authorizing      incorporated      insurance  (1887).     Compare    Baltimore    v.    Balti- 

compacies  to  "invest  their  money  in  more,  etc.  R.  Co.,  21  Md.  50  (1863). 
real  and  personal  property,  stocks,  or  ^  i^ew  York  Laws  1890,  ch.  565. 
choses   in   action,"    did   not    authorize         ''  New    York   Laws    1890,   ch.    564, 

such  a  company  to  subscribe  for  stock  Art.  3,  §  40. 
in  a  corporation  in  process  of  formation.         ^  Oelbermann  v.  New  York,  etc.  R. 

"  A   purchase   by  one  railroad  cor-  Co.,  77  Hun  (N.  Y.),  332    (1894),   (29 

poration  of  shares  in  another  company  N.  Y.  Supp.  545). 
is  not  authorized  by  a  charter  provision         9  People  v.  Chicago  Gas  Trust  Co., 

397 


§273 


INTERCORPORATE   RELATIONS. 


[part  IV. 


On  the  other  hand,  a  provision  in  the  California  Civil  Code  * 
authorizing  the  organization  of  private  corporations  "  for  any 
purpose  for  which  individuals  may  lawfully  associate  them- 
selves "  has  been  held  to  permit  the  formation  of  a  corj)ora- 
tion  for  the  specific  purpose  of  purchasing,  holding  and  selling 
stock  in  other  companies.^ 

A  statute  authorizing  one  corporation  to  subscribe  for  or 
purchase  stock  in  another  corporation  may  be  so  construed  as 
to  make  good  a  prior  unauthorized  acquisition.^ 

Authority  in  the  charter  of  a  banking  corj)oration  "  to  pur- 
chase securities  of  any  kind"  does  not  authorize  the  purchase 
of  shares  of  other  corporations.* 

A  statute  authorizing  a  manufacturing  corporation  to 
acquire  stock  in  other  corporations  with  which  it  transacts 
business,  does  not  authorize  the  purchase  of  the  shares  of  an 
insolvent  rival  corporation  which  has  ceased  to  transact 
business,  for  the  purpose  of  obtaining  its  patronage.^ 


130  111.  268  (1889),  (22  N.  E.  Rep.  798, 
17  Am.  St.  Kep.  319). 

1  California  Civil  Code  §  286. 

2  Market  St.  U.  Co.,  v.  Hellman, 
109  Cal.  571  (1895),  (42  Fac.  Rep.  225). 
In  this  case  the  Court  said  (p.  590)  : 
"  It  is  beyoud  rontroversy  that  iudivid- 
uals  may  lawfully  associate  themselves 
for  the  purpose  of  purchasing,  selling, 
and  dealing  in  all  kinds  of  putdic  and 
private  stocks,  bonds,  and  securities. 
The  Pacific  Improvement  Company, 
having  been  organized  for  exactly  that 
purpose,  it  is  intra  vires  to  purchase,  hold 
aud  sell  stock  in  other  corporations." 

8  In  re  Buffalo,  etc.  R.  Co.,  74  N.  Y. 
St.  Rep.  345  (18U6),  37  N.  Y.  Supp. 
(1048). 

*  Bank  of  Commerce  v.  Ilart,  37 
Neb.  201  (1893),  (55  N.  W.  Rep.  631): 
"  But  there  is  no  provision  in  the  bank's 
charter  which,  by  any  reasonable  con- 
struction, can  be  construed  into  an 
authority  to  purchase  and  hold  stocks 
of  any  other  corporation.  True,  it 
says  'to  purchase  securities  of  any 
kind,'  but  certificates  of  stock  are  not 
securities  within  the  meaning  of  this 
provision,  nor  such  as  the  word  imports 

398 


in  commprcial  or  banking  phraseology. 
'  Securities,'  as  here  used,  mean  notes, 
bills  of  exch.ange,  and  bonds ;  in  other 
words,  evidences  of  debt,  promises  to 
pay  money." 

Compare  Latimer  v.  Citizens  Stat. 
Bank,  102  Iowa,  162  (1897),  (71  N.  W. 
Kep.  225). 

''  I)e  la  Vergne  Refrigor.ating 
Mnch.  Co.  V.  German  Sav.  Inst.,  175 
U.  S.  40  (1899),  (20  Sup.  Ct.  Rep.  20). 

Partnership  associations  organized 
under  the  laws  of  Pennsylvania  may 
own  stock  in  corporations.  Layng  v. 
French  Spring  Co.,  149  Pa.  St.  308 
(1892),  (24  Atl.  Rep.  215);  Carter  v. 
Producers,  etc.  Oil  Co.  (Com.  PI.), 
24  Pittsh.  Leg.  J.  (n.  s.)  380  (1894). 

For  construction  of  Kansas  statutes 
relating  to  the  purchase  of  stock  by 
railroad  companies  see  Atchison,  etc. 
R.  Co.  V.  Fletcher,  35  Kan.  236  (1886), 
( 10  Pac.  Rep.  596) ;  Atchison,  etc.  R.  Co. 
r.  Cochran,  43  Kan.  225  (1890),  (23  Pac- 
Rep.  151,  7  L.  R.  A.  414);  Atchison, 
etc.  R.  Co.  V.  Davis,  34  Kan.  209 
(1885),  (8  Pac.  Rep.  530).  See  also 
Kimball  r.  Atchison,  etc.  R.  Co.,  46  Fed. 
888  (1891). 


CHAP.    XXV.]     POWER    OF    CORPORATION   TO    HOLD    STOCK.      §  274 

§  274.  Construction  of  Constitutional  Prohibitions.  —  The 
holdinf^  of  stock  in  other  corporations  is  beyond  the  powers 
of  a  corporation,  in  the  absence  of  statutory  authority.  The 
holding  of  stock  in  other  companies,  in  order  to  defeat  compe- 
tition, is  opposed  to  public  policy.  Constitutional  prohibitions 
of  purchases  for  such  a  purpose  are,  therefore,  unnecessary, 
except  as  imposing  limitations  upon  the  power  of  the  legis- 
lature to  grant  authority.  Such  provisions  have,  however, 
been  adopted  in  several  States  and  have  been  construed  by 
the  courts. 

The  provision  in  the  Pennsylvania  constitution  ^  that  "  no 
railroad,  canal  or  other  corporation  .  .  .  shall  ...  in  any 
way  control  any  other  railroad  or  canal  corporation  owning, 
or  having  under  its  control,  any  parallel  or  competing  line  " 
is  violated  by  an  arrangement  made  by  a  railroad  company  to 
buy  the  stock  of  a  competing  line.  Ownership  of  a  majority 
of  its  stock  constitutes  the  "  control "  of  a  corporation,  within 
the  meaning  of  the  provision.^ 

The  prohibition  in  the  Georgia  constitution  ^  against  the 
purchase  by  one  corporation  of  the  stock  of  any  other  corpo- 
ration, tending  to  defeat  or  lessen  competition  or  encourage 
monopoly,  cannot  be  evaded  by  indirection ;  and  the  fact  that 
stock  in  a  competing  corporation  is  obtained  in  the  name  of 
its  managers,  but  for  the  use  of  a  corporation,  will  not  pre- 
vent the  application  of  the  constitutional  provision.* 

The  holding,  by  a  railroad  corporation,  of  a  controlling  in- 
terest in  the  stock  of  a  coal  mining  company  is  not  in  contra- 

1  Pennsylvania  Const.  Art.  XVII.  §  4.  the  road."  The  Pennsylvania  Court, 
See  ante,  §  32,  note.  however,    said    that   this   remark    was 

2  Pennsylvania  R.  Co.  v.  Common  merely  a  different  way  of  stating  the 
wealth  (Pa.  1886),  (7  Atl.  Rep.  371).  truism  that  a  corporation  is  controlled 
In  this  case  the  purchasing  corporation  by  its  stockholders. 

claimed   that  an   arrangement   to   buy         *  Georgia  Const.  Art.  IV.  §  2,  par.  4. 

stock  did  not  violate  this  constitutional  See  ante,  §  32,  note. 
provision,  relying  upon  the  remark  of         *  Laagdon   v.  Branch,  37  Fed.    449 

Chief  Justice  Waite  in  Pullman  Palace  (1888).     See  also  as  to  construction  of 

Car  Co.  V.  Missouri  Pacific  R.  Co.,  115  Georgia  constitutional  provision,  Truyt 

U.  S.  597  (1885),  (6  Sup.  Ct.  Rep.  199),  Co.  v.  State,  109  Ga.  736  (1900),  (35  S.  K. 

in    speaking   of   a  stockholding    road  :  Rep.  323)  ;  State  v.  Central  R.,  etc.  Co., 

"Practically   it   may  control   the  com-  109  Ga.  716  (1900),  (35  S.  E.  Rep.  37). 
panv,  but  the  company  alone  controls 

399 


§  275  INTERCORPORATE   RELATIONS.  [PART   IV. 

vention  of  another  provision  of  the  Pennsylvania  constitution  * 
that  common  carriers  shall  not  engage  in  mining,  or  in  manu- 
facturint^  articles  for  transportation  over  their  lines.^ 

A  California  constitutional  provision  forbids  a  corporation 
to  engage  in  any  business  other  than  that  expressly  authorized 
by  its  charter  or  the  law  under  which  it  is  organized.^  It  is 
held  that  a  corporation,  by  acquiring  stock  in  another  corpo- 
ration, becomes  engaged  in  the  business  of  that  corporation 
within  the  meaning  of  the  prohibition.* 

III.   Incidental  Poiver  to  acquire  Stock. 

§  275.  In  General.  —  An  incidental  power  is  one  that  is 
directly  and  immediately  appropriate  to  the  execution  of  a 
specific  power  granted,  and  not  one  that  has  a  slight  or 
remote  relation  to  it.-^  When  the  purchase  of  stock  in  an- 
other corporation  is  reasonably  necessary  to  the  full  and 
complete  exercise  of  the  express  powers  of  a  corporation, 
power  to  make  such    purchase  will    be  implied.^     Whether 

^  Pennsylvania  Const.  Art.  XVII.  §  5.  porations   subscribed  a  sum  of   money 

2  Hartwcll  r.  Buffalo,  etc.    II.   Co.,  payable  to  a  railroad  company  to  induce 

19  Pa.  Co.  Ct.  231  (1897).  it  to  extend  its  line    near   their   prop- 

8  California  Const.  Art.  XII.  §  9.  erty   which   would   enchance  its  value. 

*  Knowles   v.   Sandercock,    107  Cal.  Regarding   the    defence   of   ultra   vires 

629  (1895),  (40  Pac.  Rep.  1047).  to    an    action    upon    the   subscriptrons 

°  Hood  V.  New  York,  etc.  R.  Co.,  22  the  Court  said  :  "  The  building  of  the 

Conn.     16     (1852);     Franklin     Co.    v.  road    was   calculated,    however,   to   be 

Lewiston  Sav.  Inst.,  68  Me.  43  (1877);  highly    beneficial    to     them,    both    as 

People  V.  Chicago  Gas  Trust  Co.,  130  furnishing   convenient   access  to  them 

111.  268  (1889),  (22  N.  E.  Rep.  798,  17  for  persons  coming  and  going,  and  also 

Am.  St.  Rep.  319).  in  furnishing  them  a  means  of  obtain- 

6  Marbury  v.  Kentucky  Union  Land  ing   their   supplies,  and   sending   their 

Co.,  62  Fed.  335  (1894),  affirmiiu]  s.  c.  product  to  market.     It  was   calculated 

sub  nom.  Tod  v.  Kentucky  Union  Land  to,  and  undoubtedly  diil,  add  greatly  to 

Co.,  57    Fed.  47  (1893).     In  the  latter  the  value  of  their  properties,  and  the 

decision  the  Court  refers  at  length  to  large    industries   which    their   charters 

Louisville,  etc.  R.  Co.  v.  Literary  Society  had  authorized  them  to  create.     It  con- 

of  St.  Rose,  91  Ky.  395  (1891),  (15S.  W.  ferred    a    direct   benefit.     The   power 

Rep.    1065),  in  regard   to   the   implied  existed,  by  fair  implication,  to  do  any- 

poirers  of  a  corporation.    Inthatcasetwo  thing   reasonably  calculated  to  add  to 

educational  corporations,  having  power  this   value.     How   far   this   power    ex- 

to  contract  and  to  bay  and  sell  real  and  tended,  we  need  not  decide.     Certainly, 

personal   property  for   the   purpose   of  however,  if,   during   a   portion   of   the 

carrving  on  their  institutions  of  learn-  year,  these  institutions  had  been  almost 

ing,  owned  and  operated  large  farms  of  inaccessible,  for  the  lack  of  a  turnpike 

considerable  value.     Each  of  these  cor-  or  a  bridge,  a  subscription  by  them  to 

400 


CHAP.    XXV.]      POWER   OP   CORPORATION   TO    HOLD   STOCK.       §  276 

such  power  exists  in  a  particular  case  will  depend  upon  the 
nature  of  the  corporation  and  the  objects  for  which  the  stock 
is  to  be  acquired. 

Corporations,  like  insurance  companies,  which  find  it  neces- 
sary to  keep  large  amounts  of  funds  on  hand,  may,  perhaps, 
without  express  authority,  invest  their  surplus  funds  in  the 
shares  of  dividend-paying  corporations,  while  such  a  power 
would  be  denied  a  manufacturing  company,  in  whose  nature 
there  is  nothing  which  renders  it  proper  to  accumulate  funds 
for  outside  investments.^  But  a  manufacturing  corporation, 
while  without  power  to  purchase  shares  in  another  corpora- 
tion, might  take  them  in  payment  of  a  debt.^ 

While  an  incidental  power  to  invest  funds  in  stocks  may 
be  implied  in  the  case  of  a  certain  class  of  corporations,  and 
a  like  power  may  be  implied  in  the  case  of  other  corporations 
to  take  stocks  in  regular  course  of  business,  no  such  power 
can  ever  be  implied  to  subscribe  for  shares  in  a  new  corpora- 
tion and  aid  in  the  creation  of  a  new  enterprise.^ 

§  276.  Incidental  Power  to  make  Investments  in  Stocks.  — 
Corporations  whose  objects  require  the  investment  of  their 
capital  and  surplus  funds  for  the  purpose  of  deriving  an  in- 
come may,  it  is  held,  for  that  purpose,  without  express 
statutory  authority,  invest  in  the  shares  of  other  dividend- 
paying  corporations.*     Thus,  in  Hodges  v.  New  England  Screw 


build   either   would    h.ive    been   valid ;  ^  Smith    v.    Newark,    etc.    R.    Co., 

aud,  wliile  not  authorized  to  enter  into  8  Ohio  Cir.  Ct.  Rep.  .583   (1894). 

any  manner  of  speculations,  yet,  in  our  *  Hodges   v.   New    England    Screw 

opinion,  a  subscription  by  them  to  aid  Co.,  1  R.  I.  312  (1850),  (53  Am.  Dec. 

tlie  buihling  of  this  road  was  not,  under  624) ;  s.  c.  3  R.  I.  9  (1853) ;  Talmage  v. 

all   the   circumstances,  ultra  vires,  aud  Pell,  7  N.   Y.   343  (1852)  ;  Pearson  v. 

therefore  void."  Concord  R.  Corp.,  62  N.  H.  537   (1883). 

For  a  very  broad  view  of  incidental  In  the  last  case  the  Supreme  Court  of 

powers  in  reference  to  the  purchase  of  New   Hampshire  {per   Smith,   J.)    said 

stocks  see  Hill  v.  Nisbet,  100  lud.  349  (p.  549) :  "  Certain  classes  of  corpora- 

(1884).  tions,  such  as  religious  and  charitable 

^  People  V.  Chicago  Gas  Trust  Co.,  corporations,  and  corporations  for  liter- 

130  111.  268  (1889),  (22  N.  E.  Rep.  798,  ary  purposes,  may  rightfully  invest  their 

17  Am.  St.  Rep.  319).     See /)os/,  §  276:  moneys  in  the  stocks  of  other  corpora- 

"  Incidental  Power  to  make  Investments  tions.     The    power,   if    not    expressly 

in  Stocks."  mentioned   in   their  charters,  is  neces- 

2  Post,  §  277:  "Incidental  Power  to  sarily  implied,  for   the  preservation  of 

take  Stock  in  Satisfaction  of  Debt."  the  funds  with  which  such  institutions 

26  401 


§276 


INTERCORPORATE   RELATIONS. 


[part  IV. 


Co}  the  Supreme  Court  of  Rhode  Island  said  :  "  There  are  large 
classes  of  corporations  in  Rhode  Island,  and  the  other  States, 
which  may  and  do  rightfully  invest  their  capital  in  the  stock 
of  other  corporations  ;  such,  for  instance,  as  religious  and 
charitable  corporations,  and  corporations  for  literary  and 
scientific  purposes.  So,  insurance  companies  may  rightfully 
iuA'cst  their  capital  in  the  stock  of  other  corporations,  such 
as  banks  and  railroads,  and  the  like." 

No  such  incidental  power,  however,  exists  in  corporations 
generally,^  and  it  is  diflicult,  upon  principle,  to  justify  its 
existence  in  the  class  of  corj)orations  referred  to.^  Although 
such  corporations  have,  as  immediately  appropriate  to  the  ex- 
ercise of  their  chartered  powers,  the  right  to  invest  their 
funds  for  the  purpose  of  deriving  an  income,  the  field  for 
investment  is  so  large  that  it  may  well  be  denied  that  it  is 
reasonably  necessary  to  invest  in  the  shares  of  other  corpora- 
tions and  assume  the  responsibilities  of  stockholders  therein. 


are  endowed,  and  to  render  their  funds 
productive.  So,  an  insurance  cunipauy 
or  savings  bank  may  rightfully  invest 
its  ca])ital  or  deposits  iu  the  stocks  of 
railroad  companies,  banks,  manufactur- 
ing companies,  and  similar  cuii)uration3. 
The  power  is  necessary  to  enable  them 
to  engage  in  tlie  business  for  which 
they  are  organized,  and  hence  is  implied, 
if  not  expressly  granted,  iu  their 
charters.  Such  investments  are  in  the 
line  of  their  business.  On  the  other 
hand,  a  manufacturing  or  railroad 
corporatiou  i.s  incorporated  to  do  the 
business  of  manufacturing,  or  transport- 
ing passengers  and  merchandise.  In- 
vesting their  funds  in  that  of  other 
corporations  is  not  in  the  line  of  their 
business.  Under  extraordinary  cir- 
cumstances, it  may  become  necessary 
for  a  national  bank,  or  a  manufacturing 
corporation,  or  a  railroad  corporation, 
to  acquire  stock  in  another  corporation, 
as  in  satisfactiou  of  a  valid  debt,  or  by 
way  of  security,  but  with  a  view  to  its 
subse(iuent  sale  or  conversion  into 
money  so  as  to  make  good  or  redeem 
an  anticipated  loss." 

1  Hodges  V.    New    England    Screw 

402 


Co.,  1  R.  I.  347  (1850),  (53  Am.  Dec, 
624);  s.  C.  3  11.  I.  9  (1853). 

*  People  V.  Chicago  Gas  Trust  Co., 
130  111.  2G8  0889),  (22  N.  E.  Rep.  798 
17  Am.  St.  Rep.  319);  McCutcheon  v. 
Merz  Capsule  Co.,  71  Fed.  787  (1896); 
Pearson  v.  Concord  R.  Corp.,  62  N.  H. 
537  (1883).  See  also  cases  cited  in 
note  to  ante,  §  264 :  "  Necessiti/  for 
Statutory  Author  it  i/  to  purchase  Stock. 
Rule  in    United  States." 

The  decision  in  Smith  v.  Newark,  etc. 
R.  Co.,  8  Ohio  Cir.  Ct.  Rep.  583  (1894), 
that  a  railroad  company,  unless  pro- 
hibited, may  invest  in  the  dividend-pay- 
ing stocks  of  other  corporations,  has  no 
foundation  in  principle  or  authority. 

*  In  People  i'.  Chicago  Gas  Trust 
Co.,  130  111.  283  (1889),  (22  N.  E.  Rep. 
798,  17  Am.  St.  Rep.  319),  the  Court 
said :  "  Some  corporations,  like  insur- 
ance companies,  may  find  it  necessary 
to  keep  funds  in  hand  for  the  payment 
of  losses  by  death  or  fire,  or  to  meet 
other  necessary  demands,  but  it  is 
questionable  whether  even  these  can 
invest  their  surplus  funds  in  the  stocks 
of  other  corporations,  without  special 
legislative  authority." 


CHAP.    XXV.]      POWER   OF  CORPORATION   TO   HOLD   STOCK.      §  277 

The  importance  of  this  question  is,  however,  minimized  by 
the  fact  that,  at  the  present  time,  the  investments  of  savings 
banks,  insurance  companies  and  other  corporations  of  a  simi- 
lar nature  are  generally  regulated  by  statute. 

§  277.  Incidental  Po-wer  to  take  Stock  in  Satisfaction  cf 
Debt.  —  As  an  incident  to  the  power  to  transact  business, 
enter  into  contracts  and  become  a  creditor,  a  corporation  has 
the  power  to  do  what  is  necessary  in  order  to  collect  debts 
due  it,  and  may  take  title  to  all  kinds  of  property,  including 
the  stock  of  other  corporations,  in  payment  or  compromise 
of  a  debt.^  The  acquisition  of  stock,  for  such  purposes,  is 
directly  appropriate  to  the  execution  of  the  specific  powers 
conferred  upon  every  banking,  manufacturing  and  mercantile 
corporation. 

Shares  of  stock  may  be  so  taken  in  satisfaction  of  a  debt 
with  a  view  to  sell  them  again,  although  the  corporation  is 
without  authority  to  purchase  or  invest  its  funds  in  such 
shares.  In  Charlotte  First  National  Bank  v.  National  Exchange 
Bank"^  Mr.  Chief  Justice  Waite  said:  "Dealing  in  stocks  is 
not  expressly  prohibited ;  but  such  a  prohibition  is  implied 
from  the  failure  to  grant  the  power.  In  the  honest  exercise 
of  the  power  to  compromise  a  doubtful  debt  owing  to  a  bank, 
it  can  hardly  be  doubted  that  stocks  may  be  accepted  in  pay- 
ment and  satisfaction,  with  a  view  to  their  subsequent  sale 
or  conversion  into  money  so  as  to  make  good  or  reduce  an 
anticipated  loss.  Such  a  transaction  would  not  amount  to 
a  dealing  in  stocks." 

1  Charlotte  First  Nat.  Bank  v.  etc.  Metal  Co.,  supra,  the  statute  under 
National  Exch.  Bank,  92  U.  S.  122  which  the  corporation  was  organized 
(1875);  Citizens  State  Bank  v.  Haw-  (N.  Y.  Laws  1848,  ch.  40,  §  8)  pro- 
kins,  71  Fed.  3G9  (1896);  Holmes,  etc.  vided  that  "it  shall  not  be  lawful  for 
Mfg.  Co.  V.  Holmes,  etc.  Metal  Co.,  such  company  to  use  any  of  their  funds 
127  N.  Y.  252  (1891),  (27  N.  E.  Rep.  in  the  purchase  of  any  stock  in  any 
831,  24  Am.  St.  Rep.  448);  Talmage  other  corporation,"  but  it  was  held 
I'.  Pell,  7  N.  Y.  328  (1852);  People  v.  tliat  the  "funds"  referred  to  meant 
Chicago  Gas  Trust  Co.,  130  111.  268  the  money  of  the  corporation,  and 
(1889),  (22  N.  E.  Rep.  798,  17  Am.  that  the  statute  was  not  intended  to 
St.  Rep.  319);  Hodges  u.  New  England  limit  the  power  of  the  corporation  to 
Screw  Co.,  1  R.  I.  312  (1850),  3  R.  I.  take  stock  in  payment  of  a  debt. 
9  (18.53)";  Howe  v.  Boston  Carpet  Co.,  '■^  Charlotte  First  Nat.  Bunk  v. 
16  Gray  (Mass.)  493  (1860).  National   Exch.    Bank,    92   U.    S.    128 

In  Holmes,  etc.  Mfg.  Co.  v.  Holmes,  (1875). 

"    '     403 


§  278  INTERCORPORATE    RELATIONS.  [PART    IV. 

The  stock  must,  however,  be  taken,  in  good  faith,  in  satis- 
faction of  an  existing  debt,  and  such  incidental  power  cannot 
be  exercised  as  a  mere  device  to  cover  an  unauthorized  trans- 
action. Thus,  a  corporation  cannot,  without  statutory  author- 
ity, sell  goods  to  another  corporation  and  create  a  debt,  with 
an  express  understanding  that  it  is  to  be  satisfied  by  the 
delivery  of  stock  of  the  purchasing  corporation.^ 

Upon  principles  similar  to  those  just  stated,  a  corporation, 
in  compromising  a  contested  cWim  a[/ainst  it,  may  pay  a  larger 
sum  than  would  have  been  exacted  in  satisfaction  of  the 
claim,  in  order  to  obtain  a  transfer  of  stocks  in  other  corpora- 
tions in  the  bona  fide  belief  that,  by  turning  them  into  money 
under  more  favorable  circumstances,  it  may  diminish  its  loss.^ 

A  corporation  may  levy  upon  shares  of  stock  in  other  cor- 
porations held  by  its  debtor,  may  sell  the  same  upon  execution 
and,  if  necessary,  may  buy  them  in,  whenever  such  levy  and 
sale  would  be  permitted  in  the  case  of  a  natural  person.^ 

§  278.  Incidental  Power  to  take  Stock  as  Collateral.  —  For 
the  same  reason  that  corporations  possess  the  incidental  power 
to  take  the  stock  of  other  corporations  in  satisfaction  of  a 
debt,  they  have  the  power  to  accept  such  stock  as  security  for 
an  existing  indebtedness.'* 


^  Valley  R.  Co.  v.  Lake  Erie  Iron  change    for    property    which    it    was 

Co.,  46  Ohio  St.  44   (1888),  (18  N.  E.  authorized  to  sell.     Tliese  shares  were 

Rep.  486,  26  Ara.  &  Eng.  Corp.  Cas.  bb).  tangible  property,  and  as  no  limitations 

See  also  Charlotte  First  Nat.  Bauii  v.  were  imposed  by  its  articles  of  incor- 

National   Exch.   Bank,   92    U.   S.    122  poration  as  to  tlie  kind  of  property  it 

(1875).     Compare  Howe  »>.  Boston  Car-  shonld  take  in  payment  for  the  mer- 

pet  Co.,   16  Gray  (Mass.),  493  (1860);  chaudise  it  was  authorized   to  sell,  we 

Treadwell  v.  Salisbury  Mfg.  Co.,  7  Gray  think  it  had  power  to  accept  tlie  shares 

(Mass.),  393  (1856).  of  stock  in  payment." 

In  White  v.  Marqnadt  (Iowa,  1897),  The  distinction  is,  obviously,  without 

70  N.  W.  Rep.  193,  the  Supreme  Court  foundation.     It  is  impossible  to  distin- 

of  Iowa  held  that  while  a  corporation  guish  in  principle  between  buying  with 

might  not  buy  shares  in  another  corpo-  money  and  money's  worth, 

ration  it  could  take  them  in  exchange  "^  Charlotte  First  Nat.  Bank  v.  Na- 

for   goods.      The   Court   said:    "If   it  tional  Exch.  Bank,  92  U.  S.  122  (1875). 

had   purchased   the  stock   outright,  as  ^  Citizens   State  Bank  v.  Hawkins, 

a  piarely  business  venture,  it   may   be  71  Fed.  369  (1896). 

that  the  defence  here  interposed  would  *  California  Bank  v.  Kennedy,  167 

prevail.      But  this  it  did  not   do.      It  U.   S.   362   (1897),   (17    Sup.   Ct.    Rep. 

received  the    stock  while   carrying  on  831),  reversing  Kennedy   v.   California 

business  in  the  usual  manner,  in   ex-  Savings    Bank,    101    Cal.    495    (1894), 

404 


CHAP.  XXV.]      POWER    OF   COP.PORATIOX   TO    HOLD    STOCK.       §  278 

Upon  similar  principles,  a  corporation,  having  the  power  to 
loan  money,  may,  as  incidental  to  the  exercise  of  that  power, 
and  in  the  usual  course  of  business,  accept  the  stock  of  an- 
other corporation  as  collateral  security  for  a  present  loan, 
although  the  purchase  of  such  stock  for  investment  purposes 
or  otherwise  may  be  wholly  ultra  vires.  Taking  stock  as 
security  does  not  constitute  dealing  in  stocks.^ 

Corporations  acquiring  stock  as  collateral  have  all  the 
rights  of  natural  persons  to  make  the  security  available,  and, 
in  enforcing  their  rights  as  pledgees,  may  become  the  owners 
of  the  collateral.^ 


(35  Pac.  Rep.  1039,  40  Am.  St.  Rep. 
IG'J).  See  also  cases  cited  in  notes  to 
last  section. 

1  United  States  :  In  California  Bank 
V.  Kennedy,  167  U.  S.  366  (1897),  (17 
Sup.  Ct.  Rep.  831),  Justice  White  said  : 
"  It  is  well  settled  that  the  United  States 
statutes  relative  to  national  banks  con- 
stitute the  measure  of  the  authority  of 
such  corporations,  and  that  they  cannot 
riglitfully  exercise  any  powers  except 
those  expressly  granted,  or  which  are 
incidental  to  carrying  on  the  business 
for  which  they  are  established.  Logan- 
County  Bank  v.  Townsend,  139  U.  S. 
73  (1891),  (11  Sup.  Ct.  Rep.  496).  No 
express  power  to  acquire  the  stock  of 
another  corporation  is  conferred  upon 
a  national  bank,  but  it  has  been  held 
that,  as  incidental  to  the  power  to  loan 
money  on  personal  security,  a  bank  may, 
in  the  usual  course  of  doing  such  busi- 
ness, accept  stock  of  another  corporation 
as  collateral,  and,  by  the  enforcement  of 
its  rights  as  pledgee,  it  may  become  the 
owner  of  the  collateral  and  be  subject  to 
liability  as  other  stockholders.  National 
Bank  v.  Case,  99  U.  S.  628  (1878).  So, 
al.-o,  a  national  bank  may  be  conceded 
to  possess  the  incidental  power  of  ac- 
cepting in  good  f!\ith  stock  of  another 
corporation  as  security  for  a  previous 
indebtedness.  It  is  clear,  however,  that 
a  national  bank  does  not  possess  the 
])0wer  to  deal  in  stocks.  The  prohibi- 
tion is  implied  from  the  failure  to  grant 
tlic   power.     Charlotte  First  Nat.  Bank 


r.  National  E.xch.  Bank,  92  U.S.  128 
(1875)." 

See  also  Citizens  State  Bank  v. 
Hawkins,  71  Fed.  369  (1896);  County 
Court  V.  Baltimore,  etc.  R.  Co.,  35  Fed. 
161  (1888);  Shoemaker  v.  National 
Mech.  Bank,  1  Hughes,  101  (1869),  (21 
Fed.  Cas.  1331). 

Iowa :  Calumet  Paper  Co.  i'.  Stotts 
Invest.  Co.,  96  Iowa,  147  (1895),  (64 
N.  W.  Rep.  782). 

Minnesota:  Baldwin  v.  Canfield,  26 
Minn.  43  (1879),  (1  N.  W.  Rep.  261). 

New  York :  Talmage  v.  Pell,  7  N.  Y. 
328  (1852);  Milbauk  v.  New  York,  etc. 
R.  Co.,  64  How.  Pr.  20  (1882). 

Ohio :  Contra,  Franklin  Bank  v. 
Commercial  Bank,  36  Ohio  St.  350 
(18S1),  (38  Am.  Rep.  594). 

England:  Royal  Bank  of  India's 
Case,'L.  R.  4  Cli.  App.  252  (1869). 

2  California  Bank  v.  Kennedy,  167 
U.  S.  366  (1897),  (17  Sup.  Ct.  Rep. 
831);  National  Bank  v.  Case,  99  U.  S. 
628  (1878).  Latimer  v.  Citizens  State 
Bank,  102  Iowa,  16^2  (1897),  (71  N.  W. 
Rep.  225)  ;  Talmage  v.  Pell,  7  N.  Y. 
728  (1852).  In  the  Royal  Bank  of 
India's  Case,  L.  R.  4  Ch.  App.  252 
(1869),  it  was  said  that  the  bank  having 
advanced  money  upon  the  security  of 
certain  shares,  the  directors  were  justi- 
fied in  doing  "anything  which  was  a 
prudent  and  proper  act  for  them  to  do 
with  a  view  to  obtaining  the  benelit 
of  such  security." 

405 


§  279  INTERCORPORATE    RELATIONS.  [PART    IV. 

§  279.  Incidental  Power  to  acquire  Stock  in  Connection  with 
Consolidation  or  Purchase.  —  A  corporation  having  power  to 
consolidate  with  another,  may,  for  the  purpose  of  effecting 
consolidation,  purchase  the  stock  of  such  other  corporation 
whenever  such  purchase  is  reasonably  necessary  as  a  means 
to  that  end.  Power  to  make  such  purchase  will  be  implied 
from  the  broader  power  to  consolidate.^  In  Louisville  Trust 
Co.  V.  Louisville,  etc.  R.  Co?  Judge  Taft  said :  "  It  is  true 
that,  ordinarily,  one  corporation  has  no  power  to  acquire 
stock  in  another,  because  it  involves  the  investment  of  the 
corporate  funds  in  an  enterprise  over  which  the  corporate 
officers  have  no  control,  and  risks  them  in  a  business  which 
is  foreign  to  that  for  which  the  stockholders  advanced  their 
money.  But  it  has  been  decided  that  a  power  to  acquire 
stock  in  another  company  may  be  implied  from  the  power  to 
consolidate  with  such  company,  as  a  proper  step  towards  con- 
solidation, or  as  necessarily  included  in  the  grant  of  so  large 
a  power." 

It  is  clear  that  for  the  purpose  of  consolidating,  —  real  and 
not  assumed  —  power  to  purchase  stock  may  be  implied  from 
power  to  consolidate,  but  it  cannot  be  true  that  the  one  is 
"  necessarily  included  in  the  grant  of  "  the  other,  so  that  a 

1  Louisville  Trust  Co.  v.  Louisville,  last  cited   are    all    of    them    stronger 

etc.  R.  Co.,  75  Fed.  433  (1896) ;  Hill  v.  cases  than  the  one  at  bar,  for  in  all  of 

Nisbet,  100   Ind.  341   (1885);    Ryan  v.  them  tiie  courts  were  obliged   by  con- 

Leavenworth,  etc.  R.  Co.,  21  Kan.  365  struction  to  go  outside  and  permit  the 

(1879),    (19   Am.    Rep.    129);  Wall   v.  investment    of     the    property    of    the 

London,  etc.  Assets  Corp.,  2  Ch.  4G9  company  in   a   bu.siness   not   expressly 

(1898),  (67  L.  J.  Ch.  596,  79  L.  T.  (n.  8,)  authorized    by  the    charter.     Here   we 

249,  47  W.  R.  219).  keep  within  the  letter  of   the  cliarter 

A  land  company  empowered  to  form  for  here  the  company  has  the  right  to 

a  "  temporary  or  permanent  consolida-  embark  its  entire  capital  and  risk  it  all 

tion "   with   any    railway   company,  in  by  consolidation  with  a  railway   com- 

furtherance  of  its  general  powers  may  pany  in  the  business  of   building   and 

purchase   all    the   stock    of  a   railway  running  a  railroad,  and  we  only  hold 

compauy,  and  thereby  control  the  same,  that,   having    such   power,   it   has   the 

if  such  control  is  a  furtherance  of  the  right  to   do   less   than   that,  and   risk 

general  powers  of  the  land  company,  only  a  part  of  its  funds  by  lending  its 

Tod  v.  Kentucky  Union  Land  Co.,  57  credit  to  such  a  railway  company,  and 

Fed.  47  (1893),  q^r/necf  sub  nom.  Mar-  retaining  control  of  it  by  owning  its 

bury  V.  Kentucky  Union  Land  Co.,  62  entire  stock." 

Fed.  335  (1894),  where,  in  deciding  the         ^  Louisville  Trust  Co.  v.  Louisville, 

appeal,  Judge  Taft  said:   "The  cases  etc.  R.  Co.,  75  Fed.  445  (1896). 
406 


CHAP.    XXV.]     POWER  OF   CORPORATION   TO   HOLD   STOCK.      §  280 

corporation,  having  power  to  consolidate,  may  purchase  stock 
merely  for  the  purpose  of  obtaining  control.  As  said  by  the 
Supreme  Court  of  New  Jersey  in  Elkins  v.  Camden,  etc.  R. 
Co. :  1  "  Union  and  consolidation  of  two  railroad  companies 
are  one  thing,  and  the  purchase  by  one  company  of  the  prop- 
erty and  franchises  of  the  other,  is  another.  "What  the  de- 
fendant proposes  to  do  is,  not  to  unite  and  consolidate  with 
the  other  company,  but  to  purchase  the  means  of  controlling 
the  property  and  franchises  of  that  company.  .  .  .  The  trans- 
action under  consideration  must  be  regarded  as  an  agreement 
to  buy  stock  and  bonds.  .  .  .  As  such,  irrespective  of  the 
assumed  ulterior  object  in  the  purchase,  it  is  not  even  sug- 
gested that  it  is  legitimate." 

Upon  similar  principles,  a  corporation,  having  express  power 
to  purchase  tlie  property  and  franchises  of  another  corpora- 
tion, has,  as  an  incident  thereto,  power  to  purchase  the  stock 
of  such  corporation  for  the  purpose  of  thereby  acquiring  the 
property  and  franchises,  but  not  for  the  purpose  of  merely 
obtaining  an  interest  in  the  corporation  or  of  controlling  it.^ 

§  280.  Incidental  Power  to  take  Stock  upon  a  Reorganization. 
—  While  it  may  be  beyond  the  implied  powers  of  a  corpora- 
tion to  invest  its  funds  in  the  stock  of  another  corporation, 
yet  when  it  becomes  the  owner  of  bonds  of  another  company, 
which  undergoes  a  process  of  reorganization  involving  the 
issue  of  stock  in  a  new  company  in  place  of  the  bonds  of  the 
old,  the  former  corporation  has  implied  power  to  exchange 
its  bonds  for  stock.^    This  power  is  merely  a  variation  of  the 

1  Elkins  V.  Camden,  etc.  R.  Co.,  36  Co.,  91  Mich.  351  (1892),  (51  N.  W. 
N.  J.  Eq.  12  (1882).  Eep.  1063). 

2  It  has,  however,  been  held  that.  That  power  to  lease  another  com- 
nnder  a  Tennessee  statute  authorizing  pany's  railroad  may  include  power  to 
a  corporation  to  acquire,  by  purchase  or  buy  its  shares  was  held  in  Atchison, 
other  lawful  contract,  and  to  hold  the  etc.  R.  Co.  v.  Fletcher,  35  Kan.  247 
property  of   another   corporation   of  a  (1886),  (10  Pac.  Rep.  596). 

similar  kind,  such  a  corporation  might  8  Jq  Deposit  Bank  v.  Barrett,  11  Ky. 

purchase  the  majority  of   the  stock  of  Law.  Rep.  910  (1890),  (13  S.  W.   Rep. 

another  corporation  to  enable  it  to  con-  337),  the  Court  said  :  "  A  bank,  it  is  true, 

trol  it,  and   exercise   practical  owner-  has  no  power  to   invest  its   means  in 

ship  over  it.     Wehrhane  v.  Nashville,  railroads,  as  coming   within  the  scope 

etc.  R.  Co.,  4  N.  Y.  St.  Rep.  541  (1886).  of  its  powers  as  a  corporation.     It  may 

See  also  Dewey  v.  Toledo,  etc.  R.  accept  mortgages,  stock,  or  even  pur- 

407 


§281 


INTERCORPORATE   RELATIONS. 


[part   IV. 


incidental  power  to  take  stock  in  payment  or  compromise  of 
a  debt. 

§  281.  Incidental  Pow^er  to  take  Stock  in  Exchange  for  Cor- 
porate Assets.  —  Upon  principles  already  considered  at  Icnjjtli, 
a  corporation  has  no  implied  power  to  transfer  its  entire  j)r()p- 
erty  to  another  corporation  in  exchange  for  its  shares.  The 
acquisition  of  stock,  in  such  a  manner,  is  ultra  vires  and  an 
infringement  upon  the  rights  of  dissenting  stockholders.^ 


chase  the  roa<l  itself,  to  secnre  its  debts, 
aud  we  perceive  no  rciuson  why  the  bank 
conld  not  have  accepted  stock  iu  the 
new  company  iu  payment  of  what  was 
owing  by  tlie  old  company." 

1  See  an/e,  ch.  Il.subdiv.  II.:  "  Ex- 
chanqe  of  Propert:/  of  One  Corporationjbr 
Stock  of  Another,"  §§  118-122. 

In  the  precedin;^  part  of  this  treatise 
this  subject  is  considered  with  especial 
reference  to  the  ri.f;^hts  of  dissentient 
stockholders.  The  fullowinp  cases  are 
upon  the  point  that  a  transfer  of  cor- 
porate assets  for  stock  is  ultra  vires. 

In  Easun  v.  Buckeye  Brewing  Co., 
51  Fed.  l.'jf)  (1892),  an  Ohio  corporation 
—  a  solvent  concern  —  contracted  to  sell 
all  its  plant  and  assets  and  take  in  pay- 
ment stock  aud  bonds  of  another  corpo- 
ration to  be  reorganizeil  to  carry  on  the 
business.  It  was  held  that  the  contract 
was  ultra  vires  —  that  one  corporation 
could  not  become  the  owner  of  stock 
of  another  unless  expressly  authorized. 
The  Court  stated,  however,  that  an 
insolvent  corporation  might  make  such 
transfer  under  certain  circumstances. 
In  Byrne  v.  Schuyler  Electric  Mfg. 
Co.,  65  Conn.  336  (1895),  (31  Atl.  Rep. 
833),  an  insolvent  manufacturing  com- 
pany, without  express  authority,  trans- 
ferred all  its  property  to  another 
corporation,  receiving  in  return  shares 
of  the  latter  company.  This  was  done, 
not  for  the  purpose  of  winding  up  the 
company's  affairs  and  dividing  the  stock 
or  its  avails  among  the  stockholders, 
but  to  keep  the  insolvent  corporation 
alive  and  transact  business  through  the 
agency  of  another  corporation.  Held, 
that  the  transfer  was  ultra  vires  and  void. 

408 


Sec  also  McCutcheon  v.  Merz  Cap- 
sule Co.,  71  Fed.  787  (1896);  Mackin- 
tosh V.  Flint,  etc.  R.  Co.,  34  Fed.  583 
(1888)  ;  Taylor  i-.  Earle,  8  Ilun  (N.  V.), 
1  (1876);  i^oston,  etc.  R.  Co.  v.  New 
York,  etc.  R.  Co.,  13  R.  I.  260  (1881). 

In  l!(dmes,  etc.  Mfg.  Co.  v.  Holmes, 
etc.  Metal  Co.,  127  N.  Y.  252  (18S1), 
(27  N.  E.  Rep.  831),  the  New  York 
Court  of  Appeals,  although  deciding 
the  case  upon  other  grounds,  said  that, 
all  the  stockliolders  agreeing,  the  ques- 
tion whether  the  acquisition  of  stock  for 
corporate  property  was  ultra  vires  de- 
pended rather  upon  whether  it  was 
necessary  to  take  the  stock  in  the  exer- 
cise of  the  corporate  franchises  and 
transaction  of  tlie  corporate  business 
than  upon  the  question  whether  there 
was  an  intention  to  immediately  sell  it 
and  wind  up  the  company's  affairs. 
See  also  Howe  v.  Boston  Carpet  Co., 
16  Gray  (Mass.),  493  (1800.) 

la  Taylor  r.  North  Star  Gold  Mining 
Co.,  79  Cal.  285  (1889),  (21  Rac.  Rep. 
753),  where  a  mining  corporation  trans- 
ferred its  mine  for  stock  in  another  cor- 
poration, it  was  held  that  the  transaction 
could  not  be  collater.illy  attacked  as 
ultra  vires.  See  also  Wagner  v,  Marple, 
10  Tex.  Civ.  App.  505  (1895),  (31  S.  \V. 
Rep.  691). 

It  has  been  held  that  the  transfer 
of  corporate  assets  for  stock,  without 
specific  authority,  is  not  ultra  vires 
when  the  stock  is  "  taken  with  a  view 
to  sell  it  again  and  not  permanently 
to  hold  it."  Hodges  v.  New  England 
Screw  Co.,  1  R.  I.  347  (1850).  See  also 
Byrne  v.  Schuyler  Electric  Mfg.  Co., 
65    Conn.   336    (1895),    (31    Atl.    Rep. 


CHAP.    XXV.]      POWER   OF   CORPORATION   TO    HOLD    STOCK. 


282 


§  282.  Miscellaneous  Instances  of  Incidental  Pow^er  to 
acquire  Stock.  — It  has  been  held  that  a  corporation,  in  order 
to  borrow  money  for  use  in  its  business,  may  subscribe  for 
stock  in  a  building  and  loan  association.^  The  authorities, 
however,  are  not  uniform  as  to  the  existence  of  such  an 
incidental  power.^  The  primary  object  of  a  building  associa- 
tion is  to  enable  its  members  to  own  their  homes,  and  a 
subscription  by  a  corporation  to  such  an  association  would 
seem,  upon  principle,  to  be  ultra  vires  both  of  the  corporation 
and  the  association. 

A  manufacturing  corporation,  as  a  means  of  insuring  its 
property,  may  become  a  member  of  a  mutual  fire  insurance 
company.^  A  land  and  development  company,  having  power 
to  build  a  short  railroad  in  connection  with  the  development 
of  its  wild  lands,  may,  it  has  been  held,  subscribe  for  stock 
in  a  railroad  furnishing  access  to  such  lands.* 


833);  Easun  v.  Buckeye  Brewing  Co., 
51  Fed.  156  (1892)  ;  Buford  v.  Keokuk, 
etc.  E.  Co.,  3  Mo.  App.  1.59  (187G); 
Miner's  Ditch  Co.  v.  Zellerbach,  37 
Cal.  543  (1869).  But  this  does  not 
mean,  necessarily,  that  such  a  transfer, 
although  intra  vins,  is  eifective  against 
dissenting  stockholders.  The  conclusion 
that  a  corporation  has  power  does  not 
imply  that  a  majority  may  always  exer- 
cise it.  As  pointed  out  in  the  sections 
referred  to,  minority  stockholders  have 
the  right  to  insist  that  corporate  assets 
shall  be  sold,  not  exchanged,  when  the 
exigencies  of  the  corporation  require 
their  disposition. 

1  Union,  etc.  Ass'n  v.  Masonic  Hall 
Ass'n,  29  N.  J.  Eq.  389  (1878);  State 
V.  Rohlffs  (N.  J.  1890),  19  Atl.  Rep. 
1099;  Norwalk  Savings  Bank  Co.  v. 
Norwalli  Metal  Spinning,  etc.  Co.,  14 
Ohio  Cir.  Ct.  Rep.  1  (1897).  Compare 
Vv'ilson's  Case,  L.  R.  12  Eq.516  (1871)  ; 
Kadish  v.  Garden  City,  etc.  Ass'n,  151 
111.  531  (1894),  (38  N.  E.  Rep   .536). 

It  has  been  held  that  a  corporation 
which  becomes  a  stockholder  of,  and  a 
borrower  from,  a  building  and  loan  as- 
sociation, although  acting  beyond  its 
powers,  is  estopped  from  pleading  ultra 


vires  to  a  suit  to  enforce  the  security 
given.  Bowman  v.  Foster,  etc.  Co.,  94 
Fed.  592  (1899);  Blue  Rapids  Opera 
House  Co.  V.  Mercantile  Building,  etc. 
Ass'n  (Kan.  1898),  53  Pac.  Rep.  761. 

2  In  Mechanics,  etc.  Bank  v.  Meriden 
Agency  Co.,  24  Conn.  159  (1855),  a 
joint  stock  corporation  organized  "  to 
do  a  general  insurance  agency,  commis- 
sion  and  brokerage  business"  was  held 
to  have  no  power  to  subscribe  for  tlie 
stock  of  a  building  and  loan  association, 
and  the  loan  was  treated  as  if  made  to 
a  stranger. 

In  German  American,  etc.  Ass'n  v. 
Droge,  14  Ind.  App.  691  (1895),  (43 
N.  E.  Rep.  475),  it  was  held  that  one 
building  and  loan  association  liad  no 
power  to  accept  stock  of  another  such 
association  in  payment  for  its  own 
stock. 

3  St.  Paul  Trust  Co.  v.  Wampach 
Mfg.  Co.,  50  Minn.  93  (1892),  (52  N.  W. 
Rep.  274). 

*  Watt's  Appeal,  78  Pa.  St.  370 
(1875). 

Compare    cases   referred   to    in    tlie 

text  with  the  decision  of  the  Supreme 

Court  of  Illinois  in  People  v.  rullinan 

Car  Co.,  175  111.  125  (1898),  (51  N.  E. 

409 


§  283 


INTERCORPORATE    RELATIONS. 


[part  IV 


A  subscription  by  a  liotel  company  to  a  corporation 
projected  for  the  purpose  of  holding  an  international  military 
encampment,  which  might  bring  large  numbers  of  strangers 
to  the  city  in  which  the  hotel  of  the  subscribing  company 
was  located  and  increase  its  business,  was  said,  by  the  Supremo 
Court  of  Illinois,  not  to  be  so  foreign  to  the  business  of  keep- 
ing a  hotel  as  to  call  for  the  application  uf  the  doctrine  of 
ultra  vires} 

§  283.  Presumption  of  Power  to  hold  Stock.  —  Otnnia  acta 
rite  ease  praesumuntur.  The  law  presumes  that  a  corporation 
acts  within  the  scope  of  its  powers.  Corporations  arc 
authorized  to  acquire  the  stock  of  other  corporations  for 
certain  purposes,  and  under  certain  conditions.  When, 
therefore,  a  corporation  takes  stock,  it  will  be  presumed  that 
it  acquires  it  for  an  authorized  purpose.  The  burden  of 
proof  is  upon  the  person  alleging  that  the  corporation  has 
exceeded  its  powers.* 


Rep.  664),  where  it  was  held  that,  in 
the  absence  of  express  statutory  author- 
ity, one  corporation  rouhl  not  hold  stock 
in  another,  althoup;h  the  latter,  while 
existing  as  an  independent  company, 
was  in  fact  a  mere  department  or  agency 
of  the  former. 

1  Richelieu  Hotel  Co.  v.  Interna- 
tional, etc.  Co.,  140  111.  248  (1892), 
(29  N.  E.  Rep.  1044).  This  decision 
can  be  justified,  if  at  all,  only  upon  the 
ground  that  the  subscription  was  really 
a  donation  which  the  corporation  might 
have  made  in  the  expectation  of  reaping 
a  benefit  in  return.  It  should  be  com- 
pared with  that  of  the  Supreme  Court 
of  Georgia  in  Military  Interstate  Ass'n 
V.  Savannah,  etc.  R.  Co.,  105  Ga.  421 
(1898),  (.31  S.  E.  Rep.  200):  "We 
agree  with  the  trial  judge  in  holding 
that,  under  the  facts  alleged,  the  at- 
tempted subscription  of  the  defendant 
to  the  capital  stock  of  the  plaintiff 
association  was  an  act  ultra  vires  and, 
therefore,  void,  although  it  is  conceiv- 
able that,  because  of  the  '  competitive 
drills,   rifle   contests,   shot-gun  tourna- 

410 


ments,  .  .  .  the  business  of  the  rail- 
way company  might  be  incidentally 
increased,  if  it  affirmatively  appeared 
that  its  lino  ran  to  the  grounds  upon 
which  these  fascinating  and  diverting 
pcrform.inces  were  to  take  place." 

2  Evans  v.  Bailey,  66  Cal.  112  (1884), 
(4  Pac.  Rep.  1089).  And  see  Ryan  v. 
Leavenworth,  etc.  R.  Co.,  21  Kan.  365 
(1879). 

Where,  in  proceedings  to  condemn 
land  for  railroad  purposes,  it  appeared 
that  one  of  the  subscribers  to  the  capital 
stock  of  the  petitioner  was  a  corpora- 
tion, and  that  its  subscription  was 
essential  to  make  up  the  required 
amount  to  be  paid  before  condemning, 
it  was  held  that,  in  the  absence  of 
any  proof,  it  would  not  be  presumed 
against  the  act  of  the  corporation  and 
its  payment  of  the  percentage,  that  it 
acted  beyond  its  powers.  As  to  whether 
the  land  owners  could  raise  or  try  the 
question,  quaere.  Matter  of  Rochester, 
etc.  R.  Co.,  110  N.  Y.  119  (1888),  (17 
N.  E.  Rep.  678). 


CHAP.   XXVI.]       CORPORATION   AS   STOCKHOLDER.  §  284 

CHAPTER  XXYI.     . 

RIGHTS   AND   OBLIGATIONS   OF   CORPORATION   AS   STOCKHOLDER. 

I.  Intra  Vires  Holdings. 

§  284.  Status  of  Corporation  holding  Stock. 

§  285.  Nature  of  "  Holding  Corporations." 

§  286.  Rights  of  Foreign  Corporation  holding  Stock. 

§  287.  Incidents  of  Ownership  attach  to  Intra  Vires  Holdings. 

II.  Ultra  Vires  Holdings. 

§  288.  What  Incidents  of  Ownership  attach  to  Ultra  Vires  Holdings. 

§  289.  Liability  for  Assessments  upon  Ultra  Vires  Holdings. 

§  290.  Ultra  Vires  Contracts  for  Purchase  of  Stock  —  Collateral  Contracts. 

§  29L  Independent  Contracts. 

§  292.  Holding  Stock  to  prevent  Competition. 

§  293.  Remedies  in  Case  of  Ultra  Vires  Stockholding. 

I.   Intra  Vires  Holdings. 

§  284.  status  of  Corporation  holding  Stock.  —  The  lawful 
acquisition  by  one  corporation  of  stock  in  another  —  even  to 
the  extent  of  holding  all  its  shares  —  in  no  way  affects  the 
legal  entity  of  the  two  corporations,  as  between  themselves, 
and  each  continues  its  separate  existence.^  This  is  an  ap- 
plication of  the  rule  —  necessary  in  the  relations  between  a 
corporation  and  its  stockholders,  and  between  a  corporation 
and  third  persons,  —  that  a  corporation  is  an  entity  distinct 
and  apart  from  its  stockholders.  It  is,  however,  founded 
upon  a  legal  fiction,  and  may  be  disregarded  in  the  relations 
between  a  corporation  and  the  State. 

1  In  Exchange  Bank  v.  Macon,  etc.  the  Almighty,  and  the  corporation  is 
Co.,  97  Ga.  5  (189.5),  (25  S.  E.  Rep.  another  person,  created  by  the  law.  It 
326),  Judge  Lumpkin  said:  "Every  makes  no  difference  in  principle  whether 
corporation  is  a  person  —  artificial,  it  is  the  sole  owner  of  the  stock  of  a  cor- 
true,  but  nevertheless  a  distinct  legal  poration  is  a  man  or  another  corpora- 
entity.  Neither  a  portion  nor  all  the  tion.  The  corporation  owning  such 
natural  persons  who  compose  a  cor-  stock  is  as  distinct  from  the  corpora- 
poration,  or  who  own  its  stock  and  con-  tion  whose  stock  is  so  owned,  as  the 
trol  its  affairs,  are  the  corporation  man  is  from  the  corporation  of  which 
itself ;  and  when  a  single  individual  he  is  a  member."  See  also  Button  v. 
composes  a  corporation,  he  is  not  him-  Hoffman,  61  Wis.  20  (1884),  (20  N.  W. 
self  the  corporation.  In  such  a  case,  Rep.  667). 
the    man  is    one  person,  created   by 

411 


§  285  INTERCORPORATE    RELATIONS.  [PART    IV. 

A  corporation,  as  a  stockholder,  has  all  the  rights  of  other 
stockholders,  and  is  equally  subject  to  the  corresponding 
obligations. 

285.  Nature  of  "Holding  Corporations." — Tn  abroad  sense, 
any  corporation,  having  power  to  hold  stock  in  another 
corporation,  becomes,  upon  its  exercise,  a  "  holding  corpora- 
tion." The  phrase  in  modern  corporation  law,  however,  is 
applied  specifically  to  corporations  organized,  under  statutes 
conferring  the  power,  for  the  express  purpose  of  acquiring 
and  holding  the  stock  of  other  corporations. 

The  essential  feature  of  a  holding  corporation  is  that  it 
holds  stock.  A  corporation  which  deals  in  stocks  is  not  a 
holding  corporation. 

The  holding  corporation  is  the  modern  device  for  uniting 
corporate  interests.  Consolidation  refjuires  the  formal  vote 
of  a  stipulated  majority  of  the  stockholders,  and  the  termina- 
tion of  the  existence  of  one  or  more  of  the  corporations.  In 
case  of  a  sale,  the  vendor's  interests  in  the  corporate  property 
are  parted  with  absolutely.  In  case  of  a  lease,  the  lessor  has 
no  other  interest  than  the  rental  and  remainder.  Express 
legislative  authority  is,  moreover,  essential  in  case  of  consoli- 
dation, sale,  or  lease.  The  holding  corporation,  on  the  other 
hand,  is  a  flexible  agency.  Its  power  depends  upon  its 
charter.  The  only  prerequisite  to  the  practical  union  of  two 
or  more  corporations  through  a  holding  corporation,  is  the 
ownership  of  a  bare  majority  of  the  capital  stock  of  each  com- 
pany. The  only  formality  is  the  transfer  of  the  shares  to 
the  holding  corporation. 

The  fiction  of  distinct  corporate  existence  may  lead  to  the 
conclusion  that,  although  the  control  of  several  corporations 
is  held  by  a  single  company,  the  corporations  themselves 
remain  separate  and  distinct  as  before.  But  while  this  con- 
clusion, in  a  merely  technical  sense,  may  be  well  founded,  it 
hardly  warrants  the  corollary — convenient  in  some  cases  — 
that  two  corporations  controlled  by  a  single  stockholder  in  its 
own  interest,  are  in  reality  competing  companies  and  entirely 
independent. 

Holding  corporations  have  taken  the  place  of  the  earlier 
412 


CHAP.    XXVI.]        CORPORATION   AS   STOCKHOLDER.  §  286- 

"  trusts  "  in  the  formation  of  industrial  combinations.  They 
have  also  been  employed  to  effect  a  practical  consolidation  of 
railroad  companies.  Their  validity,  in  such  instances,  depends 
ui)on  considerations  of  public  policy,  comity  between  States 
and  the  applicability  of  federal  and  State  anti-trust  statutes. 

Tlie  advantages  of  a  holding  corporation  may  be  enu- 
merated as  follows : 

1.  It  furnishes  a  readily  available  and  effective  method  of 
controlling  several  corporations  for  a  common  object.  Its 
uses  for  this  purpose  have  already  been  indicated. 

2.  It  may  be  employed  to  perpetuate  corporate  control. 
Financiers  holding  the  control  of  corporations  may  transfer 
their  sliares  to  a  holding  corporation.  Death  or  disagreement 
will  not  then  affect  tlie  control.  In  many  cases  also  a  hold- 
ing corporation  may  take  the  place  of  a  voting  trust  —  an 
expedient  always  of  doubtful  validity. 

3.  The  holding  corporation  permits  the  capitalization  of 
controlling  stock  interests.  The  control  of  a  corporation 
having  a  capital  of  twenty  million  dollars  —  as  an  illustra- 
tion—  requires  a  permanent  investment  of  more  than  ten 
million  dollars,  assuming  the  stock  worth  par.  If  a  holding 
corporation  is  formed,  with  a  capital  equal  to  the  investment, 
the  shares  may  be  transferred  to  it  and  forty-nine  per  cent 
of  its  stock  sold.  The  original  controlling  stockholders,  by 
retaining  control  of  the  holding  corporation,  retain  control  of 
the  original  corporation.  Through  the  formation  of  a  series 
of  holding  corporations,  it  is  conceivable  that  the  majority 
stockholders  of  a  holding  corporation  of  a  thousand  dollars 
capital  might  hold  the  ultimate  control  of  a  corporation  of  a 
million  dollars  capital. 

§  286.  Rights  of  Foreign  Corporation  holding  Stock. — The 
right  of  a  corporation  of  one  State  to  subscribe  for  or  acquire 
shares  of  stock  in  a  corporation  of  another  State  depends, 
primarily,  upon  the  extent  of  its  chartered  powers  and  the 
laws  of  the  State  of  its  incorporation.  If  it  is  without  the 
power  in  the  State  of  its  creation,  it  is  without  the  power 
everywhere. 

A  corporation,  having  power  to  subscribe  for  stock  in  other 

413 


§  286 


INTERCORPORATE  RELATIONS. 


[part  IV. 


corporations,  may  exercise  the  power  in  another  State  if  the 
laws  of  that  State  permit.^  In  the  absence  of  language  clearly 
including  corporations  in  a  grant  of  power  to  become  incor- 
porators, a  foreign  corporation  could  not  participate  in  the 
formation  of  a  corporation,  but  its  disability  would  arise  from 
its  corporate,  and  not  from  its  foreign,  character.  Corpora- 
tions are  not  "  persons"  who  are  authorized  to  form  corpora- 
tions ;2  but,  in  absence  of  statutory  provision,  there  is  no 
distinction  between  residents  and  non-residents  in  the  right 
to  become  incorporators  or  subscribers.' 

A  corporation,  having  power  to  purchase  stock,  may  pur- 
chase the  shares  of  foreign  corporations,  unless  the  laws 
qi  the   State  of  their  creation  forbid  such  acquisition.*     In 


1  Rogers  v.  Nashville,  etc.  R.  Co., 
91  Fed.  312  (1898):  "It  is  impossible 
in  the  present  state  of  Tennessee  legis- 
lation to  say  th.at  this  charter  power  is 
either  ojiposed  to  any  law  or  policy  of 
that  State.  U|)on  the  contrary  .  .  . 
the  special  charter  .  .  .  expressly  in- 
vites such  ownership  by  providin}^  that 
'any  State  or  any  citizen,  corporation 
or  company  of  this  or  any  other  State 
or  country  may  subscribe  for  and  hold 
stock  in  said  company.'"  Compare 
Alerz  Capsule  Co.  v.  United  States 
Capsule  Co.,  67  Fed.  414  (189.5). 

2  Factors,  etc.  Ins.  Co.  v.  New  Har- 
bor Protection  Co.,  37  La.  Ann.  233 
(1885);  Denny  Hotel  Co.  v.  Schram, 
6  Wash.  134  (1893),  (32  Tac.  Rep. 
1002). 

'  Moxie  Nerve  Food  Co.  v.  Banm- 
bach,  32  Fed.  205  (1887)  ;  Common- 
wealth r.  Hemmingway,  131  Fa.  St. 
614  (1890),  (18  Atl.  Hep.  990)  ;  Cen- 
tral R.  Co.  f.  Pennsylvania  R.  Co., 
31  N.  J.  Eq.  475  (1879) ;  Humphreys  v. 
Mooney,  5  Colo.  282  (1880). 

*  In  United  Lines  Tel.  Co.  v.  Boston 
Safe  Deposit,  etc.  Co.,  147  U.  S.  447 
(1892),  (13  Sup  Ct.  Rep.  396),  the  Su- 
preme Court  of  the  United  States  said  : 
"  The  general  power  of  a  corporation 
to  hold  property  in  States  other  than 
the  one  which  incorporated  it  (in  the 
absence  of  statutory  prohibition  in  such 

414 


States),  is  firmly  established.  The 
Bankers  Company  received  the  benefit 
of  the  August  agreement  through 
which  alone  it  acrjuired  control  of  the 
Rapid  Conifiany ;  it  enjoyed  that  con- 
trol, took  all  the  receipts  of  the  Rapid 
Com|)any's  business,  profited  by  the 
good  will  which  that  company  had  ac- 
quired, and  tiins  obtained  a  benefit  from 
the  August  agreement  which  is  beyond 
its  power  to  restore."  See  also  Rogers 
V.  Nashville,  etc.  R.  Co.,  91  Fed.  299 
(1898). 

Comity  between  the  States  will  not 
authorize  a  foreign  corporation  to  ex- 
ercise, in  relation  to  stock  in  a  domes- 
tic corporation,  powers  within  the  State 
which  a  domestic  corporation  would  not 
be  permitted  to  exercise  under  the  con- 
stitution and  policy  of  the  State. 
Clarke  v.  Central  R.,  etc.  Co.,  50  Fed. 
338  ( 1 892).  Bnt  compare  later  decision 
in  .'same  vase,  62  Fed.  328  (1894). 

Under  an  early  Penn.sylvania  statute 
prohibiting  any  foreign  corporation 
from  holding  any  real  estate  within  the 
State,  "  directly  in  the  corporate  name 
or  by  or  through  any  trustee  or  other 
device  whatever,"  unless  specinlly 
authorized  by  law,  it  was  held  that  a 
corporation  of  another  State  could  not, 
by  purchasing  the  charter  of  a  mining 
company,  vesting  the  title  to  certain 
land  in  its  name,  and  then  taking  the 


CHAP.   XXVI.]       CORPORATION    AS   STOCKHOLDER.  §  286 

Rogers  v.  Nashville,  etc.  R.  Co}  Judge  Lurton,  in  speaking  of 
the  right  of  a  foreign  railroad  company  to  purchase  stock  in 
a  domestic  corporation,  said :  "  Such  a  purchase  was  not 
in  excess  of  its  chartered  power,  for  the  express  power  was 
conferred  by  an  amendment  of  its  charter.  .  .  .  Comity 
requires  that  this  charter  power  shall  be  recognized  as  valid 
if  not  opposed  to  some  law  or  policy  of  the  State  creating 
the  corporation  in  which  stock  has  been  acquired." 

When  stock  has  been  lawfully  acquired  by  a  foreign  cor- 
poration, it  has  all  the  rights  and  powers,  and  is  subject  to 
all  the  liabilities,  of  other  stockholders.  The  legislature  can 
pass  no  law  impairing  the  obligation  of  the  contract  between 
it,  its  fellow  stockholders  and  the  corporation,  nor  can  its 
property  be  taken  without  "  due  process  of  law."  Legislation 
cannot  affect  vested  rights. 

The  rights  of  a  foreign  corporation  within  a  State  are, 
however,  only  those  which  comity  between  States  permits.'"* 
The  right  to  issue  stock  is  in  itself  a  franchise.  "  The  power 
to  create  corporate  capital  stock  is  a  legislative  function."  ^ 
The  legislature  in  granting  the  power  may  attach  such 
conditions  to  its  exercise,  and  to  the  transfer  of  shares,  as 
it   may   deem    expedient.*     It    may   enact    statutes,   having 

stock  of  the  mining  company,  become  court  in  New  Jersey  as  a  legally  con- 
the  owner  of  the  land  ;  and  that,  in  case  stitnted  corporation  nor  be  dealt  with  as 
of  acquisition  by  such  means,  the  land  such.  If  it  can  be,  what  need  is  there 
was  liable  to  escheat  in  proceedings  in  of  any  general  or  special  law  in  our 
quo  warranto  under  another  statute.  State  1  Individuals  desirous  of  carry- 
Commonwealth  V.  New  York,  etc.  R.  ing  on  any  manufacturing  business, 
Co.,  114  Pa.  St.  340  (1886),  (7  Atl.  Rep.  may  go  into  the  city  of  New  York, 
756).  organize  under  the  general  laws  of  that 

1  Rogers  v.  Nashville,  etc.  R.  Co.,  State,  erect  all  their  manufacturing 
91  Fed.  312  (1898).  establishments  here,  and,  under   their 

2  In  view  of  the  fact  that  New  Jer-  assumed  name,  transact  their  business, 
Bey,  of  all  the  States,  is  the  creator  of  not  only  free  from  all  personal  respon- 
the  "  tramp  corporation,"  and  derives  sibility,  but  under  cover  of  a  corpora- 
a  large  revenue  from  the  issue  of  char-  tion  not  amenable  to  our  laws." 

ters  to  corporations  to  transact  busi-  '*  Cooke  v.  Marshall,  191  Pa.  St.  320 
ness  in  other  States,  an  early  decision  as  (1899),  (43  Atl.  Rep.  314),  (on  rehear- 
to  the  status  of  corporations  of  other  ing,  196  Pa.  St.  200  (1900),  (46  Atl. 
States  in  New  Jersey  is  interesting.  Rep.  447).  See  also  Railway  Co.  v. 
In  Hill  v.  Beach,  12N.J.Eq.  31  (18.58),  Allerton.  18  Wall.  (U.  S.)  233  (1873).  ^ 
it  was  said  of  a  New  York  corporation  :  *  In  Commonwealth  i'.  Standard  Oil 
"[It]    cannot    be   recognized   by   any  Co.,  101  Pa.  St.  119  (1882),  an  Ohio  cor- 

415 


§  286  INTERCORPORATE    RELATIONS.  [PART   IV. 

a  prospective  application,  forbidding  foreign  corporations 
becoming,  directly  or  indirectly,  stockholders  in  domestic 
companies.  It  seems,  moreover,  upon  principle,  that  while 
the  legislature  cannot  destroy  vested  rights  it  may,  under  an 
unconditional  reservation  of  power  to  repeal  charters,  repeal 
the  charter  of  a  domestic  corporation,  on  the  ground  that  its 
stock  is  held  by  a  foreign  corporation,  and  that  it  is  con- 
trolled in  a  manner  or  for  objects  contrary  to  the  policy  of 
tiie  State.^  In  such  a  case,  the  right  of  the  corporation,  as 
stockholder,  to  its  share  of  the  assets  would  be  preserved.^ 

The  holding  by  foreign  corporations  of  the  stock  of  domestic 
companies,  for  the  purpose  of  destroying  competition,  is 
inimical  to  public  policy  and,  consequently,  void.  But,  in  such 
a  case,  the  unlawful  purpose  is  the  essential  objection  rather 
than  the  foreign  domicil  of  the  corporation,  however  much 
the  latter  fact,  in  the  opinion  of  the  court,  may  tend  to 
aggravate  the  evil.' 

These  general  principles,  applicable  to  all  foreign  cor- 
porations holding  stock  in  domestic  companies,  apply  with 
equal  force  to  foreign  holding  corporations,  distinctively 
speaking.  Holding  corporations  may  acquire  shares  in  cor- 
porations of  other  States  unless  the  laws  or  policy  of  those 
States  forbid.     They  cannot  be  used  as  a  cover  for  evading 


poration  owned  shares  of  stock  in  Penn-  ^  Greenwood    v.    Freight    Co.,   105 

sylvauia  corporations,  but  never  received  U.  S.  19  (1881). 

any  special  authority  to  transact  busi-  ^  In  Marble  Co.  u.  Harvey,  92  Tenn. 

ness  in  Pennsylvania.     It  was  held  that  119  (1892),  (20  S.  W.  Rep.  427),  .Judge 

the    ownership   of   shares    in   Pennsyl-  Lnrton  said :  "  The  purpose  and  intent 

vania   corporations  did   not   constitute  in  granting  a  charter  is,  that  the  cor- 

"  doing  of  business "  in  the  common-  poration   shall    carry    on    its   business 

wealth,  so  as  to  subject  the  corporation  through     its     own     agents,    and    not 

to  taxation  under  an  act  requiring  for-  through  the  agency  of  another  corpora- 

eign  corporations  "  doing   bu.siness   in  tion.     The  public  policy  of  this  State 

this  commonwealth  "  to  pay  a  tax  upon  will  not  permit  the  control  of  one  cor- 

their  capital  stock.  poration  by  another.     Especially  is  this 

1  For  consideration  of  general  prin-  true  where  a  foreign  corporation  thus 

ciple  see  Spring  Valley  Water  Works  v.  undertakes  to  control  and  swallow  up  a 

Schlottler,  110  U.  S.  347  (1884),  (4  Sup.  domestic  company.    Such  control  of  one 

Ct.    Rep.    48)  ;  Greenwood    v.  Freight  corporation  by  another  in  a  like  busi- 

Co.,  10.5  U.  S.  13  (1881);  Sinking  Fund  ness  is  unlawful,  as  tending  to  monop- 

Cases,  99  U.S.  700  (1878);  Shields  v.  oly.     The  result  is,  that  this  purchase 

Ohio,  95  U.  S.  319  (1877).  of  shares  for  the  express  object  of  con- 

416 


CHAP.    XXVI.]        CORPORATION   AS   STOCKHOLDER. 


§  287 


those  laws,  or  for  the  accomplishment  of  purposes  contrary 
to  public  policy.^ 

§  287.    Incidents  of  Ownership  attach  to  Intra  Vires  Holdings. 

—  A  corporation,  acting  within  the  scope  of  its  powers  in 
acquiring  the  shares  of  other  corporations,  is  entitled  to  all 
the  privileges,  and  is  subject  to  all  the  obligations,  of  a  natural 
person  as  owner. 

The  right  to  vote  is  an  incident  to  the  ownership  of  stock, 
and  whenever  a  corporation  has  power  —  express  or  implied 

—  to  take  title  to  shares  of  stock,  it  has  the  right,  so  long  as 
it  retains  them,  to  exercise  the  voting  power,  —  through  an 
authorized  agent,  —  upon  which  their  value  may  depend.^  All 
dividends  declared  upon  the  shares  it  holds  belong  to  it,  and  it 
is  entitled  to  have  the  stock  transferred  to  its  name  upon  the 
books  of  the  corporation  in  which  it  is  held.^ 

A  corporation  is  liable  for  calls  upon  its  authorized  sub- 
scription contracts  ;  and,  as  a  stockholder,  is  subject  to  all  the 
obligations  of  other  stockholders,  and  is  bound  to  pay  all 


trolling  and  managing  another  cor- 
poration was  ultra  vires,  and,  therefore, 
unlawful  and  void." 

1  In  p]mpire  Mills  v.  Alston  Gro- 
cery' Co.  (Tex.  App.  1891),  15  S.  W. 
Rep.  .506,  tlie  Court  said  :  "  No  rule  of 
comity  will  allow  one  State  to  charter 
corporations  to  operate  in  another  State, 
unless  there  is  a  willingness  on  the  part 
of  the  foreign  State  that  it  should  do 
so.  To  hold  otherwise  would  be  to  say 
that  the  right  of  one  State,  aided  by 
comity,  is  superior  to  the  sovereign  will 
of  the  other.  Tliis  involves  the  surren- 
der of  sovereignty  to  a  rule  of  comity 
and  to  a  matter  of  international  eti- 
quette, which  no  independent  nation- 
ality should  for  a  moment  thiulc  of 
doing." 

2  Rogers  v.  Nashville,  etc.  R.  Co., 
91  Fed.  312  (1898);  Matthews  v.  Mur- 
chi.son,  17  Fed.  760  (1883);  Davis  v. 
United  States  Electric  Power,  etc.  Co., 
77  Md.  35  (1893),  (25  Atl.  Rep.  982)  ; 
Market  St.  R.  Co.  v.  Hellman,  109  Cal. 
571  (1895),  (42  Pac.  Rep.  225);  State 
V.  Rohlffs   (N.J.  1890),  19   Atl.   Rep. 

27 


1099  ;  Oelberman  i;.  New  York,  etc.  R. 
Co.,  77  Hun  (N.  Y.),  3.32  (1894), 
(29  N.  Y.  Supp.  545).  That  a  ?nM;iH-- 
ipal  corporation,  holding  stock,  may 
vote  upon  it  as  any  other  stockholder, 
see  Hancock  v.  Louisville,  etc.  R.  Co., 
145  U.  S.  409  (1892),  (12  Sup.  Ct.  Rep. 
969). 

In  State  v.  Newman,  51  La.  Ann. 
833  (1899),  (25  So.  Rep.  408),  it  was 
held  that,  even  if  a  corporation  had 
implied  power  to  acquire  and  hold 
stock  in  another  corporation,  its  right 
was  that  of  "  imperfect  ownership  "  — 
including  the  right  to  enjoy  and  dis- 
pose of  the  shares,  but  not  the  right  to 
vote  them. 

The  phrase  "  imperfect  ownership  " 
aptly  describes  the  rights  of  a  corpora- 
tion in  respect  of  its  ultra  vires  liold- 
ings,  but  when  a  corporation  has  power 
—  express  or  implied  —  to  hold  stock, 
it  necessarily  must  have  the  right  to 
exercise  the  privilege  which  may  give 
the  stock  its  greatest  value. 

^  Royal  Bank  of  India's  Case,  L.  R. 
4  Ch.  App.  252  (1869). 

417 


§  288 


INTERCORPORATE   RELATIONS. 


[part  IV, 


assessments  lawfully  made  against  its  intra  vires  holdings  of 
shares.^  Its  liability  as  a  stockholder,  for  assessments  for  the 
benefit  of  creditors,  is  not  affected  by  the  fact  that  while  it 
appears  upon  the  stock  books  as  oivtier  it  is,  in  reality,  only  a 
pledgee.^  Nor  will  a  merely  colorable  transfer  relieve  it  from 
responsibility.'^ 

II.    Ultra  J^res  Holdings. 

§  288.  What  Incidents  of  Ownership  attach  to  Ultra  Vires 
Holdings.  —  When  a  corporation,  without  authority,  purchases 
the  shares  of  another  corj)oration,  the  law  recognizes  a  limited 
right  of  ownership  therein.  Otherwise,  the  purchase  would 
involve  a  forfeiture  of  the  consideration  paid  for  the  stock. 
A  corporation  is  entitled  to  receive  the  dividends  declared 
upon  its  ultra  vires  holdings,  and  has  a  right  to  sell  and 
dispose  of  such  shares.^ 

Such  a  corporation,  however,  is  not  entitled  to  participate 

stock  stands  in  his  name  "as  plc<l;;eo," 
or  where  he  is  registered  as  liolding  it 
as  collateral.  Pauly  v.  State  Loan,  etc. 
Co.,  165  U.  S.  606  (1897),  (17  Sup.  Ct. 
Kep.  465) ;  Beal  v.  Essex  Savings 
Bank,  67  Fed.  816  (1895). 

8  Nation.ll  Bank  v.  Case,  99  U.  S. 
628  (1878);  Bowdeu  f.  Johnson,  107 
U.  S.  251  (1882),  (2  Sup.  Ct.  Kep.  246). 

But  the  pledgee,  for  the  avowed  pur- 
pose of  avoiding  individual  liability, 
may  take  the  security,  in  the  first  place, 
in  the  name  of  an  irresponsible  trustee. 
Anderson  r.  Philadelphia  Warehouse 
Co.,  Ill  U.  S.  479  (1883),  (4  Sup.  Ct. 
Rep.  525);  also  Pauly  v.  State  Loan, 
etc.  Co..  165  U.  S.  606  (1897),  (17  Sup. 
Ct.  Rep.  465). 

*  Milbank  v  New  York,  etc.  R.  Co., 
64  How.  Pr.  20  (1882);  State  v.  New- 
man, 51  La.  Ann.  833  (1899),  (25  So. 
Rep.  408). 

Where  one  corporation  acquires  stock 
in  another  company,  and  the  contract 
is  fully  executed,  the  latter  cannot  set 
up  the  defence  of  ultra  vires  to  an  action 
for  the  recovery  of  dividends.  Bigbee, 
etc.  Packet  Co.  v.  Moore,  121  Ala.  379 
(1898),  (25  So.  Rep.  602). 


^  National  Bank  v.  Case,  99  U.  S. 
628  (1878);  Calumet  Paper  Co.  v. 
Stotts  Invest.  Co.,  96  Iowa,  147  (1895), 
(64  N.  W.  Rep.  782) ;  Smith  v.  New- 
ark, etc.  R.  Co.,  8  Ohio  Cir.  Ct.  Rep. 
583  (1894);  Royal  Bank  of  India's 
Case,  L.  R.  4  Ch'  App.  2.52  (1869). 

-  National  B.ank  v.  Case,  99  U.  S. 
631  (1878):  "It  is  thorouglily  estab- 
lished that  one  to  whom  stock  has 
been  transferred  in  pledge,  or  as  collat- 
eral security  for  money  loaned,  and 
■who  appears  on  the  books  of  tlie  corpo- 
ration as  the  owner  of  the  stock,  is 
liable  as  a  stockholder  for  the  benefit 
of  creditors."  See  also  Pauly  v.  State 
Loan,  etc.  Co.,  165  U.  S.  606  (1897), 
(17  Sup.  Ct.  Rep.  465);  Pullman  v. 
Upton,  96  U.  S.  328  (1877);  National 
Foundry,  etc.  Works  v.  Oconto  Water 
Co.,  68  Fed.  1006  (1895);  Ball  Electric 
Light  Co.  V.  Child,  68  Conn.  .522  (1897), 
(37  Atl.  Rep.  391) ;  Calumet  Paper  Co. 
V.  Stotts  Invest.  Co.,  96  Iowa,  147  (1895), 
(64  N.  W.  Rep.  782) ;  Royal  Bank  of 
India's  Case,  L.  R.  4  Ch.  App.  252 
(1869). 

A  pledgee  is  not,  however,  person- 
ally liable  as  a  stockholder  when   the 

418 


CHAP.    XXVI,]        CORPORATION    AS   STOCKHOLDER. 


289 


in  the  control  and  management  of  the  corporation  in  which 
it  so  acquires  stock.  It  is  not  entitled  to  vote,  and  other 
stockholders  may  enjoin  it  from  voting  should  it  attempt  to 
do  so.^ 

It  has  also  been  held  that  a  corporation  acquiring,  without 
authority,  stock  in  another  corporation  cannot  compel  the 
latter  corporation  to  transfer  the  shares  upon  the  stock  books 
so  as  to  give  it  the  status  and  privileges  of  a  stocklioldcr  of 
record. 2 

§  289.  Liability  for  Assessments  upon  Ultra  Vires  Holdings. 
—  When  a  subscription  by  one  corporation  for  stock  in  an- 
other is  without  authority,  it  is  void,  and  the  corporation  ia 
not  liable  for  calls  or  assessments  made  upon  stockholders, 
because  it  is  not  a  stockholder.^  Upon  similar  principles,  a 
corporation  which  purchases,  or  otherwise  acquires,  shares  of 
another  corporation  cannot  be  assessed  or  held  liable  as  a 
stockholder,  when,  in  taking  the  stock,  it  acted  beyond  its 
powers.^  Rights  are  not  gained  nor  obligations  incurred  by 
ultra  vires  acts. 

A  distinction  has,  however,  been  drawn  between  cases  where 


1  Milbank  v.  New  York,  etc.  R.  Co., 
64  How.  Pr.  20  (1882);  State  v.  New- 
man, 51  La.  Anu.  833  (1899),  (25  So. 
Rep.  408). 

lu  State  V.  McDaniel,  22  Ohio  St. 
354  (1872),  there  is  a  dictum  to  the 
effect  that  a  railroad  company  acquir- 
insj,  without  authority,  bonds  of  another 
railroad  com])any  having  voting  power, 
cannot  vote  them. 

2  Franklin  Bank  v.  Commercial 
Bank,  36  Ohio  St.  350  (1881),  (38  Am. 
Rep.  594).  While  this  decision  is  un- 
doubtedly correct  upon  the  point  stated, 
it  is  manifestly  erroneous  in  the  dictum 
that  the  taking  of  shares  by  way  of 
pledge  is  ultra  vires.  See  ante,  §  278 : 
"Incidental  Power  to  take  Stock  as 
Collateral." 

2  Peshtigo  Co.  v.  Great  Western 
Tel.  Co.,  50  111.  App.  624  (1893) ;  Pauly 
r.  Coronado  Beach  Co.,  56  Fed.  428 
(1893). 

A  lien  of  a  corporation  on  its  stock, 


for  debts  due  from  its  stockholders, 
does  not  attach  to  the  ultra  vires  hold- 
ings of  another  corporation.  Lanier 
Lumber  Co.  v.  Rees,  103  Ala.  622 
(1894),  (16  So.  Rep.  637). 

*  California  Bank  v.  Kennedy,  167 
U.S.  362  (1897),  (17Sup.Ct.  Rep.  831). 
In  Ex  parte  British  Nation  Life  Assur- 
ance Ass'n,  L.  R.  8  Ch.  679  (1878),  the 
Court  of  Appeal  dismissed  an  order 
putting  a  life  association  on  the  list  of 
contributories  to  a  corporation  in  liqui- 
dation because  certain  shares  of  such 
corporation  had  been  transferred  to  it. 
Lord  Justice  .James  held  that,  while  the 
association  was  empowered  to  purchase 
for  investment,  shares  of  a  certain  char- 
acter, it  was  not  empowered  to  pur- 
chase stock  which  would  practically 
constitute  it  a  partner  in  a  business 
venture,  and  that  the  transfer  of  the 
stock  in  question  into  the  name  of 
the  association  was  ultra  vires  and 
void. 

419 


§289 


INTERCORPORATE   RELATIONS. 


[part  IV. 


the  acquisition  of  stock  is  wholly  beyond  the  powers  of  the 
corporation  and  cases  where  it  is  only  partially  so.  Thus,  it 
has  been  held  that  the  fact  that  a  corporation  might,  under 
certain  circumstances,  have  acquired  stock  in  another  corpo- 
ration, renders  its  purchase,  for  any  other  purpose,  merely  the 
unauthorized  exercise  of  an  existing  power  and  estops  it, 
when  the  corporation  becomes  insolvent,  from  setting  up  the 
defence  of  ultra  vires  to  an  action  to  enforce  an  assessment 
upon  the  stock. ^  Such  an  exception  is,  however,  as  broad  as 
the  rule,  for  there  are  circumstances  under  which  every  cor- 
poration, unless  expressly  prohibited,  may  acquire  stock. 
The  distinction  is  not  well  founded  upon  principle  and  is 
opposed  to  the  latest  decisions  of  the  Supreme  Court  of  the 
United  States. 

In   California  Bank  v.  Kennedy"^  Mr.  Justice  White  said: 


1  A  State  bank  having,  under  its 
charter,  power  to  accept  stock  in  a 
national  l)auk  as  security  for  a  loan, 
but  without  power  to  puroliase  such 
stock  as  an  investment,  purchased  stock 
in  a  national  bank,  wliich  was  trans- 
ferred to  its  name.  The  latter  hank 
subsequently  became  insolvent,  and  an 
assessment  upon  the  stockholders  was 
made  by  a  comptroller  of  the  currency, 
payment  of  which  was  resisted  by  the 
State  bank  on  the  ground  that  the  pur- 
chase was  ultra  vires.  It  was  held  that, 
as  the  purchase  of  stock  was  merely 
the  exercise,  for  an  unauthorized  pur- 
pose, of  a  power  existing  for  a  legiti- 
mate purpose,  such  defence  was  not 
available.  Citizens  State  Bank  v. 
Hawkins,   71    Fed.  369    (1896). 

In  First  National  Bank  i\  Hawkins, 
79  Fed.  51  (1897),  it  was  held  that  a 
national  bank,  which  had  purchased 
shares  of  stock  in  another  national 
bank  as  an  investment,  and  which 
appeared  on  the  books  of  the  latter 
bank  as  a  stockholder,  was  estopped, 
after  the  insolvency  of  the  latter,  from 
denying  liability  for  an  assessment  on 
the  stock,  on  the  ground  that  its  pur- 
chase was  ult7-a  vires.  The  decision  in 
this  case  was  rendered  a  few  weeks  be- 

420 


fore  the  decision  of  the  Supreme  Court 
of  the  United  States,  in  California  Bank 
V.  Kennedy,  167  U.  8.  362  (1897),  (17 
Snp.  Ct.  Kcp.  831),  infra.  A  petition 
for  reliearing,  based  upon  this  decision, 
was  thereupon  filed,  but  was  denied  by 
Judge  Putnam,  who  said  (First  National 
Bank  v.  Hawkins,  82  Fed.  301  (1897) )  : 
"The  issue  considered  by  the  Supreme 
Court  was  the  liability  of  a  national 
bank  as  a  stockholder  in  a  State  savings 
bank,  while  the  (juestion  before  us  was  as 
to  its  liability  as  a  stockholder  in  another 
national  bank.  The  question  discussed 
by  the  Supreme  Court  was  more  largely 
that  of  ultra  vires  than  that  of  the  policy 
of  the  statutes  relating  to  national 
banking  associations,  and  its  line  of 
decisions,  which  we  understood  to  bind 
us  in  the  case  at  bar,  were  not  partic- 
ularly noticed  by  it.  Therefore  it  does 
not  follow  beyond  question  that  Bank 
V.  Kennedy  is  decisive  of  the  case  at 
bar.  Inasmuch  as  the  defendant  in 
error  has  undoubted  means  of  relief  by 
a  writ  of  error,  we,  under  the  circum- 
stances, are  of  the  opinion  that  the 
petition  should  be  denied." 

^  California  Bank  v.  Kennedy,  167 
U.S.  367  (1897),  (17  Sup.  Ct.  Rep.  831), 
reversing   Kennedy   v.   California  Sav. 


CHAP.    XXVI.]        CORPORATION    AS   STOCKHOLDER.  §  290 

"  Tlie  transfer  of  the  stock  in  question  to  the  hank  being  unau- 
thorized hy  law,  does  the  fact  that^  under  some  circumstances, 
the  bank  might  have  legally  acquired  stock  in  the  corporation, 
estop  the  bank  from  setting  up  the  illegality  of  the  transaction? 
Whatever  divergence  of  opinion  may  arise  on  this  question 
from  conflicting  adjudications  in  some  of  the  State  courts, 
in  this  Court  it  is  settled  in  favor  of  the  right  of  the  corpo- 
ration to  plead  its  want  of  power,  that  is  to  say,  to  assert  the 
nullity  of  an  act  which  is  an  ultra,  vires  act.  .  .  .  The  power 
to  purchase  or  deal  in  stocks  of  another  corporation,  as  we 
have  said,  is  not  expressly  conferred  upon  national  banks,  nor 
is  it  an  act  which  may  be  exercised  as  incidental  to  the 
powers  expressly  conferred.  A  dealing  in  stocks  is,  con- 
sequently, an  ultra  vires  act.  Being  such,  it  is  without 
efficacy.  .  .  .  Stock  so  acquired  creates  no  liability  to  the 
creditors  of  the  corporation  whose  stock  was  attempted  to  be 
transferred." 

§  290.  Ultra  Vires  Contracts  for  Purchase  of  Stock  —  Collateral 
Contracts. — A  contract  entered  into  by  a  corporation  for  the 
purchase  of  stock  in  another  corporation,  which  it  has  no 
authority  to  acquire,  is  invalid.  No  recovery  can  be  had 
upon  it  and  the  defence  of  ultra  vires  is  equally  available  to 
the  corporation  and  to  the  other  contracting  party .^ 

Contracts  collateral  to,  and  dependent  upon,  an  ultra  vires 
contract  for  the  purchase  of  stock  cannot  be  enforced.^  Thus, 
where  a  corporation  purchased  stock  in  another  company  and 
the  vendor,  as  a  part  of  the  consideration,  agreed  to  assume 
certain  indebtedness  of  the  corporation  whose  stock  was 
transferred,  it  was  held  that  an  action  upon  this  agreement 


Bank,  101  Cal.  495  (1893),  (35  Pac.  Rep.  by  the  transfer  to  the  bank  of  stock  of 

1039).  another  bank,  is  illegal.     Tillinghast  v. 

1  De  la  Vergne  Refrigerating  Mach.  Carr,  82  Fed.  298  (1897). 

Co.  V.  German  Savings  Inst.,  175  U.  S.  Where  an  ultra  vires  contract  for  the 

40  (1899),  (20  Sup.  Ct.  Rep.  20).  purchase  of  stock  bv  a  corporation  has 

2  Marble  Co.  v.  Harvey,  92  Tenn.  been  executed,  and  a  note  given  in  pay- 
115  (1892),  (20  S.  W.  Rep.  427,  36  Am.  ment,  equity  will  not  intervene  to  can- 
St.  Rep.  71).  eel  the  agreement,  but  will  leave  the 

An  agreement  between  the  officers  corporation  to  its  legal  defence  to  the 

of  a  bank  and   the   maker  of  a  note  note.     Cincinnati,    etc.    R.   Co.  v.  Mc- 

payable  to  it,  that  the  note  may  be  paid  Keen,  64  Fed.  36   (1894). 

421 


§291 


INTERCORPORATE   RELATIONS. 


[part  IV 


was  in  furtherance  of   the  original   unlawful    contract   and 
could  not  be  sustained.^ 

§  291.  Independent  Contracts.  —  Although  a  contract  by 
one  corporation  to  purchase  stock  in  another  is  ultra  vires 
and  cannot  be  enforced  between  the  parties,  yet  when  it  has 
been  executed,  and  negotiable  instruments  have  been  given  in 
payment  of  the  purchase  price,  a  bona  fide  holder  for  value, 
without  notice  of  the  illegality,  may  collect  them  from  the 
corporation.^  But  such  a  holder  has  only  the  right  to  demand 
payment  of  his  note,  and  has  no  standing  to  compel  the  rescis- 
sion of  the  contract  of  purchase,  on  the  ground  that  it  was 
ultra  vires.^ 


1  Marble  Co.  v.  Harvey,  92  Tenn. 
115  (18'.)2),  (20  S.  W.  Rep.  427,  36 
Am.  St.  Kep.  71).  In  this  case  Judge 
Lurtou,  after  referring  to  cases  wliere 
ultra  vires  had  not  been  permitted  as  a 
defence,  or  as  a  ground  for  collateral 
attack,  said :  "The  question  here  is  not 
like  any  of  these.  The  complainant 
sues  upon  its  contract,  and,  in  affirm- 
ance of  it,  seeks  to  have  the  defendant 
perform  an  arrangement  which  sprung 
from  and  was  collateral  to  it.  It  has 
received  the  shares  it  purchased,  and 
holds  onto  them.  It  simply  asks  that 
the  defendant  be  further  compelled  to 
perform  his  contract  by  contributing, 
in  accordance  with  his  agreement,  his 
proportion  of  the  liability  paid  off  by 
the  complainant  in  protection  of  the 
property  of  the  McMillan  Marble  Com- 
pany. The  suit  is  clearly  in  further- 
ance of  the  original  unlawful  and  void 
contract.  That  the  contract  has  been 
executed  by  the  plaintiff  does  not  make 
it  lawful  or  entitle  it  to  an  enforcement 
of  it."  The  judge  then  referred  at 
length  to  Pittsburgh,  etc.  R.  Co.  v. 
Keokuk,  etc.  Bridge  Co.,  131  U.  S.  389 
(1889),  (9  Sup.  Ct.  Rep.  770),  and  Cen- 
tral Transportation  Co.  v.  Pullman  Car 
Co.,  139  U.  S.  24  (1891),  (11  Sup.  Ct. 
Rep.  478),  and  continued  (p.  124): 
"  To  sustain  this  suit,  as  now  pre- 
sented, would  be  in  affirmance  and 
furtherance  of  an  unlawful  and  void 
contract.    It  is,  in  no  sense,  a  suit  in  dis- 

422 


affirmance.  Whether  complainant  could 
tender  back  the  shares  received,  and 
maintain  a  suit  to  recover  the  money 
paid  for  the  shares  i  upon  an  implied 
agreement  to  return  money  which  the 
defendant  had  no  right  to  retain,  is 
a  question  not  presented  upon  this 
record." 

2  In  Woodcock  v  First  National 
Bank,  113  Mich.  236  (1897),  (71  N.  W. 
Rep.  477),  where  a  note  and  mortgage 
had  been  given  in  payment  for  an  ultra 
vires  purcha.ie  of  stock,  the  Supreme 
Court  of  Micliigan  said :  "  If  the  com- 
plainant was  not  aware  of  an  infirmity 
in  these  securities  in  the  hands  of  the 
First  National  Bank,  as  the  paper  was 
not  dishonored  when  received  by  com- 
plainant, and  was  negotiated  by  the 
officers  of  the  gas  light  company,  the 
security  could  not  be  defeated  in  com- 
plainant's hands." 

In  Wright  v.  Pipe  Line  Co.,  101  Pa. 
St.  204  (1882),  (47  Am.  Rep.  701), 
where  a  corporation,  although  prohib- 
ited by  its  charter,  entered  into  a  con- 
tract for  the  purchase  of  stock  in 
another  corporation,  which  was  exe- 
cuted and  a  note  given  in  payment, 
which  was  acquired  by  a  bona  fide  pur- 
chaser for  value,  hut  with  knowledge  of 
the  character  of  the  consideration,  it 
was  held  that  the  corporation  could  not 
set  up  the  defence  of  ultra  vires  to  the 
note. 

*  Woodcock  V.  First  National  Bank, 


CHAP.    XXVI.]       CORPORATION   AS   STOCKHOLDER.  §  292 

Independent  contracts  made  by  a  corporation,  although 
reUiting  to  stock  held  withoivt  authority,  are  not  necessarily 
tainted  with  the  original  illegality.  It  does  not  follow  that 
it  is  illegal  to  dispose  of  stock  because  it  was  unlawful  to 
acquire  it  in  the  first  instance.^  Upon  this  principle,  it  has 
been  held  that  a  purchaser  of  stock  from  a  corporation,  giving 
a  note  in  payment  therefor,  cannot  set  up  ultra  vires  as  a 
defence  to  an  action  upon  the  note.  In  Holmes^  etc.  Manu- 
faeturing  Co.  v.  Holmes^  etc.  Metal  Co.  the  Court  of  Appeals 
of  New  York  said :  ^  "  The  contract  under  which  the  note  in 
suit  was  given  was  made  .  .  .  nearly  four  years  after  the 
plaintiff  became  the  owner  of  the  stock.  No  claim  is  made 
that  that  contract  is,  for  any  reason,  illegal  or  void.  Numer- 
ous cases  are  found  in  which  the  courts  have  refused  to  exe- 
cute contracts  that  were  ultra  vires,  but  this  action  is  not 
based  upon  such  contract.  ...  To  hold  that  the  plaintiff 
could  not  dispose  of  the  stock  would  deprive  it  of  the  consider- 
ation received  for  the  transfer  of  its  rolling  mill  and  material, 
thus  accomplishing  a  wrong  and  not  advancing  justice." 

§  292.  Holding  Stock  to  prevent  Competition.  —  While  the 
purchase  of  stock  in  any  other  corporation  is  beyond  the 
general  powers  of  a  corporation,  the  purchase  of  stock  in  a 
competing  corporation,  in  order  to  prevent  competition,  is 
not  only  ultra  vires  but  is  contrary  to  public  policy. ^ 

113  Mich.  236  (1897),  (71  N.  W.  Rep.  3  Uuited  States:  Louisville,  etc.  R. 

477).  Co.  V.  Kentucky,  161   U.  S.  698  (1896), 

1  Bigbee,  etc.  Packet  Co.  y.  Moore,  (16  Sup.  Ct.  Rep.  714):  "Not  only  is 
121  Ala.  379  (1898),  (25  So.  Rep.  602).  the  purchase  of  stock  in  another  com- 
In  this  case  it  was  held  that  it  was  inima-  pany  beyond  the  power  of  a  railroad 
terial  in  a  suit  by  a  transferee  of  stock  corporation  in  the  absence  of  an  express 
that  the  transferrer  —  a  corporation  —  stipulation  in  the  charter,  but  the  pur- 
acted  beyond  its  powers  in  acquiring  chase  of  such  stock  in  a  rival  and 
the  stock.  competing  line  is  held  to  be  contrary 

A  corporation  having  sold  its  prop-  to   public  policy  and  void."     See   also 

perty    and     received    the     purchasing  McCutcheon   v.  Merz  Capsule  Co.,  71 

corporation's  stock  in  payment,  cannot  Fed.  787   (1896). 

be  enjoined  by  the  latter  from  transfer-  Georgia  :    Central,    etc.    R.    Co.    r. 

ring  the  stock.    American  Water  Works  Collins,  40  Ga.  582  (1869) ;  Ilazlehurst  v. 

Co.    i>.  Venner,  63    Hun,    632     (1892),  Savannah,  etc.  R.  Co.,  43  Ga.  13  ( 1871). 

(IS   N.  Y.  Supp.  379).  ///iHois ;  People  (>.  Chicago  Gas  Trust 

2  Holmes,  etc.  Mfg.  Co.  i;.  Holmes,  Co.,  130  111.  268  (1889),  (22  N.  E.  Rep. 
etc.  Metal  Co.,  127  N.  Y.  260  (1891),  798,  17  Am.  St.  Rep.  319).  This  is  the 
(27  N.  E.  Rep.  831).  leading  case  upon  the  subject. 

423 


§  293  INTERCORPORATE   RELATIONS.  [PART   IV. 

The  rule  of  public  policy  is  not  to  be  evaded  by  indirection. 
The  fact  that  stock  is  purchased  by  a  non-competing  corpora- 
tion in  its  own  name,  but  for  the  benefit  of  a  competing  com- 
pany, docs  not  affect  its  application.^ 

This  subject  is  considered  at  length  in  the  following  part 
of  this  treatise.* 

§  293.  Remedies  in  Case  of  Ultra  Vires  Stockholding.  —  Every 
stockholder  in  a  corporation  may  stand  upon  his  rights  as 
secured  by  the  contract  of  association.  He  cannot  be  forced 
into  an  outside  enterprise,  and  may  insist  that  the  funds  of 
the  corporation  shall  be  used  only  for  the  pur[)oses  permitted 
by  its  charter  and  the  laws  governing  it. 

Upon  these  principles,  any  stockholder  in  a  corporation 
proposing,  without  authority,  to  purchase  stock  in  another 
corporation,  may  enjoin  the  .])urchase  ;^  and  it  has  been  held 
that  the  fact  that  he  obtains  his  stock  after  the  passage  of 
the  resolution  authorizing  the  purchase,  and  with  the  purpose 
of  preventing  its  consummation,  makes  no  difference.*  It 
does  not,  however,  follow,  conversely  to  this  proposition, 
that  a  stockholder  in  the  corporation  whose  stock  is  ac- 
quired by  another  company  can  raise  the  objection  of  ultra 
vires.  The  purchase  is  beyond  the  powers,  not  of  his  cor- 
poration but  of  the  purchaser.^ 

Neio   Hampshire:    Pearson   v.  Con-  *  In  Elkins  v.  Camden,  etc.  R.  Co., 

cord  R.  Corp.,  62  N.  H.  537  (1883).  36  N.  J.    Eq.    5    (1882),  the   directors 

New  Jersey :  Elkins  v.  Camden,  etc.  of    a   railroad   company,  without    any 

R.  Co.,  36  N.  J.  Eq.  5  (1882).  statutory  authority,  passed  a  resolution 

Pennsylvania:  Pennsylvania  R.  Co.  to  buy  the  stock  of  a  competing  road, 

t;.  Commonwealth   (Pa.    1886),    7    Atl.  and  it  vf a.s  held : 

Rep.  374.  {A)   That    the    proposed    purchase 

Tennessee:   Marble    Co.  v.   Harvey,  was  ultra  i-jVes,  and  hence  could  not  be 

92  Tenn.  115  (1892),  (20   S.  W.  Rep.  executed  if  ratified  by  stockholders. 

427,  36  Am.  St.  Rep.  71).  {B)    That  it  was  void  and  against 

1  Pennsylvania  R.  Co.  v.  Common-  public  policy,  in  that  its  object  was  to 
wealth  (Pa.  1886),  7  Atl.  Rep.  374.  prevent  lawful  competition. 

2  Post,  Part  V:  "Combinations  of  (C)  That  it  could  be  enjoined  upon 
Corporations."  application  of  a  single  stockholder  of 

8  Central,  etc.  R.  Co.  v.  Collins,  40  the  purchasing  company,  and  the  fact 
Ga.  582  (1869)  ;  Memphis,  etc.  R.  Co.  that  he  obtained  his  stock  after  the 
V.  Wood,  88  Ala.  630  (1889),  (7  So.  passage  of  the  resolution,  and  with 
Rep.  108) ;  Elkins  v.  Camden,  etc.  R.  avowed  design  of  preventing  its  con- 
Co.,  36  N.  J.  Eq.  5  (1882) ;  Solomons  v.  summation,  made  no  difference. 
Laing,  12  Beav.  339  (1849).  ^  Oelbermann  v.  New  York,  etc.  R. 
424 


CUAP.  XXVII.]    CONTROL  OF  ONE  CORPORATION  BY  ANOTHER.    §  294 

The  laches  of  a  stockholder  in  taking  steps  to  prevent  the 
ultra  vires  holding  by  his  corporation  of  stock  in  another 
company  may  bar  him  from  relief  in  equity.^ 

The  State  may  institute  proceedings  to  prevent  corpo- 
rations from  exceeding  their  chartered  powers  in  purchas- 
ing shares  in  other  companies.  This  is  especially  true  in  the 
case  of  corporations  serving  public  purposes.  An  injunction 
may  be  granted  in  behalf  of  the  State  to  restrain  an  unlawful 
acquisition  or  holding  of  stock  ;2  and  proceedings  in  quo  war- 
ranto will  lie  against  the  corporation  usurping  the  power.  ^ 


CHAPTER   XXVII. 

CONTROL   OP   ONE   CORPORATION   BY  ANOTHER. 

§  294.  Meaninf^  of  Term  "  Control." 

§  295.  Distinction  between  Control  of  Corporation  and  Control  of  its  Property. 

§  296.  Distinction  between  Control  and  Community  of  Interest. 

§  297.  Distinction  between  Control  and  Consolidation. 

§  298.  Power  to  purchase  Stock  to  obtain  Control. 

§  299.  Status  of  Corporation  as  Controlling  Stoclcholder. 

§  300.  Trust  Relation  of  Controlling  Corporation  to  Minority  Stockholders. 

§  301.  Remedies  of  Minority  Stockholders  of  Controlled  Corporation. 

§  294.    Meaning  of  Term  "  Control."  —  The  control  of  a  cor- 
poration has  two  phases.     The  ultimate  power  of   control 

Co.,  77   Hun   (N.  Y.),  332  (1894),   (29  to  set  aside  an  ultra  vires  purchase  of 

N.  Y.  Supp.  545).  stock  made  by  the  directors  nine  years 

1  Alexander  v.  Searcy,  81  Ga.   536  before,  it  was  held  that  the  complainant 

(1888),  (8  S.E.  Rep.  630).  was  guilty  of  laches,  and,  therefore,  was 

A  purchase  of  stock  in  a  corporation,  not  entitled  to  relief.     Cullen  v.  Coal 

with  knowledge  that  it  assumes  and  ex-  Creek,  etc.  R.  Co.  (Tenn.  1897),  42  S. 

ercises  the  power  to  hold  stock  in  other  W.  Rep.  693. 

corporations,  may  amount  to  an  implied  2  Pennsylvania  R.  Co.  v.  Common- 
recognition  of  the  assumed  power,  wealth  (Pa.  1886),  7  Atl.  Rep.  368. 
Venner  v.  Atchison,  etc.  R.  Co.,  28  Fed.  Delay  does  not  affect  the  right  of 
581  (1886).  This  decision  is  contrary  to  the  State  to  prevent  an  ultra  vires  hold- 
sound  principle.  Laches  may  bar  a  ing  of  stock.  Alexander  v.  Searcy, 
stockholder  in  equity,  but  his  recogni-  81  Ga.  536  (1888),  (8  S.  E.  Rep.  630). 
tion  of,  or  acquiescence  in,  an  ultra  vires  ^  People  v.  Chicago  Gas  Trust  Co., 
act  cannot  validate  it.  130  111.  208  (1889),  (22  N.  E.  Rep.  798, 
In  a  suit  in  equity  by  a  stockholder  17  Am.  St.  Rep.  319). 

425 


§  295 


INTERCORPORATE   RELATIONS. 


[part  IV. 


always  lies  in  the  stockholders.  They  determine,  directly, 
matters  of  fundamental  importance.  They  provide,  through 
the  election  of  directors,  for  the  corporate  management,  and 
may  thereby  settle  the  corporate  policy.  The  immediate 
power  of  control  lies  in  the  directors  and  officers  ap]jointed 
to  manage  the  affairs  of  the  corporation.^ 

The  term  control,  as  applied  to  a  corporation  in  its  rela- 
tions with  other  corporations  —  as  distinguished  from  its 
internal  management  —  refers  to  the  ultimate  power  of  con- 
trol and  means,  specifically,  the  ownership  of  a  controlling 
interest  in  a  corporation.  A  corporation  which  owns  a 
majority  of  the  shares  of  the  capital  stock  of  another  cor- 
poration controls  it.^ 

§  205.  Distinction  between  Control  of  Corporation  and  Con- 
trol of  its  Property.  —  A  distinction,  analogous  to  that  between 
the  ultimate  and  immediate  control  of  the  affairs  of  a  cor- 
poration, exists  between  the  conti-ol,  by  a  corporation,  of  its 
property,  and  the  control,  by  majority  stockholders,  of  the 
corporation. 

The  owner  of  shares  in  a  corporation  does  not  own  the 
corporate  property.  The  holders  of  controlling  stock  in- 
terests control  the  corporation,  the  corporation  controls 
its   property.^     In  PuUman  Car  Co.   v.   Missouri  Pacific  R. 


1  In  Pullman  Car  Co.  i-.  Missouri 
Pac.  11.  Co.,  11  Fed.  636  (1882),  (af- 
firmed 115  U.  S.  587  (1885),  (6  Sup. 
Ct.  Rep.  194)),  Judge  McCrary  said: 
"  What  are  we  to  understand  by  the 
word  '  control '  as  employed  in  the  con- 
tract ?  The  language  is,  '  all  roads 
which  it  controls  or  may  hereafter  con- 
trol,' which  in  our  judgment  means 
controlled  by  the  corporation.  The  lan- 
guage does  not  refer  to  the  ultimate 
power  of  control  which  always  lies  in 
the  stockholders,  and  wbicli  may  be 
indirectly  exercised  by  them  at  stated 
periods  by  the  election  of  directors. 
It  means  the  immediate  or  executive 
control  which  is  exercised  by  the  offi- 
cers and  agents  chosen  by  and  acting 
under  the  direction  of  the  board  of 
directors." 

426   , 


2  Jessup  ('.  Illinois  Cent.  R.  Co.,  36 
i*ed.  741  (1S88):  "The  bill  charges 
that  the  Illinois  Central  Railroad  Com- 
pany has  obtained  control  of  the  .stock 
of  tlie  Dubuque  and  Sioux  City  Rail- 
road Company.  Tliis  allegation,  upon 
the  familiar  rule  that  statements  of  tin's 
character  will  be  taken  most  strongly 
against  the  pleader,  only  implies  that 
the  Illinois  Central  Railroad  Company 
has  obtained  a  majority  of  the  stock  of 
the  Dubuque  &  Sioux  City  Railroad 
Company." 

8  Pullman  Car  Co.  v.  Missouri  Pac. 
R.  Co.,  115  U.  S.  587  (1885),  (6  S^ip. 
Ct.  Rep.  194),  affirming  11  Fed.  636 
(1882). 

In  Fitzgerald  v.  Missouri  Pac.  R. 
Co.,  45  Fed.  818  (1891),  Judge  Cald- 
well said  :  "  The  owner  of  all  the  stock 


CHAr.  XXVII.]    CONTROL  OF  ONE  CORPORATION  BY  ANOTHER.    §  296 

Co.^  Mr.  Chief  Justice  Waite  said:  "It  has  all  the  advan- 
tages of  the  control  of  the  road,  but  that  is  not,  in  law,  the 
control  itself.  Practically  it  may  control  the  company, 
but  the  company  alone  controls  its  road.  In  a  sense,  the 
stockholders  of  a  corporation  own  its  property,  but  they  are 
not  the  managers  of  its  business  or  in  the  immediate  control 
of  its  affairs."  ^ 

§  296.  Distinction  between  Control  and  Community  of  Inter- 
est. —  The  phrase,  "community  of  interest,"  as  used  in  rela- 
tion to  corporations,  especially  railroad  companies,  means 
the  acquisition  and  holding  for  a  common  purpose,  by  several 
corporations,  of  stock  in  other  corporations;  or  the  mutual 
holding  by  two  or  more  corporations  of  each  other's  shares. 
The  "  community  of  interest  idea,"  with  reference  to  railroads, 
is  that  competing  railroad  companies,  having  common  stock- 
holders or  owning  each  other's  shares,  will  maintain  rates ; 
that  the  practical  pooling  of  interests  will  more  than  fill  the 


and  bouds  of  a  corporation  does  not 
own  the  corporate  property.  The  cor- 
porate property,  which  includes  all 
rights  of  action  and  claims  for  dam- 
ages, belongs  to  the  corporation,  and  is 
subject  to  the  management  and  conti-ol 
of  its  board  of  directors."  See  also 
Jessup  V.  Illinois  Cent.  R.  Co.,  36  Fed. 
741  (1888). 

1  Pullman  Car  Co.  v.  Missouri  Pac. 
R.  Co.,  115  U.  S.  597  (1885),  (6  Sup. 
Ct.  Rep.  194).  In  this  case,  a  railroad 
company  made  a  contract  concerning 
all  roads  which  it  did  then  or  might 
thereafter  "  control."  It  afterwards 
acquired  a  majority  of  the  stock  of  an- 
other railroad  company,  and  the  ques- 
tion was  whether  it  thereby  controlled 
the  road  of  that  company  within  the 
meaning  of  the  contract.  The  Court 
held  that  it  did  not. 

~  In  Pennsylvania  R.  Co.  v.  Com- 
monwealth (Pa.  1886),  7  Atl.  Rep.  ."368, 
a  case  involving  the  construction  of  the 
Pennsylvania  constitutional  provision 
(Art.  17,  §  4),  against  the  acquisition 
by  railroad  corporations  of  the  control 
of  competing  companies,  the  Court  said 


with  reference  to  the  case  of  Pullman 
Car  Co.  V.  Missouri  Pac.  R.  Co.,  supra  : 
"The  decision  of  the  question  of  con- 
trol was  not  called  for  in  the  case, 
which  was  already  decided  on  another 
and  a  fundamental  point.  But,  waiv- 
ing this,  the  point  decided  is,  merely, 
that  the  ownership  of  the  stock  does 
not  necessarily  give  control  of  the 
road.  The  Chief  Justice  says,  speak- 
ing of  the  stockholding  company: 
'  I'ractically,  it  may  control  the  com- 
pany, but  the  company  alone  controls 
its  road.'  .  .  .  This  distinction  seems 
very  narrow,  but  it  is  certainly  involved 
in  the  conclusion  reached,  which  cannot 
stand  unless  it  is  recognized  :  for  it  is 
too  plain  to  bear  argument,  that  the 
ownersliip  of  the  stock  of  a  corpora- 
tion carries  with  it  the  control  of  tlie 
corporation.  Indeed,  this  is  merely  a 
different  way  of  stating  the  truism, 
that  a  corporation  is  controlled  by  its 
stockholders.  That  they  do  it  through 
tlie  agency  of  a  board  of  directors 
and  other  officers  does  not  alter  the 
fact." 

427 


§  298  INTERCORPORATE   RELATIONS.  [PART   IV. 

place  of  the  prohibited  pooling  of  traffic  or  earnings,  and 
prevent  trafiic  wars  and  ruinous  competition. 

The  element  of  control  is  not  essential  to  a  community  of 
interest,  and  the  one  docs  not  necessarily  imply  the  other. 
"  It  may  be  true  that  the  two  companies  arc  acting  in  har- 
mony, and  that  the  same  persons  own  a  majority  of  the  stock 
of  l)oth ;  but  that  is  something  very  different  from  the  control 
of  one  by  the  other. "  ^ 

§  297.  Distinction  between  Control  and  Consolidation. —  The 
distinction  between  the  union  of  stockholders  and  properties 
effected  by  consolidation  and  the  continued  separate  existence 
of  the  corporations,  controlled  and  controlling,  has  already 
been  pointed  out.^ 

§  298.  Power  to  purchase  Stock  to  obtain  Control. —  A  cor- 
poration having  power  to  purcliase  shares  may  exercise  the 
power  for  the  purpose  of  obtaining  control  of  another  corpo- 
ration and  of  participating  in  its  management.  A  corpora- 
tion, without  such  express  authority,  cannot  purchase  for 
control.^ 

In  De  la  Vergne  Refrigerating  Mach.  Co.  v.  German  Savings 
Inst.  Mr.  Justice  Brown  said : ^  "As  the  powers  of  corpora- 
tions, created  by  legislative  act,  arc  limited  to  such  as  the 
act  expressly  confers  and  tife  enumeration  of  these  implies 
the  exclusion  of  all  others,   it  follows  that,  unless  express 

1  Pullman  Car  Co.  v.  Missouri  Pac.  cord  R.  Corp.,  62  N.  H.  548  (1883): 
R.  Co.,  11  Fed.  637  (1882),  affirmed  "  A  corporation  cannot  become  a  stock- 
115  U.  S.  587  (1885),  (6  Sup.  Ct.  holder  in  another  corporation  unless 
Rep.  194).  such  power  is  given  to  it  by  its  charter, 

2  See  ante,  §  12:  "Distinction  be-  or  is  necessarily  implied  in  it,  especially 
tween   Consolidation  and  Control."  if  the  purchase  be  for  the  purpose  of 

'  United  States:   De  la  Vergne  Re-  controlling   or  affecting    the    mauage- 

frigerating  Mach.   Co.  v.  German  Sav-  ment  of  the  other  corporation." 
iugs  Inst.,  175  U.  S.  54  (1899),  (20  Sup.  New   Jersey :  Elicins  i'.  Camden,  etc. 

Ct.  Rep.  20) ;  Louisville,  etc.  R.  Co.  r.  R.  Co.,  36  X.  J.  Eq.  5  (1882). 
Kentucky,  161    U.  S.   698    (1896),  (16  Ohio:  One  railroad  company  has  no 

Sup.  Ct.  Rep.    714) ;    Nashua,  etc.    R.  power  to  acquire  the  bonds  of  another 

Co.  V.  Boston,  etc.  R.  Co.,  136  U.  S.  385  corporation  in  order  to  conti-ol  the  elec- 

(1890),  (10  Sup.  Ct.  Rep.  1004) ;  Tod  v.  tions  of  the  latter,  such  bonds  having  a 

Kentucky  Union  Land  Co.,  57  Fed.  58  voting  power.     State  v.  McDaniel,  22 

(1893).  Ohio  St.  368  (1872). 

Illinois  :   Martin  v.  Ohio  Stove  Co.,  *  De  la  Vergne  Refrigerating  Mach. 

78  ni.  App.  105  (1898).  Co.  v.  German  Savings  Inst.,  175  U.  S. 

New  Hampshire:    Pearson  v.    Con-  54  (1899),  (20  Sup.  Ct.  Rep.  20). 

428 


CHAP.  XXYII.]    CONTROL  OF  ONE  CORPORATION  BY  ANOTHER.    §  300 

provision  is  given  to  do  so,  it  is  not  within  the  general  powers 
of  a  corporation  to  purchase  the  stock  of  other  corporations 
for  the  purpose  of  controlling  their  management." 

As  already  pointed  out,  however,  the  rule  is  broader  than 
stated  in  this  opinion.  A  purchase  for  control,  without 
express  statutory  authority,  is  ultra  vires;  but  it  does  not 
follow  that  a  purchase  for  other  purposes  is  intra  vires.  No 
purchase  by  a  corporation  of  shares  in  another  company,  for 
any  purpose,  is  valid,  unless  made  in  the  exercise  of  an  ex- 
press power,  or  of  a  power  necessarily  incidental  thereto. 
But  there  can  never  be  an  implied  power  to  purchase  for 
control.^ 

§  299.  Status  of  Corporation  as  Controlling  Stockholder.  — 
There  is  nothing  in  the  nature  of  a  corporation  which  forbids 
it  exercising  control  of  another  corporation,  if  power  to 
acquire  control  is  conferred. ^ 

When  a  corporation  acquires  control  of  another  corporation 
its  rights,  in  law,  are  the  same  as  those  of  any  natural  person 
holding  control.  The  two  corporations  continue  to  exist  as 
before  and  each  acts  through  its  own  directors  and  officers.^ 
They  are  legally  distinct,  although  acting  together  for  a 
common  purpose  and  managed  in  a  common  interest. 

§  300.  Trust  Relation  of  Controlling  Corporation  to  Minority 
Stockholders.  —  When  a  majority  of  the  stock  of  one  corpora- 
tion is  owned  by  another,  which  thereby  acquires  the  right  to 
control  its  management,  the  controlling  corporation  assumes 
a  relation  of  trust  towards  the  minority  stockholders  of  the 
corporation  controlled,  and  is  under  an  obligation  to  manage 
its  affairs  for  the  benefit  of  all  the  stockholders  and  not  for 


1  "While  this  power  [to  purchase  chison,  17  Fed.  760  (1883);  Market 
shares]  may  be  incidental  to  some  nn-  Street  R.  Co.  v.  Hellman,  109  Cal.  571 
disputed  authority  its  exercise  can  (189.5),  (42  Pac.  Rep.  225);  White  v. 
never  be  sustained  as  an  incidental  Syracuse,  etc.  R.  Co.,  14  Barb.  (N.  Y.) 
power  when  the  object  is  to  obtain  the  559  (1853). 

control    and    management   of   another  ^  Pullman  Car  Co.  v.  Missouri  Pac. 

corporation."     Editorial  note  to  Denny  R.    Co.,   11   Fed.   637   (1882),  nffirmfd 

Hotel  Co.  V.   Schram,  36  Am.  St.  Rep.  115  U.  S.  597  (1885),  (6  Sup.  Ct.  Rep. 

137.  194)  ;  Je.ssup  v.  Illinois  Cent.  R.  Co.,  35 

2  Citizens  State   Bank  v.  Hawkins,  Fed.  735  (1888). 
71  Fed.  369  (1896);    Matthews  v.  Mur- 

429 


§  300  INTERCORPORATE   RELATIONS.  [PART   IV. 

its  own  aggrandisement.^  This  is  merely  an  application  of 
the  principle  that,  while  a  majority  of  the  stockholders  may 
legally  control  the  corporation's  business,  they  assume  the 
correlative  duty  of  good  faith,  and  cannot  manipulate  such 
business  in  their  own  interest  to  the  injury  of  minority 
stockholders.^ 

In  Farmers  Loan,  etc.  Co.  v.  New  York,  etc.  It.  Co.^  Judge 
Martin,  after  considering  a  number  of  cases  illustrating  the 
general  princi])le,  said:  "While  the  question  in  some  of  the 
cases  cited  arose  between  stockholders  and  the  directors  and 
officers  of  a  company,  who,  as  such,  held  a  position  of  trust 
as  to  the  former,  still,  where,  as  in  this  case,  a  majority 
of  the  stock  is  owned  by  a  corporation  or  combination  of 
individuals,  and  it  assumes  the  control  of  another  com- 
pany's business  and  affairs  through  its  control  of  the  ofiiccrs 
and  directors  of  the  corporation,  it  would  seem  that,  for  all 
practical  purposes,  it  becomes  the  cori)oration  of  which  it 
holds  a  majority  of  the  stock,  and  assumes  the  same  trust 
relation  towards  the  minority  stockholders  that  a  corpora- 
tion itself  usually  bears  to  its  stockholders.  .  .  .  The  prin- 
ciple of  these  authorities  renders  it  quite  obvious  that  a 
corporation,  purchasing  a  majority  of  the  stock  of  a  compet- 
ing one,  cannot  obtain  control  of  its  affairs,  divert  the 
income  of  its  business,  refuse  business  which  would  enable 
the  defaulting  company  to  pay  its  interest,  and  then  institute 

1  Farmers    Loan,   etc.   Co.    v.   New  California  :  Wright  i'.  Orville  Min- 

York,  etc.  R.  Co.,  UO  N.  Y.  410  (1896),  ing  Co.,  40  Cal.  20  (1870). 

(44   N.  E.  Rep.  1043);    Barr    v.  New  New     York:     Gamble     v.     Qneena 

York,  etc.  R.  Co.,  96  N.  Y.  444  (1884);  County    Water     Co.,    123     N.    Y.    91 

George  v.  Central  R.,etc.  Co.,  101  Ala.  (1890),  (25  N.  E.  Rep.  201) ;  Sage  v. 

607  (1893),  (14  So.  Rep.  752)  ;  Davis r.  Culver,  147  N.  Y.  241  (1895),  (41  N.  E. 

United  States  Electric  Power,  etc.  Co.,  Rep.  513);   Pondir  t-.  New  York,  etc. 

77  Md.  35  (1893),  (25  Atl.  Rep.  982)  ;  R.  Co.,  72  Hun,  384  (1893),  (25  N.  Y. 

Goodiu  V.  Cincinnati,   etc.   Canal  Co.,  Supp.  560)  ;    Meyer   i;.    Staten    Island 

18   Ohio   St.    169    (1868);   Pearson    v.  R.  Co.,   7  N.  Y."  St.  Rep.  245  (1887). 

Concord  R.  Corp.,  62  N.  H.  537  (1883).  England:  Menier  v.  Hooper's  Tele- 

'^  United    States :    Ervin  i'.   Oregon  graph  Works,  L.  R.  9  Ch.  App.    350 

R.,etc.  Co.,  27  Fed.  630  (1886) ;  Meeker  (1874)  ;  Gregory  v.  Patchett,  33  Beav. 

r.  WiuthropIronCo.,  17  Fed.48(1883).  595  (1864). 

See  also  Jackson  v.  Ludeling,  21  Wall.  ^  Fn,rmers   Loan,   etc.    Co.   v.   New 

616  (1874).     Compare  Rogers  v.  Nash-  York,  etc.  R.  Co.,  150  N.  Y.  430  (1896;, 

ville,  etc.  R.  Co.,  91  Fed.  312  (1898).  (44  N.  E.  Rep.  1043). 

430 


CHAP.  XXVII.]    CONTROL  OF  ONE  CORPORATION  BY  ANOTHER.  §  301 

an  action  in  equity  to  enforce  its  obligations,  for  the  avowed 
purpose  of  obtaining  entire  control  of  its  property  to  the 
injury  of  the  minority  stockholders.  Such  a  course  of  action 
is  clearly  opposed  to  the  true  interests  of  the  corporation 
itself,  plainly  discloses  that  one  thus  acting  was  not  influ- 
enced by  any  honest  desire  to  secure  such  interests,  but  that 
its  action  was  to  serve  an  outside  purpose,  regardless  of 
consequences  to  the  debtor  company,  and  in  a  manner  incon- 
sistent with  its  i^nterest  and  the  interest  of  its  minority 
stockholders." 

The  fact  that  the  right  to  purchase  and  hold  stock  is 
expressly  conferred  upon  a  corporation  by  statute,  in  no  way 
confers  upon  it  power  to  employ  the  stock  for  inequitable 
purposes.  Without  statutory  authority,  it  has  no  power  to 
hold  stocks  at  all.  With  authority,  it  assumes  the  equitable 
obligations  of  any  majority  stockholder. 

§  301.  Remedies  of  Minority  Stockholders  of  Controlled  Cor- 
poration. —  While  a  corporation,  holding  a  controlling  inter- 
est in  another  company,  so  long  as  it  fulfils  the  obligation 
of  its  trust  relation  towards  minority  stockholders,  may 
exercise  its  legal  power  to  determine  the  policy  of  the  cor- 
poration which  it  controls,  it  will  be  restrained  by  a  court 
of  equity,  at  the  instance  of  a  minority  stockholder,  when 
it  disregards  its  obligations  and  manages,  or  undertakes  to 
manage,  the  corporation  for  its  own  use  rather  than  for  the 
benefit  of  all  the  stockholders.^     The  temptation  to  regulate 

1  One  railroad  company,  owning  a  property  and  rights  of  the  controlled 
majority  of  the  stock  of  another  company,  and  commits  wilful  waste, 
railroad  company,  and  controlling  its  a  court  of  equity  will  interfere,  at  the 
affairs,  has  no  right  to  vote  its  stock  suit  of  a  minority  stockholder  of  the 
80  as  to  manage  the  corporation  for  its  controlled  corporation,  and  will  restrain 
own  use  rather  than  for  the  latter's  the  controlling  corporation  from  fur- 
benefit,  to  impair  its  earnings  and  preju-  ther  using  its  stock  in  the  management 
dice  the  rights  of  its  minority  stock-  of  the  corporation,  and  in  the  election 
holders ;  and  equity  will  restrain  such  of  its  officers.  George  v.  Central  R., 
voting.  Memphis,  etc.  R.  Co.  t,'.  Wood,  etc.  Co.,  101  Ala.  607  (1892),  (14  So. 
88  Ala.  630  (1889),  (7  So.  Rep.  108).  Rep.  752). 

Where  a  railroad  company  has  pur-  Generally,  that  one  corporation  may 

chased   a   majority  of   the  stock   of  a  be  enjoined  from  voting  the  majoritv 

competing  company  in  order  to  lessen  stock  held  by  it  in  another  corporation 

competition,  and,   after  assuming  con-  when  the  two  companies  have  conflict- 

trol,  violates  its  duties  iu  respect  to  tiie  ing  interests,  see  American,  etc.  Co.  v. 

431 


INTERCORPORATE   RELATIONS, 


[part  IV. 


the  affairs  of  a  comjjcting  company  in  its  own  interest  is, 
naturally,  so  great  that  a  court  of  equity  will  zealously 
guard  the  rights  of  minority  stockholders  from  actual  or 
threatened  infringement,  and  will  restrain,  l)y  injunction, 
the  controlling  corporation  from  administering  the  affairs 
of  the  corporation  in  a  manner  injurious  to  the  corporation 
and  its  stockholders  as  a  whole.  Equity  will  compel 
majority  stockholders  to  exercise  their  controlling  power 
over  a  corporation  in  its  interest  and  not  for  ulterior 
purposes. 


Linn,  93  Ala.  610  (1890),  (7  So.  Rep. 
191);  Mack  v.  DcBardeleben,  etc.  Co., 
90  Ala.  396  (1890),  (8  So.  Rep.  150). 

Fraudulent  use  of  its  power  by  a  cor- 
poration holding  a  majority  of  the  stock 
of  another  corporation,  to  the  injury  of 
minority  stockholders,  may  constitute 
ground  for  the  apjjoiutnient  of  a  re- 
ceiver for  the  corporation.  Davis  r. 
United  States  Electric  Power,  etc.  Co., 
77  Md.  35  (1893),  (25  Atl.  Rep.  982). 

In  Mill)ank  v.  New  York,  etc.  R. 
Co.,  64  How.  Pr.  (N.  Y.)  28  (1882),  the 
Court  said  :  "  It  is  against  public  policy 
to  have,  or  permit,  one  corporation  to 
embarrass  and  control  another,  and, 
perhaps,  competing  corporation,  in  the 
management  of  its  affairs,  as  may  be 
done  if  it  is  permitted  to  own  and  vote 
upon  the  stock."  Compare  this  lan- 
guage with  the  decision  in  another  New 
York  case  (Oelbermann  i'.  New  York, 
etc.  R.  Co.,  77  Hun  (N.  Y.),  332  (1894), 
(29  N.  Y.  Supp.  545)),  where  it  was 
held  that  a  court  of  equity  could   not 


restrain  a  controlling  corporation  from 

voting  on  its  stock  upon  allegation  or 
proof  that  it  intended  to  cause  a  board 
of  directors  to  be  elected,  who,  by  their 
action  or  non-action,  might  ])rejudice 
the  interests  of  minority  stockholders. 

Where  one  railroad  company  con- 
trols anotiier,  as  a  ])art  of  its  system, 
througii  the  ownership  of  stock,  and 
operates  the  road  of  the  latter  company 
in  its  own  interest,  and  not  in  the  in- 
terest of  the  controlled  company,  a  re- 
ceiver, into  whose  hands  both  roads 
have  pjissed,  cannot  recover  from  the 
controlled  company  cxpen.ses  incurred 
in  operating  it.  Phinizy  v.  Augusta, 
etc.  R.  Co.,  62  Fed.  771   (1894). 

That  laches  may  bar  a  minority 
stockholder  of  a  corporation,  controlled 
by  another,  from  complaining  of  the 
diversion  of  traffic  and  misu.<e  of  prop- 
erty by  the  controlling  corporation,  see 
Alexander  v.  Searcy,  81  Ga.  536  (1889), 
(8  S.  E.  Rep.  630). 


432 


CHAP.    XXVIII.]  NATURE    AND    FORMATION.  §  302 


PAET   V. 

COMBINATIONS  OF   COKPORATIONS. 


ARTICLE   I. 


COMBINATIONS  AS   AFFECTED  BY  PRINCIPLES  OF 
CORPORATION  LAW. 


CHAPTER  XXVIII. 

NATURE   AND    FORMATION   OP   COMBINATIONS. 

§  302.  Definition  of  Term  "  Combination." 

§  303.  Definition  of  Term  "  Association." 

§  304.  Definition  of  Term  "  Trust." 

§  305.  Popular  Use  of  Word  "  Trust." 

§  306.  Definition  of  Phrase  "  Corporate  Combination." 

§  307.  Evolution  of  the  Combination. 

§  308.  Formation  of  Associations. 

§  309.  Formation  of  Trusts. 

§  310.  Formation  of  Corporate  Combinations. 

§  311.  Analysis  of  Principles  determining  Legality  of  Combinations. 

§  302.  Definition  of  Term  "  Combination."  —  The  word  "  com- 
bination "  is  used  in  this  treatise  as  a  generic  term  to  describe 
any  union  of  corporations,^  not  amounting  to  consolidation, 
entered  into  by  mutual  agreement  for  supposed  mutual  ad- 
vantage. ^ 

1  Industrial  combinations  are,  prac-  The  scope  of  this  treatise  includes  only 

tically,    combinations   of    corporations,  an  examination  of  the  principles  relat- 

The  modern  combination  of  capital  is  a  ing  to  combinations  of  corporations,  but, 

corporate   combination.      Combinations  in  such  examination,  it  is  believed  to  be 

of   individuals   are,  however,   governed  both  necessary  and   desirable   to   refer 

by  the  same  rules  of  public  policy,  and  freely  to  all  illustrative  cases  —  whether 

anti-trust    legislation  —  State   and  fed-  of  combinations    of    individuals   or   of 

eral  — is  directed  both  against  combina-  corporations, 
tions   of   corporation    and  individuals.  ^  '<  fjjg  union  or  association  of  two 

28  433 


§  303 


INTERCORPORATE   RELATIONS. 


[part  V. 


§  303.  Definition  of  Term  "  Association."  —  Thc  term  '*  asso- 
ciation "  is  eiupluyed  to  describe  that  species  of  combiiiatiuii 
wherein  two  or  more  competing  corporations  unite,  by  agree- 
ment, for  a  special  purpose  of  business,  and  conduct  their 
affairs  according  to  such  agreement,  but  in  which  there  is  no 
community  of  financial  interest  and  each  corporation  retains 
its  own  property  and  manages  its  own  affairs.^ 


or  more  persons  for  thc  attainment  of 
some  common  end."  Century  Dictionary 
sub  nom.  "  Coml)iuation."  In  Watson  v. 
Harlem,  etc.  Nav.  Co.,  52  How.  Tr- 
N.  Y.)  332  (1877),  the  Court  thus  dis- 
cussed the  meaning  to  be  attaclied  to 
the  word  "  combine  "  as  used  in  a  stat- 
ute forbidding  certain  companies  to 
"combine":  "The  word 'comliine '  is 
not  to  be  found  in  cither  of  the  dictiona- 
ries of  Burrill  or  Rouvier,  and  I  do  not 
find  it  defined  in  thc  edition  of  Jacobs  to 
which  I  have  access.  Bouvier  defines 
•  combination  '  as  a  union  of  men  for  the 
purpose  of  viohiting  the  law,  and  ns  a 
union'  of  different  elements.  Jacobs, 
without  sj)ecifically  defining  the  word, 
states  that  '  combinations  to  do  un- 
lawful acts  are  punishable  before  the 
unlawful  act  is  executed  ;  this  is  to  pre- 
vent the  consequences  of  combinations 
and  conspiracies,'  and  he  refers  to  the 
titles  '  Confederacy  '  and  '  Con.spir- 
acy.'  He  defines  confederacy  to  be 
'  where  two  or  more  combine  together  to 
do  any  damage  or  injury  to  another,  or 
to  do  any  unlawful  act.'  As  to  the 
meaning  of  tlie  word  '  conspiracy,'  he 
says  this  word  wa.s  formerly  used  almost 
e.\clusively  '  for  an  agreement  of  two  or 
more  persons  falsely  to  indict  one,  or  to 
procure  him  to  be  indicted  of  felony ; 
now  it  is  no  less  commonly  used  for  the 
UTilawful  combination  of  workmen  to 
raise  their  wages,  or  to  refuse  working 
except  on  stipulated  conditions.'  Wor- 
cester defines  '  combine  '  thus  : '  To  join 
together;'  'to  coalesce;'  'to  unite;' 
'  to  be  united  ;  '  '  to  be  joined  in  friend- 
ship or  in  design.'  And  he  defines 
'  combination '  to  be  a  '  union  of  per- 
sons  for    certain    purposes,'    '  associa- 

434 


tion,'  'alliance,'  'coalition,'  'confed- 
eracy.' And  Koget,  in  his  Thesaurus, 
classifies  the  word  '  combine  '  as  syn- 
onymous with  ur  belonging  to  the  same 
class  as  '  unite,  incorporate,  amnhja- 
male,  embody,  absorb,  reimbody,  blend, 
merge,  fuse,  melt  into  one,  consolidate, 
coalesce,  centralize,  to  impregnate,  to  put 
together,  to  lump /o^e/Zicr  '  .  .  .  I  think 
that  there  can  be  no  difficulty  in  de- 
termining precisely  what  the  legi.slature 
intended  in  using  the  word  'combine' 
in  the  twenty-seventh  section  of  the  act 
now  under  consideration.  They  did  not 
intend  to  use,  and  did  not  use,  that  word 
in  the  strict  technical  legal  sense  which 
is  maintained  by  the  counsel  for  the  de- 
fendants. The  object  of  the  legislature 
was  to  prevent  coalitions,  unions,  mutual 
agreements,  blendings  of  the  com- 
panies which  might  be  organized  and 
incorporated,  under  the  act,  for  any 
purpose." 

See  als()a;)<e,  §  16:  "Distinction  be- 
tween Consolidation  and  Combimition." 

'  "  The  act  of  a  number  of  persons 
who  unite  or  join  together  for  some 
special  purpose  or  business.  The 
union  of  a  company  of  persons  for  the 
transaction  of  designated  affairs,  or 
the  attainment  of  some  common  ob- 
ject." Black's  Law  Diet.,  sub  nom. 
"  Association." 

"  As  mercantile  concerns  under  free- 
dom of  trade  have  tended  in  our  cities 
to  be  more  and  more  vast  and  compre- 
hensive and  absorb  the  smaller  ones, 
so  it  is  reasonable  to  suppose  that 
the  right  of  association  will  be  made 
more  and  more  available  in  manufactur- 
ing. In  fact  the  two  tendencies  are,  in 
substance,  the  same.     If  association  is 


CHAP.  XIVIII.] 


NATURE   AND   FORMATION. 


305 


§304.  Definition  of  Term  "  Trust. "  —  A  specific  definition 
of  the  term  "trust,"  as  applied  to  industrial  combinations,  is: 
A  combination  of  competing  corporations  formed  through 
the  transfer  by  the  stockholders  of  several  corporations  to 
a  common  trustee  of  controlling  stock  interests  therein,  in 
exchange  for  certificates,  issued  by  the  trustee,  for  each 
stockholder's  proportional  equitable  interest  in  all  the  stock 
so  transferred.^ 

§  305.  Popular  Use  of  Word  "Trust."  —  The  word  "trust," 
as  popularly  used,  has  a  much  broader  meaning  than  is  indi- 
cated by  its  specific  definition.  It  is  applied  generally  to  all 
combinations  of  industrial  corporations  formed  for  the  pur- 
pose of  regulating  the  price  and  supply  of  commodities.^ 
The  form  of  combination  is  inimaterial.  Associations  for 
pooling    products  and    corporations   formed  for  the  purpose 


prevented  by  law  different  manufac- 
tories may  be  melted  iuto  oue."  Arti- 
cle in  "  Political  Science  Quarterly," 
vol.  3,  p.  609,  by  Prof.  Theodore  W. 
Dwiglit. 

1  "  An  organization  for  the  control 
of  several  corporations  under  one  direc- 
tion by  the  device  of  a  transfer  by  the 
stockholders  in  each  corporation  of  at 
least  a  majority  of  the  stock  to  a  central 
committee,  or  board  of  trustees,  who 
issue  in  return  to  such  stockholders, 
respectively,  certificates  showing  in 
effect  that,  although  they  have  parted 
with  their  stock  and  the  consequent 
voting  power,  they  are  still  entitled  to 
dividends  or  to  share  in  the  profits  — 
the  object  being  to  enable  the  trustees 
to  elect  directors  in  all  the  corporations, 
to  control  and  suspend  at  pleasure  the 
work  of  any,  and  thus  economize  ex- 
penses, regulate  production  and  defeat 
competition."  Century  Diet,  sub  nam. 
"Trust"  (specific  definition). 

A  trust  "  is  an  arrangement  by 
which  the  stockholders  of  various  cor- 
porations place  their  stocks  in  the  hands 
of  certain  trustees,  and  take  in  lieu 
thereof  certificates  showing  each  stock- 
holder's equitable  interest  in  all  the 
stock  so  held.  The  result  is  twofold  : 
1.  The   stockholdera    thereby    become 


interested  in  all  the  corporations  whose 
stocks  are  thus  held.  2.  The  trustees 
elect  the  directors  of  the  several  cor- 
porations." Pamphlet  by  Mr.  S.  C.  T. 
Dodd,  general  solicitor  Standard  Oil 
Co.,  entitled  "  Combinations :  Their 
Uses  and  Abuses." 

2  Black's  Law  Diet,  suh  nom. 
"Trusts."  In  Queen  Ins.  Co.  v.  State 
(Tex.  Civ.  App.  189-3),  22  S.  W.  Ptep. 
1048,  22  L.  R.  A.  492,  the  Court  said: 
"  The  term  '  trust '  is  not  employed  in  a 
technical  legal  sense.  By  very  recent 
commercial  usage,  the  meaning  of  the 
word  has  been  extended  so  as  to  compre- 
hend combinations  of  corporations  or 
capitalists  for  the  purpose  of  controlling 
the  price  of  articles  of  prime  necessity, 
or  the  charges  of  transportation,  to  the 
public.  The  formation  of  gigantic  com- 
binations for  these  purposes  in  late  years 
has  created  alarm  and  excited  the  live- 
liest interest  in  the  public  mind.  The 
amount  of  discussion  which  it  has  in- 
voked, considering  the  time  during 
which  it  has  progressed,  is  probably 
without  parallel."  See  also  State  v. 
Firemen's  Fund  Ins.  Co.,  152  Mo.  1 
(1899),  (52  S.  W.  Rep.  595).  For  defi- 
nitions of  the  term  "trust"  in  State 
anti-trust  statutes,  see  post,  §  405. 

435 


§  307  INTERCORPORATE   RELATIONS.  [PART    V, 

of   purchasing   corporate    properties   have    both  —  and    wilh 
equal  inaccuracy  —  been  called  "trusts." 

The  words  "trust"  and  "combination"  are  often  used 
synonymously,  and  a  definition  of  a  combination  as  "a  union 
of  men  for  the  purpose  of  violating  the  law,"  '  defines  a  trust 
as  it  has  sometimes  existed,  possibly  more  in  the  jiast  than 
in  the  present,  in  the  popular  imagination. 

Tiiis  broad  use  of  the  word  "trust"  to  descrilie  coml)ina- 
tions  which  are  not  in  the  trust  form,  producing  confusion 
and,  sometimes,  unwarninted  prejudice,  should  be  avoided. 
The  word  is  used  in  tliis  treatise  as  applying  specifically  to 
the  trust  form  of  combination. 

§  306.  Definition  of  Phrase  "Corporate  Combination."  —  The 
phrase  "corporate  combination"  may  be  defined  as  a  com- 
bination of  corporations  formed  by  the  transfer  of  the  con- 
trolling stock  interests,  or  the  properties  and  good-will,  of 
several  corporations,  engaged  in  the  same  branch  or  connected 
branches  of  business,  to  a  single  corporation,  formed  for  the 
purpose,  which,  by  virtue  of  the  transfer,  acquires  a  j)ro- 
prietary  interest  in  such  stock  or  properties.^ 

§  307.  Evolution  of  the  Combination.  —  There  have  been 
three  distinct  ste])S  in  the  development  of  the  present  cor- 
porate combination,  brought  about  in  an  attempt  to  make 
effective  the  tendency  of  modern  business  life  towards  the 
concentration  of  corporate  interests  in  the  face  of  adverse 
judicial  decisions: 

First.  Associations  of  corporations  for  supposed  mutual 
advantage  were  formed,  having  for  their  object,  generally, 
the  restriction  of  production  and  the  regulation  of  prices. 
This  form  of  corporate  co-operation  was  usually  exemplified 

1  Bouvier's  Law  Diet.  (Rawle's  Ed.)  Mr.  Eddy  in  his  treatise  upon  "  Com- 
sat nom.  "  Combinations."  Linations,"  from   which   the   phrase  is 

-  Strictly  speaking,  any  combination  taken,  defines  corporate  combinations 
of  corporations  is  a  corporate  combina-  as  follows  (§  583)  :  "  Combinations 
tion.  As  used  in  this  treatise,  however,  formed  by  the  sale  or  lease  of  the 
the  phrase  has  reference  rather  to  the  properties,  assets  and  good-will  of  the 
form  of  the  combination  than  to  its  several  parties  or  corporations  to  one 
elements.  The  phrase  "  corporate  form  large  corporation  organized  for  the 
of  combination  "  would  be  more  exact  purpose  of  acquiring  the  several  prop- 
but  less  convenient.  erties." 

436 


CHAP.  XXVIII.]  NATURE    AND    FORMATION.  §  308 

by  pooling  agreements  and  selling  agencies,  which  left  the 
several  corporations  independent  of  each  other,  except  as 
bound  by  a  more  or  less  informal  agreement.  Combinations 
of  this  character  were  declared  illegal  by  the  courts,  as  tend- 
ing to  suppress  competition  and,  consequently,  as  contrary  to 
public  policy. 

Second.  The  trust  form  of  combination  was  resorted  to  in 
an  attempt  to  avoid  the  effect  of  the  decisions  against  associ- 
ations, apparently  in  the  belief  that  the  deposit  by  stock- 
holders of  their  shares  with  a  common  trustee  for  a  common 
purpose,  did  not  constitute  a  combination  of  corporations, 
because 

(1)  The  acts  of  the  stockholders  were  not  the  acts  of  the 
corporations. 

(2)  The  stockholders  of  the  several  corporations  had  a 
right,  if  they  saw  fit,  to  deposit  their  stock  with  a  trustee. 

These  views,  however,  were  not  adopted,  in  their  entirety, 
by  the  courts,  and  the  trust  form  of  combination  was  con- 
demned, not  only  for  the  reasons  stated  in  the  case  of  associ- 
ations, but  because  it  violated  fundamental  principles  of  the 
law  of  corporations. 

Third.  The  corporate  combination  was  then  formed  to 
avoid  the  effect  of  the  decisions  against  the  "trust."  In  the 
form  of  a  corporation  holding  the  stocks  of  the  subsidiary 
companies  it  has  not  always  withstood  attack,  even  for  rea- 
sons peculiar  to  corporation  law.  In  the  form  of  a  corpora- 
tion purchasing  the  plants  of  the  several  companies,  it  seems 
invulnerable  from  that  standpoint,  but,  in  common  with 
every  form  of  combination,  may  be  successfully  attacked  is 
formed  for  an  unlawful  purpose. 

§  308.     Formation  of  Associations. 
(A)    Railroad  Pools  : 

An  agreement  between  competing  railroad  or  other  trans- 
portation companies  whereby,  for  the  purpose  of  avoiding 
competition,  the  joint  traffic  or  earnings  are  divided  between 
the  companies  in  fixed  proportions,  constitutes  "pooling." 

Railroad  pools  are  of  two  kinds : 

(1)  Traffic  pools,    wherein   an   agreed   proportion    of    the 

437 


§  308  INTERCORPORATE   RELATIOiNS.  [PART    V. 

traffic  or  business  of  all  the  companies  is  allotted  to  each 
corporation.^ 

(2)  Pooh  of  earnings,  wherein  all  the  earnings  or 
profits  arc  placed  in  a  common  fund  or  i)Ool  and  divided 
between  the  corporations  in  the  proportions  stated  in  the 
agreement.^ 

Manufacturing    corporations    may  also,    if   not   unlawful, 
"pool"  their  products  or  earnings,  but  the  term  is  generally 
used  with  reference  to  the  agreements  of  railroad  or  other 
transportation  companies.^ 
(B)    Industrial  Associationn  : 

Associations  of  competing  industrial  corporations  have  for 
their  primary  object  the  restriction  of  competition.  This 
object  has  been  sought  to  be  attained  under  agreements  in 
various  forms: 

(1)  Agreements  prescribing  a  scale  of  prices  at  which  the 
products  of  the  several  companies  shall  be  sold.* 

(2)  Agreements  limiting  the  amount  of  production  of  each 
company." 

(3)  Agreements  appointing  a  common  selling  agent  to 
dispose  of  the  products  of  all  the  companies  at  fixed  prices, 
or  at  prices  adjusted  by  a  supervising  committee.*^ 

(4)  Agreements  for  the  purchase  of  a  company's  entire 
production  for  a  term  of  years.' 

1  Eclipse  Towboat  Co.  v.  Poutchar-  (44  Pac.  Rep.  660) ;  Texas  Standard 
train  R.  Co.,  24  La.  Ann.  1  (1872).  Oil  Co.  v.  A.loue,  83  Tex.  650   (1892), 

2  Hare  I'.  London,  etc.R.  Co.,  2  Johns.     (19  S.  W.  Rep.  274). 

&  H.  80  (1861),  (30  L.J.  Ch.  817,7  Jur.  *  Morris  Run    Coal    Co.  v.  Barclay 

(N.  s.),  114.5).  Coal  Co.,  68  Pa.  St.  173  (1871) ;  Santa 

8  For  consideration  of  the  legality  of  Clara  Valley  Mill,  etc.  Co.  i;.  Hayes,  76 

"pooling,"  see  post,  §  364:  "  Associa-  Cal.  387  (1888),  (18  Pac.  Rep.  391). 
tions   of  Railroad    Companies.     Traffic  •>  Morris  Run  Coal  Co.   i'.  Barclay 

Contracts  of  Competing  Lines.      Pools."  Coal  Co.,  68  Pa.  St.  173  (1871);  Skra- 

*  Dolph  V.  Troy  Laundry  Mach.  Co.,  inka  v.   Scharringhausen,   8  Mo.  App. 

28  Fed.    (553)  (1886);    De  Witt  Wire  522  (1880)  ;  Central  Shade  Roller  Co.  r. 

Cloth  Co.  V.   New  Jersey  Wire   Cloth  Cushman,  143  Mass.  353   (1887),  (9  N. 

Co.,   16   Daly    (N.  Y.)   529  (1891),  (14  E.  Rep.  629)  ;  Cummiugs  y.  Union  Blue 

N.  Y.   Supp.  277) ;  Cohen  v.  Berlin  &  Stone  Ass'n,  15  App.  Div.  (N.  Y.)  602 

Jones  Env.  Co.,  38  App.   Div.  (N.  Y.)  (1897),  (44  N.  Y.  Supp.  787). 
499    (1899),   (56     N.    Y.    Supp.    588);  "  Live  Stock  Ass'n  ?;.  Levy,  54  N.  Y. 

Nester  1-.  Continental  Brewing  Co.,  161  Super.   Ct     32  (1886);    Pacific    Factor 

Pa.  St.  473  (1894),  (29  Atl.  Rep.  102);  Co.  i-.    Adler,  90  Cal.  110  (1891),  (27 

Herrimani;.  Menzies,  US.Cal.  16  (1896),  Pac.  Rep.  36). 

438 


CHAr.  xxviir.]  nature  and  formation.  §  310 

(5)  Agreements  to  give  rebates  to  members  of  association.^ 
Many  other  forms    of   agreement,   modifications   of   those 

stated,  have  also  been  adopted. 

§  809.    Formation  of  Trusts.  —  The  following  elements  are 

essential  to  the  formation  and  existence  of  the  trust  form  of 

combination : 

(1)  The  deposit  by  the  holders  of  a  majority  of  the  shares 
of  the  several  corporations  to  be  combined  of  their  shares 
with  a  trustee  or  trustee  body,  and  the  transfer  of  the  legal 
title  thereof  to  the  trustee. 

(2)  The  issue  and  delivery  by  the  trustee  to  the  stock- 
holders, in  lieu  of  the  stock  deposited,  of  trust  certificates 
showing  the  proportional  interest  of  each  stockholder  in  all 
the  stock  deposited. 

(3)  The  execution  of  a  trust  agreement  ^  defining  the  rights 
of  the  parties;  providing,  generally,  for  the  election  and 
succession  of  trustees,  their  term  of  office  and  the  transfer 
of  trust  certificates,  and  necessarily  providing 

(A)  That  the  trustee  shall  vote  the  stock  deposited  and 
elect  the  directors  of  the  several  corporations. 

(B)  That  the  trustee  shall  receive  all  dividends  from  the 
several  corporations  and  place  them  in  a  common  fund. 

(C)  That  the  trustee  shall  make  dividends  from  this 
fund  —  when  sufficient  for  the  purpose  —  upon  the  trust 
certificates. 

§  310.  Formation  of  Corporate  Combinations.  —  As  indicated 
by  the  definition,  corporate  combinations  generally  take  one 
of  two  distinct  forms,  and  are  usually  created  in  the  manner 
following: 

(1)  In  pursuance  of  an  agreement  between  persons  in- 
terested in  competing  corporations,  a  holding  corporation  is 
organized,  under  the  laws  of  a  State  permitting  its  corpora- 
tions to  acquire  and  hold  the  stock  of   other  corporations, 

1  Mogul  Steamship  Co.  r.  Mc-  121  N.  Y.  582  (1890),  (24  N.E.  Rep.  834, 
Gregor,  L.  R.  17  App.  Cas.  2.')  (1891),  18  Am.  St.  Rep.  483),  aud  that  in  the 
(61  L.  J.  R.  295).  case  of  the  Standard  Oil  Trust,  in  State 

2  The  trust  agreement  in  the  case  of  v.  Standard  Oil  Co.,  49  ()liio  St.  137 
the  Sugar  Trust  is  stated  at  length  in  (1892),  (30  N.  E.  Rep.  279,  34  Am.  St. 
People  V.  North  River  Sugar  Ref'g  Co.,  Rep.  541,  36  Am.  &  Eng.  Corp.  Cas.  1). 

439 


§  311  INTERCORPORATE   RELATIONS.  [PART    V. 

with  a  capital  stock  at  least  equal  to  the  aggregate  capital  of 
the  several  corporations.  This  corporation  issues  its  own 
shares,  upon  an  agreed  basis,  in  exchange  for  the  shares  of 
the  several  corporations,  provided  that  it  obtain  at  least  a 
majority  of  the  shares  of  each  corporation.  All  the  corpo- 
rations continue  in  existence,  and  the  subsidiary  companies 
arc  controlled  by  the  holding  cori)oration,  which  derives  its 
income  from  the  dividends  paid  by  them.  In  organizing 
this  form  of  corporate  combination  the  dealings  arc  entirely 
between  tlie  holding  corporation  and  the  stockholders  of  the 
several  comi)anies. 

(2)  As  a  part  of  a  plan  for  combining  competing  corporate 
interests,  a  purchasing  corporation  is  organized,  with  a  share 
ca])ital  sufficiently  large  for  the  purpose,  which  purchases 
the  properties  —  plants,  stock  in  trade  and  good-will  —  of  the 
several  corporations  and  issues  its  own  stock  in  payment 
therefor.  Preferred  stock  is  generally  issued  for  tangible 
assets;  common  stock  for  good-will.  The  shares  arc  usually 
delivered  to  the  vendor  corporations,  but  may  be  directly 
distributed  among  their  stockholders. 

The  purchasing  corporation,  as  the  result  of  this  process, 
becomes  the  absolute  owner  of  the  property  of  all  the  cor- 
porations, and  may  continue  or  suspend  the  business  there- 
tofore carried  on  by  them,  and  otherwise  manage  its  affairs, 
without  restriction  or  supervision  except  by  the  State  and 
its  own  stockholders.  This  form  of  corporate  combination 
is,  in  its  creation,  wholly  between  the  two  corporations, 
vendor  and  purchaser,  and  is  least  liable  of  all  to  violate 
any  principle  of  corporation  law. 

In  particular  instances,  this  form  has  been  modified  and  cor- 
porate properties  have  been  taken  over  under  lease  instead 
of  sale.  So,  corporate  combinations  have  been  brought  about 
by  uniting  the  two  methods  —  by  acquiring  both  the  stock 
and  the  property  of  the  several  corporations,  or  the  stock  of 
some  and  the  property  of  others. 

§  311.     Analysis  of  Principles  determining  Legality    of   Combi- 
nations.—  The  legality  of  a  combination  of  corporations  in  any 
form  —  trust,  corporate  combination  or  simple  association  — 
440 


CHAP.  XXIX.]    CORPORATION   LAW    AFFECTING   TRUSTS.  §  312 

must  be  ascertained  by  the  application  of  the  following  nega- 
tive principles : 

(1)  A  coi7ihination  of  corporations  is  illegal  which  contravenes 
the  principles  of  law  governing  corporations. 

In  applying  this  principle  it  is  of  importance  to  ascertain: 
.   (A)  The  manner  of  organization. 
(B)  The  powers  of  the  companies. 

(2)  A  combinatio7i  is  illegal  which  contravenes  rules  of  public 
policy.  1 

In  applying  this  principle  it  is  of  essential  importance  to 
ascertain : 

(A)  The  purposes  of  the  combination  —  as  a  fact. 

(B)  The  rules  of  public  policy  —  as  a  matter  of  law. 

(C)  The  bearing  of  the  rules  upon  the  facts. 

(3)  A  combination  is  illegal  ivhich  contravenes  any  statutory 
provision. 

The  application  of  this  axiomatic  principle,  in  any  particu- 
lar case,  may  depend  upon  : 

(A)  The  form  and  object  of  the  combination. 

(B)  The  constitutionality  and  construction  of  the  statute. 


CHAPTER   XXIX. 


PRINCIPLES   OF   CORPORATION   LAW   AFFECTING    ASSOCIATIONS   AND 

TRUSTS. 

§  312.  Legality  of  Associations  not  generally  a  Question  of  Corporation  Law. 

§  313.  In  Formation  of  Trust,  State  regards  Acts  of  Stockholders  as  Acts  of 

Corporation. 

§  314.  Trust  invalid  as  involving  Partnership  of  Corporations. 

§  315.  Trust  invalid  as  involving  Delegation  of  Corporate  Powers. 

§  316.  Trust  invalid  as  involving  Practical  Consolidation. 

§  317.  Rights  and  Liabilities  growing  out  of  'J'rusts. 

§  312.    Legality   of    Associations  not  generally   a  Question  of 
Corporation  Law.  —  The  association  of   several   corporations 

1 A  combination    amounting    to    a    combinations   of   capital     are     seldom 
conspiracy  is  also  illegal,  but  modern     conspiracies.     See  post,  §  328. 

441 


§  313  INTERCORPORATE    RELATIONS.  [PART  V. 

for  the  promotion  of  their  common  interests  is  merely  tlie 
exercise  of  the  general  right  to  contract,  pertaining  to  every 
corporation  within  the  limitations  of  its  charter. 

Corporations,  retaining  the  management  of  their  affairs, 
may  generally  —  so  far  as  principles  of  corporation  law  are 
concerned  —  enter  into  such  agreements  with  other  corpora- 
tions as  they  may  deem  expedient.  Such  agreements  are 
seldom  ultra  vires,  except  in  the  Inroad  sense  that  an  unlawful 
act  is  always  ultra  vires.  The  test  of  illegality,  however, 
lies  in  the  application  of  other  jtrinciples  than  those  of 
corporation  law. 

§  313.  In  Formation  of  Trust,  State  regards  Acts  of  Stock- 
holders as  Acts  of  Corporation.  —  One  reason  for  adopting  the 
trust  form  of  combination  was  the  assumption  that  because 
the  corj)oration8  were  not  parties  to  the  agreement  between 
the  stockholders  and  the  trustee,  they  did  not,  themselves, 
participate  in  the  combination. 

This  assumption  was  based  upon  the  legal  fiction  that  a 
corporation  is  a  legal  entity  separate  and  distinct  from  the 
natural  persons  who  compose  it.  This  fiction  is  necessary 
for  the  ])rotection  and  enforcement  of  rights  between  the 
corporation,  its  stockholders  and  persons  with  whom  it  has 
dealings,  but  it  has  no  place  in  the  relations  of  a  corporation 
with  the  State  which  created  it.  The  State  grants  the 
charter  of  incorporation  to  the  corporators  and  may  take 
that  charter  away  from  them.  It  deals  with  a  corporation 
as  a  collection  of  its  members,  and  treats  their  united  acts 
as  the  acts  of  the  corporation,  because,  from  its  point  of 
view,  they  are  the  corporation.  A  trust,  formed  by  the 
stockholders  of  corporations,  in  the  eyes  of  the  State  is  the 
creation  of  the  corporations. 

In  the  Sufjar  Trust  Case,^  the  Court  of  Appeals  of  New 
York  said:  "The  abstract  idea  of  a  corporation,  the  legal 
entity,  the  impalpable  and  intangible  creation  of  human 
thought,  is  itself  a  fiction,  and  has  been  appropriately  de- 
scribed as  a  figure  of  speech.     It  serves  very  well  to  desig- 

1  People  V.  North  River  Sugar  Ref'g  Co.,  121  N.  Y.  621  (1890),  (24  N.  E. 
Rep.   834,  18  Am.  St.   Rep.  483). 

442 


CHAP.  XXIX.]         CORPORATION   LAW   AFFECTING   TRUSTS.         §  313 

nate  in  our  minds  the  collective  action  and  agency  of  many 
individuals  as  permitted  by  the  law;  and  the  substantial 
inquiry  always  is  what,  in  a  given  case,  has  been  that  collec- 
tive action  and  agency.  As  between  the  corporation  and 
those  with  whom  it  deals,  the  manner  of  its  exercise  usually 
is  material,  but  as  between  it  and  the  State,  the  substantial 
inquiry  is  only  what  that  collective  action  and  agency  has 
done,  what  it  has,  in  fact,  accomplished,  what  is  seen  to  be 
its  effective  work,  what  has  been  its  conduct.  It  ought  not 
to  be  otherwise.  The  State  gave  the  franchise,  the  charter, 
not  to  the  impalpable,  intangible  and  almost  nebulous  fiction 
of  our  thought,  but  to  the  corporators,  the  individuals,  the 
acting  and  living  men,  to  be  used  by  them,  to  redound  to 
their  benefit,  to  strengthen  their  hands  and  add  energy  to 
their  capital.  If  it  is  taken  away,  it  is  taken  from  them  as 
individuals  and  corporators,  and  the  legal  fiction  disappears. 
The  benefit  is  theirs,  the  punishment  is  theirs,  and  both 
must  attend  and  depend  upon  their  conduct;  and  when  they 
all  act,  collectively,  as  an  aggregate  body,  without  the  least 
exception,  and  so  acting,  reach  results  and  accomplish  pur- 
poses clearly  corporate  in  their  character,  and  affecting  the 
vitality,  the  independence,  the  utility,  of  the  corporation 
itself,  we  cannot  hesitate  to  conclude  that  there  has  been 
corporate  conduct  which  the  State  may  review,  and  not  be 
defeated  by  the  assumed  innocence  of  a  convenient  fiction. 
As  was  said  in  People  v.  Turnpike  Road  Co.:'^  ' Though  the 
proceeding  by  information  be  against  the  corporate  body,  it 
is  the  acts  or  omissions  of  the  individual  corporators,  that 
are  the  subject  of  the  judgment  of  the  court. '  "  ^ 


1  People  V.  Turnpike  Road  Co.,  23  from  the  natural  persons  composing  it, 
Wend.  (N.  Y.)  205  (1840).  is  not  disputed;  but  that  the  statement 

2  In  the  case  of  State  v.  Standard  is  a  mere  fiction,  existing  only  in  idea, 
Oil  Co.,  49  Ohio  St.  137  (1892),  (SON.  E.  is  well  understood,  and  not  contro- 
Rep.  279,  34  Am.  St.  Rep.  541,  36  Am.  verted  by  any  one  who  pretends  to 
&  Eng.  Corp.  Cas.  1),  similar  conclu-  accurate  knowledge  on  the  subject, 
sions  were  reached  by  the  Supreme  It  has  been  introducetl  for  the  con- 
Court  of  Ohio.  Judge  Minshall  said  venience  of  the  company  in  making 
(p.  177) :  "  The  general  proposition  that  contracts,  in  acquiring  property  for  cor- 
a  corporation  is  to  be  regarded  as  a  porate  purposes,  in  suing  and  being 
legal  entity,  existing  separate  and  apart  sued,  and  to  preserve  the  limited  liabil- 

443 


§314 


INTERCORPORATE   RELATIONS. 


[pa  RT 


§  314.  Trust  invalid  as  involving  Partnership  of  Corporations. 
—  The  primary  object  in  forming  a  trust  is  to  concentrate 
the  control  of  several  competing  corporations  into  a  single 
board.  The  several  corporations,  through  the  instrumentality 
of  the  trustees,  are  managed  for  a  common  pur[)Osc,  and  their 
stockholders  divide  the  profits  of  a  joint  enterprise.  The 
whole  arrangement  constitutes  a  partnership  of  corporations.^ 
As  said  by  the  Supreme  Court  of  Tennessee  in  the  Cutton 
Seed  Oil  Trust  Case:"^  "A  careful  examination  of  this  agree- 
ment discloses   every  material  element  of   the   contract  of 


ity  of  the  stockholders,  by  distinguish- 
ing between  the  corporate  debts  and 
property  of  the  coni]jany,  and  of  the 
stockholders  in  tlicir  capacity  as  indi- 
viduals. All  fictions  of  law  have  been 
introduced  for  the  purpose  of  con- 
venience and  to  subserve  the  ends  of 
justice.  It  is  in  this  sense  that  the 
maxim,  In Jictione  juris  subsistitaetjuitas, 
is  used,  and  tlie  doctrine  of  fictions  ap- 
plied. But  wlicn  tliey  arc  urged  to  an 
intent  and  purpose  not  within  the  rea- 
son and  policy  of  the  fiction  tliey  have 
always  been  disregarded  by  the  courts. 
...  (p.  179).  Now  so  long  as  a 
proper  use  is  made  of  the  fiction  that 
a  corporation  is  an  entity  apart  from  its 
shareholders,  it  ic  harmless,  and  because 
convenient,  shonbl  not  be  called  in  ques- 
tion ;  but  when  it  is  urged  to  an  end 
subversive  of  its  policy,  or  such  is  the 
issue,  the  fiction  must  be  ignored,  and 
the  question  determined,  whether  the 
act  in  question,  though  done  by  share- 
holders, that  is  to  s.iy,  by  the  persons 
united  in  one  body,  was  done  simply  as 
individuals  aud  with  respect  to  their  in- 
dividual interests  as  shareholders,  or 
•was  done  ostensibly  as  such,  but,  as  a 
matter  of  fact,  to  control  the  corpora- 
tion and  affect  the  transaction  of  its 
business,  in  the  same  manner  as  if  the 
act  had  been  clothed  with  all  the  for- 
malities of  a  corporate  act.  This  must 
be  so,  because  the  stockholders,  having  a 
dual  capacity,  and  capable  of  acting  in 
either,  and  a  possible  interest  to  conceal 
their   character  when  acting  in   their 

444 


corporate  capacity,  the  absence  of  the 
formal  evidence  of  the  character  of  the 
act  cannot  preclude  judicial  inquiry  on 
the  subject.  If  it  were  otherwise,  then, 
in  one  department  of  the  law,  fraud 
would  enjoy  an  immunity  awarded  to  it 
in  no  other." 

1  Trusts  have  been  held  to  amount 
to  partnershij)S  of  corporations  in  the 
folliiwing  leading  cases;  Mallory  v. 
Ilananr  Oil  Works,  8G  Tenn.  5'J8  (18S8), 
(8  S.  W.  Rep.  3%,  20  Am.  &  Eng. 
Corp.  Cas.  478) ;  People  v.  North  lliver 
Sugar  Uefg  Co.,  121  N.  Y.  582  (1890), 
(24  N.  E.  Rep.  834,  18  Am  St.  Rep. 
483);  State  v.  Standard  Oil  Co.,  49 
Ohio  St.  137  (1892),  (30  N.  E.  Rep.,  279, 
34  Am.  St.  Rep.  541,  36  Am.  &  Eng. 
Corp.  Cas.  1);  American  I'reservers 
Trust  V.  Taylor  Mfg.  Co.,  46  Fed.  152 
(1891)  ,  Bishop  V.  American  Preservers 
Co.,  157  111.  284  (1895),  (41  N.  E.  Rep. 
765).  In  the  last  case  the  Court  said: 
"  It  will  thus  be  seen  that  the  agreement 
in  question  makes  provision  for  welding 
together  all  the  interests  engaged  in  the 
business  named  in  theagreement  into  one 
giant  combination  or  partnershij),  under 
the  absolute  dominion  and  control  of  a 
board  of  nine  trustees.  .  .  .  The  agree- 
ment was  illegal  as  providing  for  a 
partnership  among  corporatiims.  It  is 
a  violation  of  the  law  for  corporations 
to  enter  into  partnership." 

2  Mallory  v.  Hanaur  Oil  "Works,  86 
Tenn.  602  "(1888),  (8  S.  W.  Rep.  396, 
20  Am.  &  Eng.  Corp.  Cas.  478). 


CHAP.  XXIX.]  CORPORATION   LAW   AFFECTING   TRUSTS.       §  314 

partnership.  The  absolute  ownership  of  the  corporate  prop- 
erty, the  mills,  machinery,  etc.,  is  not  conveyed  to  the 
partnership,  nor  is  this  necessary.  The  beneficial  use  of  all 
such  property  is  surrendered  to  the  common  purpose.  The 
provisions  for  the  complete  possession,  control  and  use  of 
the  properties  of  the  several  corporations  by  the  partnership 
or  syndicate  is  perfect.  Nothing  is  left  to  the  several  cor- 
porations but  the  right  to  receive  a  share  of  the  profits  and 
participate  in  the  management  and  control  of  the  consoli- 
dated interests  as  members  of  the  new  association.  The 
contract  is,  both  technically  and  in  its  essential  character,  a 
partnership  in  so  far  as  it  is  possible  for  corporations  to 
form  such  an  association." 

A  trust,  therefore,  constituting  a  partnership  of  corpora- 
tions, must  depend  for  its  validity  upon  the  power  of  the 
corporations  to  form  a  partnership.  No  such  implied  power 
exists.  A  partnership  is  inconsistent  with  the  scope,  object, 
powers  and  obligations  of  a  corporation.  It  interferes  with 
the  management  of  the  affairs  of  a  corporation  by  its  own 
officers,  impairs  the  authority  of  the  stockholders,  involves 
the  corporation  in  outside  enterprises,  and  is  opposed  to 
public  policy.  1 

In  the  absence  of  express  legislative  authority  to  enter  a 
partnership,  it  is  ultra  vires  of  a  corporation  to  enter  a 
trust. 

1  United  States :  American  Pre-  483) :  "  It  is  a  violation  of  the  law 
pen'ers  Trust  v.  Taylor  Mfg.  Co.,  46  for  corporations  to  enter  into  a  part- 
Fed.  152  (1891).  nership.  .  .  .  The  vital   characteristics 

Alabama:    Central    R.,    etc.    Co.    v.  of    the    corporation   are   of    necessity 

Smith,  76  Ala.  572  (1884),  (52  Am.  Rep.  drowned  in  the  paramount  authority  of 

352).  the  partnership."     See  also  New  York, 

Georgia:   Gunn   v.   Central   R.,  etc.  etc.  Canal  Co.  r.  Fulton  Bank,  7  Wend. 

Co.,  74  Ga.  509  (1885).  412  (1831). 

Illinois:    Bishop   «.    American    Pre-  Ohio:  State  r'.  Standard  Oil  Co.,  49 

servers  Trust,   157  111.   284  (1895),  (41  Oliio  St.    137    (1892),   (30   N.   E.    Rep. 

N.   E.    Rep.    765);    Marine    Bank    v.  279,  34   Am.    St.  Rep.  541,  36  Am.   & 

Ogden,  29  111.  248  (1862).  Eng.  Corp.  Cas.  1  ). 

3Jassachitselts  :  Whittendon    Mills  v.  Tennessee  :    Mallory   v.    Hanaur  Gil 

Upton,  10  Gray,  582  (1858).  Works,  86  Tenn.  598  (1888),  (8  S.  W. 

New    York :  People  i-.  North  River  Rep.  396,  20  Am.   &  Eng.  Corp.  Cas. 

Sugar  Ref'g  Co.,  121  N.  Y.  623  (1890),  478). 
(24  N.  E.   hep.  834,  18   Am.  St.  Rep. 

445 


§315 


INTERCORPORATE   RELATIONS. 


[part  V, 


S  315.  Trust  invalid  as  involving  Delegation  of  Corporate 
Powers.  — Statutes  relating  to  the  organization  and  manage- 
ment of  corporations  contain  provisions  for  their  control, 
primarily,  by  their  stockholders,  and,  immediately,  by  their 
directors,  and  indicate  the  policy  of  the  State  that  the  affairs 
of  corporations  should  be  conducted,  really  as  well  as 
formally,  by  their  own  ofTicials.  The  formation  of  a  trust 
substitutes  the  trustees  as  the  governing  body  and  makes  the 
directors  merely  tools.  ^  It  involves  the  delegation  of  corpo- 
rate powers,  is  against  public  policy,  and  is  inconsistent  with 
the  purposes  for  which  corporations  are  created. 

In  the  Case  of  the  Standard  Oil  Trust,^  the  Supreme  Court 
of  Ohio  said:  "The  law  requires  that  a  corporation  should 
be  controlled  and  managed  by  its  directors  in  the  interests 
of  its  own  stockholders,  and  conformable  to  the  purpose  for 
which  it  was  created  by  the  laws  of  its  State." 

This  principle  underlies  the  objection  that  trusts  amount  to 
corporate  partnershijts,  but  is  apjdicable,  with  equal  force, 
if  any  element  necessary  to  constitute  a  partnership  be 
lacking.^ 


1  In  Gould  V.  Head  ("  American 
Cattle  Trust "  Case).  .^8  Fed.  888  (18S9), 
{reorrseil  on  aiii)eal,  41  Fed.  240)  (1890), 
Judge  Hallett  said  :  "  The  corporations 
thus  associated  renounced  autonomy, 
but  not  their  existence.  They  com- 
mitted their  affairs  into  the  hands  of 
the  trust,  because  thoy  could  be  better 
managed  by  the  trust  than  by  them- 
selves. They  still  lived  and  owned  their 
property,  but  the  trust  was  a  regency 
of  their  own  creation,  with  absolute 
and  irrevocable  power  over  all  their 
concerns.  Ten  corporations  are  men- 
tioned in  the  affidavits  as  thus  united 
in  the  trust,  not  by  the  direct  act  of 
the  corporations,  but  by  transfer  of 
their  stock  to  the  trust,  or  to  persons 
holding  in  its  interest.  And  it  is  urged 
that  by  some  general  expression  in  the 
articles  of  association  the  trust  was 
given  absolute  authority  to  .sell  and 
dispose  of  the  stock  in  its  discretion. 
But  this  interpretation  is  not  in  accord 

446 


with  the  purpose  for  which  the  trust 
was  organized.  The  stock  was  trans- 
ferretl  to  the  trust,  not  for  the  purpose 
of  iHjing  sold,  but  to  give  control  of  the 
corporation  ;  to  make  the  officers  pup- 
pets in  the  hands  of  the  trust,  and  thus 
substitute  the  latter  as  the  governing 
body  of  the  corporation." 

See  also  People  i*.  North  River 
Sugar  Uefg  Co.,  121  N.  Y.  582  (1890), 
(24  N.  E.  Rep.  634,  18  Am.  St.  Rep. 
483). 

2  State  V  Standard  Oil  Co.,  49  Ohio 
St.  185  (1892),  (.-^O  N.  E.  Kep.  279, 
34  Am.  St.  Rep.  541,  36  Am.  &  Eng. 
Corp.  Caa.  1). 

8  State  V.  Standard  Oil.  Co.,  49  Ohio 
St.,  185  (1892),  (30  N.  E.  Rep.  279, 
34  Am.  St.  Rep.  541,  36  Am.  &  Eng. 
Corp.  Cas.  1) :  "  That  the  nature  of  the 
agreement  is  such  as  to  preclude  the 
defendant  from  becoming  a  party  to  it, 
is,  we  think,  too  clear  to  require  much 
consideration  by  us.     In  the  first  place 


CHAP.  XXIX.]       CORPORATION  LAW  AFFECTING  TRUSTS.  §  316 

§  316.     Trust    invalid    as    involving    Practical     Consolidation. 

—  A  combination  of  corporations  by  means  of  a  trust  amounts 
to  a  practical  consolidation.  The  actual  results  of  a  union 
of  corporate  interests  are  obtained  without  subjection  to  the 
restraints  imposed  by  the  State  when  authorizing  corpora- 
tions to  consolidate.  Under  consolidation  statutes,  the  re- 
sult may  be  a  new  corporation,  owing  obligations  to  the  State 
and  with  limitations  imposed  upon  the  amount  of  its  stock. 
The  result  of  the  formation  of  a  trust  is  an  irresponsible 
board  of  trustees,  and  a  virtual  doubling  of  paper  capital  by 
the  issue  of  trust  certificates  for  shares. 

Consolidation,  without  statutory  authority,  is  opposed  to 
public  policy.  Substantial  consolidation  is  equally  against 
public  policy,  for  it  involves  a  failure  in  the  performance  of 
corporate  duties.  Judge  Finch,  in  the  Sugar  Trust  Case,^ 
stated,  in  very  vigorous  language,  his  opinion  of  the  tendencies 
of  trusts  and  similar  combinations  and  their  effect  upon  the 
public  interests:  "As  corporate  grants  are  always  assumed 
to  have  been  made  for  the  public  benefit,  any  conduct  which 
destroys  their  normal  functions,  and  maims  and  cripples 
their  separate  activity,  and  takes  away  their  free  and  inde- 
pendent action,  must  so  far  disappoint  the  purpose  of  their 
creation  as  to  affect  unfavorably  the  public  interest;  and 
that  to  a  much  greater  extent  when,  beyond  their  own  several 
aggregations  of  capital,  they  compact  them  all  into  one 
combination,  which  stands  outside  of  the  ward  of  the  State, 
which  dominates  the  range  of  an  entire  industry,  and  puts 
upon  the  market  a  capital  stock  proudly  defiant  of  actual 
values,  and  capable  of  an  unlimited  expansion.  It  is  not  a 
sufficient  answer  to  say  that  similar  results  may  be  lawfully 
accomplished ;  that  an  individual  having  the  necessary  wealth 
might  have  bought  all  these  refineries,  manned  them  with 
his  own  chosen  agents,  and  managed  them  as  a  group  at  his 

whether    the     agreement    should     be  control   inconsistent  with  its  character 

regarded  as  amounting  to  a  partnership  as  a  corporation."' 
between  the  several  companies,  limited  ^  People  v.  North  Eiver  Sugar  Ref'g 

partnerships   and  individuals,  who  are  Co.,   121  N.  Y.  625  (1890),   (24  N.  E. 

parties  to  it,  it  is  clear  that  its  observ-  Rep.  834,  18  Am.  St.  Rep.  483). 
ance   must   subject  the  defendant  to  a 

447 


§  317  INTERCORPORATE  RELATIONS.  [PART   V. 

sovereign  will ;  for  it  is  one  thing  for  the  State  to  respect 
the  rights  of  ownership  and  protect  them  out  of  regard  to 
the  business  freedom  of  the  citizen,  and  quite  another  thing 
to  add  to  that  possibility  a  further  extension  of  those  con- 
sequences by  creating  artificial  persons  to  aid  in  producing 
such  aggregations.  The  individuals  are  few  who  hold  in 
possession  such  enormous  wealth,  and  fewer  still  who  jjeril 
it  all  in  a  manufacturing  enterprise;  but  if  corporations  can 
combine,  and  mass  their  forces  in  a  solid  trust  or  partner- 
ship, with  little  added  risk  to  the  capital  already  embarked, 
without  limit  to  the  magnitude  of  the  aggregation,  a  tempt- 
ing and  easy  road  is  opened  to  enormous  combinations, 
vastly  exceeding  in  number  and  in  strength,  and  in  their 
power  over  industry,  any  possibilities  of  individual  owner- 
ship;^ and  the  State,  by  the  creation  of  the  artificial  jjcrsons 
constituting  the  elements  of  the  combination,  and  failing  to 
limit  and  restrain  their  powers,  becomes  itself  the  respon- 
sible creator,  the  voluntary  cause  of  an  aggregation  of  cajjital 
which  it  simply  endures  in  the  individual  as  the  product  of 
his  free  agency.  What  it  may  bear  is  one  thing,  what  it 
should  cause  and  create  is  quite  another. " 

§  317.  Rights  and  Liabilities  growing  out  of  Trusts.  —  While 
the  rights  and  liabilities  of  trustees  and  certificate  holders, 
and  the  nature  of  trust  certificates  and  privileges  attaching 
thereto,  have  received   judicial  consideration,^ — especially 

^  This  language  seems  prophetic,  not  as  vendees.  People  v.  North 
viewed  in  the  light  of  the  present  day  River  Sugar  Ref'g  Co.,  121  N.  Y.  582 
of  billion-dollar  combinations.  The  (1890),  (24  N.  E.  Kep.  834,  18  Am.  St. 
reasoning,  however,  is  inconclusive.  Rep.  483).  Their  right  to  sell  the 
The  State  may  properly  limit  the  capi-  shares  so  held  depends  upon  tbo  terms 
tal  of  corporations  and  may  restrain  of  the  trust  agreement.  Trustees 
their  combination.  But,  in  the  absence  authorized  by  the  agreement  "  to 
of  such  limitation  or  restraint,  the  acquire,  receive,  hold  and  dispose  of" 
tendency  of  combinations  to  produce  such  shares  have  power  to  sell  them  to 
"  enormous  ""  aggregations  "  of  capital  third  persons.  Gould  r.  Head,  41  Fed. 
iu  no  way  indicates  their  illegality.  240  (1890),  rerers/n^  38  Fed.  886  (1889). 
The  words  are  merely  relative,  and  Compare  People  v.  North  River  Sugar 
no  principle  of  the  common  law  limits  Ref'g  Co.,  .54  Hun  (N.  Y.),  354  (1889), 
the  amount  of  nroperty  to  be  held  by  a  (3  N.  Y.  Supp.  401). 
person  or  private  corporation.  II.  Transjerahilit'/  of  certificates. 
-  I.  Rights  of  trustees.  Trust  certificates  are  transferable 
The  trustees  hold  tlie  stock  in  the  like  shares  of  stock.  Cameron  v.  Have- 
several    corporations    as   trustees    and  meyer,  25    Abb.  N.   C.  438  (1890),  (12 

448 


CHAP.  XXIX.]      CORPORATION   LAW    AFFECTING    TRUSTS.  §  317 

in  the  embryonic  stage  of  the  trust, —  it  must  be  borne  in 
mind,  in  examining  the  decisions,  that  trusts  have  now 
been  generally  declared  invalid,  and  that  the  courts  may 
decline  to  lend  their  aid  to  any  of  the  parties  to  an  illegal 
enterprise.^ 

The  holders  of  trust  certificates  are  the  equitable  owners 
of  shares  deposited. ^  The  certificates  represent  property, 
and  it  has  been  held  that,  although  the  trust  is  illegal,  the 
rights  of  certificate  holders  will  be  respected  by  the  courts;^ 
that  they  are  entitled  to  have  the  property  and  business  of 
the  trust  placed  in  the  hands  of  a  receiver  for  the  purpose 
of  winding  up  its  affairs.* 


N.  Y.  Supp.  126).  See  also  Gould  i'. 
Head,  41  Fed.  240  (1890).  Where  trust 
certificates  are  made  transferable  upon 
the  books  of  the  trust,  a  tru.stee  can  be 
compelled  to  make  the  transfer  and  to 
issue  a  new  certificate  to  the  transferee. 
Rice  V.  Rockefeller,  134  N,  Y.  174 
(1892),  (31  N.  E.  Rep.  907).  See  also 
as  to  the  nature  of  trust  certificates, 
State  V.  American  Cotton  Oil  Trust,  40 
La.  Ann.  8  (1888),  (3  So.  Rep.  409). 

1  Bishop  V.  American  Preservers 
Co.,  157  111.  284  (1895),  (41  N.  E.  Rep. 
765) ;  American  Biscuit,  etc.  Co.  v. 
Klotz,  44  Fed.  721  (1891). 

2  People  I'.  North  River  Sugar  Ref'g 
Co.,  121  N.  Y.  582  (1890),  (24  N.  E. 
Rep.  834,  18  Am.  St.  Rep.  483). 


3  State  V.  American  Cotton  Oil 
Trust,  40  La.  Ann.  8  (1888),  (3  v'^o.  Rep. 
409)  :  "  If,  as  alleged,  these  certificates 
have  been  taken  as  the  price  or  in  ex- 
change for  ten  million  dollars  of  prop- 
erty transferred  to  the  trust,  then,  what- 
ever be  their  validity  and  effect  as  shares 
of  stock,  whetlier  or  not  they  confer  oa 
the  holders  tlie  privileges  of  corporate 
stockholders,  or  whether  or  not  they 
confer  the  right  to  participate  in  the 
carrying  on  of  any  illegal  business,  yet 
they  undoubtedly  do  represent  au  in- 
terest in  the  property  referred  to,  and, 
as  such,  have  a  legal  and  real  value." 

*  Cameron  v.  Ilavemeyer,  25  Abb. 
N.  C.  (N.  Y.)  438  (1890),  (12  N.  Y. 
Supp.  126). 


29 


449 


§  319  INTERCORPORATE  RELATIONS.  [PART   V. 


CHAPTER   XXX. 

PRINCIPLES   OP   CORPORATION   LAW   AFFECTING   CORPORATE 
COMBINATIONS. 

§  318.     Corporate  Combiuations    by  Means   of  Turchasing  Corporations  — In 

General. 
§  319.     Issue  of  Stock  for  Property  in  Formation  of  Corporate  Cbmbination. 
§  320.     Issue  of  Stock  for  Good-will  in  Formation  of  Corporate  Combinatioa. 
§  321.     Over-valuation  of  Property  acquired  by  Issue  of  Stock. 
§  322.     Power  of  Vendor  Corporations  to  sell  Properties  for  Stock  of  Purchasing 

Corporation. 
§  323.     Corporate  Combinations  through  Formation  of  Holding  Corporations. 

§  318.  Corporate  Combinations  by  Means  of  Purchasing  Cor- 
porations—In General.  — Any  purchase  by  one  corporation  of 
the  pUmts  and  proitertics  of  other  companies  involves,  in  a 
sense,  a  combination  of  interests.  The  separate  properties 
are  united,  and  the  business  theretofore  carried  on  by  the 
different  corporations  is  conducted  by  one. 

The  result  may  be  the  same  whether  the  several  plants 
are  purchased  from  time  to  time  as  incidental  to  the  devel- 
opment and  extension  of  the  business  of  the  purchasing 
corporation,  or  whether  they  are  taken  over  at  one  time  by 
a  corporation  formed  for  that  express  purpose.  The  phrase 
"corporate  combination"  is,  however,  only  applicable  in  the 
latter  case.  The  methods  adopted  in  forming  corporate 
combinations  of  this  character  vary  in  detail,  but  usually 
follow  the  forms  outlined  in  a  preceding  section.^ 

The  principles  of  corporation  law,  applicable  in  the  forma- 
tion of  corporate  combinations,  relate,  generally,  to  the  power 
of  the  purchasing  corporation  to  issue  stock  for  property, 
including  good-will,  and  the  method  of  valuing  such  prop- 
erty ;  and  to  the  power  of  the  selling  corporations  to  exchange 
their  property  for  stock  in  another  corporation. 

§  319.  Issue  of  Stock  for  Property  in  Formation  of  Corporate 
Combination.  —  In  the  formation  of  a  corporate  combination, 

1  See  ante,  §  310  :  "  Formation  of  Corporate  Combinations." 

450 


CHAP.  XXX.]      LAW  AFFECTING  CORPORATE  COMBINATIONS.       §  310 

payment  for  the  plants  and  properties  taken  over  is  nearly 
always  made  in  the  stock  of  the  purchaging  corporation. 

The  available  cash  is  often  required  for  a  working  capital 
and,  moreover,  the  payment  of  cash  for  plants  would  elimi- 
nate the  vendor  corporations  from  the  transaction.  A  cor- 
porate combination,  while  in  the  form  of  a  purchase  and 
sale  of  properties,  in  reality  is  a  union  of  interests,  and  the 
issue  of  stock  of  the  purchasing  corporation,  directly  or 
indirectly,  to  the  stockholders  of  the  several  companies, 
accomplishes  the  double  purpose  of  paying  for  the  plants 
acquired  and  of  retaining  the  interests  of  the  old  stockholders 
in  the  new  corporation. 

The  transfer  of  property  for  an  original  issue  of  stock  is, 
strictly  speaking,  a  payment  of  an  informal  subscription,  the 
term  "  sale  "  applying  more  exactly  to  the  transfer  of  stock 
already  issued.  The  terms  "  purchase  "  and  "  sale  "  are,  how- 
ever, in  common  usage,  applied  to  the  acquisition  by  one 
corporation  of  the  properties  of  others  in  exchange  for  its 
stock. 

The  right  to  issue  stock  for  any  property  which  a  cor- 
poration has  power  to  acquire  is  clearly  established.^     Qucs- 


1  The   following    cases    are   merely  Rep.   891);   Reichwald  v.   Commercial 

illustrative  of  the  current  of  authority":  Hotel  Co.,  106  111.  439  (1883). 

United  States:  Wa,shburn  v.  National  Indiana  :  Coffin  v.  Ransdell,  110  Ind. 

Wall  Paper   Co.,  81    Fed.    17    (1897);  417(1887),  (11  N.  E.  Rep.  20) ,  Bruner 

Northwestern  Mutual  Life  Ins.  Co.  v.  v.  Brown,  139  Ind.  600  (1894),  (38  N.  E. 

Exchange  Real  Est.  Co.,   70   Fed.   155  Rep.  318). 

(1895) ;  Foreman  v.Bigelow, 4  Cliff.  508  Kansas:    Walburn   t;.  Chenault,   43 

(1878).     See  also  Loud  v.  Pomona,  etc.  Kan.  352  (1890),  (23  Pac.  Rep.  657). 
Co.,    153  U.   S.  564  (1894),  (14  Sup.  Ct.  Kentucky:  Phillips  v.  Covington,  etc. 

Rep.  928) ;  Coit  v.  Gold  Amalgamating  Bridge  Co.,  2  Mete.  219  (1859). 
Co.,  119  U.  S.  343  (1886),  (7  Sup.  Ct.         Louisiana:     Edwards     v.     Bringier 

Rep.  231) ;  Branch  v.  Jesup,  106  U.  S.  Sugar  Ext.  Co.,  27  La.  Ann.  118  (1875). 
468  (1882),  (1  Sup.  Ct.  Rep.  495)  ;  Coe  Maryland:  Brant  v.  Ehlen,  59  Md.  1 

V.  East    &  West   R.    Co.,  52  Fed.   531  (1882). 
(1892).  Massachusetts:  New  Haven  etc.  Co. 

u4/atamo  .- Frenkel  i>.  Hudson,  82  Ala.  t;.   Linden   Spring  Co.,   142   Mass.  349 

158  (1887),  (2  So.  Rep.  758,   60   Am.  (1886),  (7  N.  E.  Ilep.  773)  ;  Wyman  v. 

Rep.  736).  American    Powder    Co.,    8   Cush.    168 

^eor^m ;  Hayden  v.  Atlanta  Cotton  (1851). 
Factory,  61  Ga.  233  (1878).  Michigan:  Young  v.  Erie  Iron   Co., 

Illinois:     Farwell    v.    Great    West.  65  Mich.  Ill   (1887),  (31   N.   W.  Rep. 

Tel.  Co.,  161  111.  522  (1896),  (44  N.  E.  814). 

451 


§319 


INTERCORPORATE   RELATIONS. 


[part  V. 


tions  may  arise  as  to  the  valuation  of  property  taken,  but 
the  power  of  a  corporation  to  agree  with  a  subscriber  to 
receive  property  in  payment  for  stock  cannot  be  questioned 
at  the  present  day.  Only  where  the  governing  statute 
expressly  requires  payment  in  money  is  money's  worth 
insufficient.^ 

In  form,  the  transaction  is  direct.  The  property  is  trans- 
ferred to  the  corporation,  and  the  stock  is  issued  in  exchange 
therefor.  The  formality  of  paying  a  subscription  in  money 
and  immediately  paying  back  the  money  for  property  is  en- 
tirely unnecessary.* 

Statutes  have  been  passed  in  many  States  authorizing 
corporations,  under  prescribed  conditions,  to  purchase  prop- 
erty by  the  issue  of  stock,  and  to  accept  property  in  payment 
of  subscriptions.^  The  conditions  of  such  statutes  are  limi- 
tations upon  the  powers  of  the  corporations. 


Minnesota  :  Hastings  Malting  Co.  v. 
Iron  Haii;;e  Hrewiug  Co.,  65  Miiiu.  28 
(18'JG),  ((i7  N.  \V.  Kcp.  652). 

Missoiin  :  Woolfolk  v.  January,  131 
Mo.  620  (189.i);  Chouteau  v.  Dean, 
7  Mo.  App.  210  (1879). 

Nebraska :  Troup  v.  Ilorback,  53  Neb. 
795  (1898),  (74   N.    W.    Rep.  326). 

New  Jersey :  Weatherby  v.  Baker, 
35  N.  J.  Eq.  501  (1882).  See  New 
Jersey  statute  in  note  3  infra. 

New  Yo)k :  Van  Cott  v.  Van  Brunt, 
82  N.  Y.  535  (1880 ) ;  Barr  v.  New  York, 
etc.  R.  Co.,  125  N.  Y.  263  (1891),  (26 
N.  E.  Rep.  145) ;  Gamble  r.  Queens 
County  Water  Co.,  123  N.  Y.  91  (1890), 
(25  N.  E.  Rep.  201). 

North  Carolina :  Clayton  i-.  Ore 
Knob  Co.,  109  N.  C.  385  (1891),  (14 
S.  E.  Rep.  36). 

Ohio  :  Goodin  v.  Evans,  18  Ohio  St. 
150  (1868). 

Pennsylranin:  Shannon  r.  Stevenson, 
173  Pa.  St.  419  (1896),  (34  Atl.  Rep. 
218);  Johnston  v.  Markle  Paper  Co., 
153   Pa.    St.    189   (1893),   (25  Atl.  560). 

Tennessee :  Shield  v.  Clifton  Hill 
Land  Co..  94  Tenn.  123  (1894),  (28  S.  W. 
Ilep.  668,  45  Am.  St.  Rep.  700)  ;  Sea- 
right  V.  Payne,  6  Lea,  283  (1880). 

452 


Washington :  Kroenert  i».  Johnston, 
19  Wash.  96  (1898),  (52  Pac.  Rep.  605). 

Emjlaml :  Re  Wragg,  I  Ch.  Div. 
79C  (1897),  Spargo's  Case,  L.  R.  8  Ch. 
App.  407  (1873)  ;  Laroc(|ue  v.  Beauche- 
min,  App.  Cas.  358  (1897) ;  Burkinsliaw 
V.  Niciiols,  L.  R.  3  App.  Cas.  1004 
(1878). 

1  In  Connecticut,  until  1901,  the 
statute  required  that  twenty  per  cent 
of  the  subscriptions  to  all  joint  .stock 
companies  should  be  paid  in  in  cash. 

2  Chouteau  v.  Dean,  7  Mo.  App.  214 
(1879) :  "  It  is  not  now  questioned  that 
a  corporation  may  issue  its  stock  by 
way  of  payment  in  the  purchase  of 
property.  This  is  on  the  principle  that 
tiiere  is  no  need  for  the  roundabout 
process  of  first  issuing  the  stock  for 
money  and  then  paying  ttie  money  for 
the  property."  See  also  Liebke  i*. 
Knapp,  79  Mo.  22  (1883),  (49  Am.  Rep. 
212) ;  Spargo's  Case,  L.  R.  8  Ch.  App. 
407  (1873). 

*  New  Jersey  Corporation  Act  of 
1896,  §  49,  p.  293  :  "Any  corporation 
formed  under  this  act  may  purchase 
mines,  manufactories  or  other  property 
necessary  for  its  business,  or  the  stock 
or  any  company  or  companies  owning. 


CHAP.    XXX.]     LAW  AFFECTING  CORPORATE  COMBINATIONS.      §  320 

§  320.  Issue  of  Stock  for  Good-will  in  Formation  of  Cor- 
porate Combination.  — In  combining  the  interests  of  different 
business  establishments  into  a  single  corporation,  it  is 
essential  that  they  should  be  taken  over  as  going  concerns. 
The  purchasing  corporation  is  organized  for  the  purpose  of 
acquiring,  not  only  the  plants  and  tangible  assets  of  the 
several  companies,  but  also  their  business,  and  issues  its 
stock  —  usually  the  common  shares  —  for  the  purchase  of 
their  good-will. 

The  good-will  of  a  business  is  property  for  which  stock 
may  lawfully  be  issued,  either  at  common  law  or  under  stat- 
utes authorizing  the  issue  of  stock  "for  property  actually 
received  "^  by  the  corporation.^  It  has  a  value  independent 
of  the  tangible  assets  of  the  vendor  corporation,  may  be 
conveyed  separately  from  them  and  for  a  different  class  of 
stock,  and  its  value  may  be  fixed  by  appraisal.  The  question 
whether  a  particular  method  of  appraisal  is  proper  cannot 
be  raised  by  a  party  to  a  combination  who  has  approved  of, 
and  participated  in,  the  application  of  such  method  in  the 
sale  of  the  good-will  of  his  own  business. 

mining,    manufacturing    or    produciug  ^  Xeio  York  Stock  Corporation  Law 

materials,  or  other  property  necessary  1892,  ch.  688,  §  4,  as  amended  by  Laws 

for  its  business,  and  issue  stock  to  the  1901,  ch.  354  (Birdseye's  R.  S.  1901, 

amount  of  the  value  thereof  in  payment  p.  3418,  §  42). 

therefor,  and  the  stock  so  issued  shall  ^  Washburn  v.  National  Wall  Paper 
be  full-paid  stock  and  not  liable  to  any  Co.,  81  Fed.  17  (1897).  See  also  Beebe  y. 
further  call,  neither  shall  the  holder  Hatfield,  67  Mo.  App.  609  (1897)  ;  Pell's 
thereof  be  liable  for  any  further  pay-  Case,  L.  R.  5  Ch.  App.  11  (1869).  But 
ment  under  any  of  the  provisions  of  this  compare  Camden  v.  Stuart,  144  U.  S. 
act ;  and,  in  the  absence  of  actual  fraud  115  (1892),  (12  Sup.  Ct.  Rep.  585), 
in  the  transaction,  tlie  judgment  of  the  where  the  Supreme  Court  of  the  United 
directors  as  to  the  value  of  the  property  States  said  :  "  The  experience  and  good- 
purchased  shall  be  conclusive."  will  of  the  partners,  which  it  is  claimed 
The  provision  of  the  English  Com-  were  transferred  to  the  corporation,  are 
panics  Act  of  1867,  30  and  31  Vict,  of  too  unsubstantial  and  shadowy  a 
ch.  131,  §  25,  is  as  follows  :  "  Every  share  nature  to  be  cajiable  of  pecuniary  esti- 
jn  any  company  shall  be  deemed  and  mation  in  this  connection.  It  is  not 
taken  to  have  been  issued  and  to  be  sub-  denied  that  the  experience  and  good- 
ject  to  the  payment  of  the  whole  amount  will  of  a  business  may  be  the  subject  of 
thereof  in  cash,  unless  the  same  shall  barter  and  sale  as  between  the  parties 
have  been  otherwise  determined  by  a  to  it,  but  in  a  case  of  this  kind  there 
contract  duly  made  in  writing,  and  filed  is  no  proper  basis  for  ascertaining  \t^ 
with  the  registrar  of  joint  stock  com-  value,  and  the  claim  is  evidently  an  aftet- 
panies  at  or  before  the  issue  of  such  thought." 
shares." 

453 


§  320  INTERCORPORATE   RELATIONS.  [I'ART    V. 

In  Washburn  v.  National  Wall  Paper  Co.^  Judge  Lacomlje 
said:  "The  first  of  these  propositions  suggests  the  questions 
whether  stoek  is  issued  for  '  property  actually  received,' 
within  the  meaning  of  the  statute,  when  it  is  issued  for 
good-will  only;  and  whether,  assuming  that  the  entire  stock 
could,  under  the  New  York  Act  of  1892,  be  issued  solely  for 
good-will,  the  good-will  taken  in  this  case  was  taken  at  its 
actual  value.  .  .  .  Good-will  has  been  defined  as  '  all  that 
good  disposition  which  customers  entertain  towards  the 
house  or  business  identified  by  the  particular  name  or  firm, 
and  which  may  induce  them  to  continue  giving  their  custom 
to  it.'  Tliere  is  nothing  marveHous  or  mystericjus  about  it. 
When  an  individual  or  a  firm  or  a  corporation  has  gone  on 
for  an  unbroken  series  of  years  conducting  a  particular 
business,  and  has  been  so  scrupulous  in  fulfilling  every 
obligation,  so  careful  in  maintaining  the  standard  of  the 
goods  dealt  in,  so  absolutely  honest  and  fair  in  all  business 
dealings  that  customers  of  the  concern  have  become  con- 
vinced that  their  experience  in  the  future  will  be  as  satis- 
factory as  it  has  been  in  the  past,  while  such  customers' 
good  report  of  their  own  experience  tends  continually  to 
bring  new  customers  to  the  same  concern,  there  has  been 
produced  an  element  of  value  quite  as  important  —  in  some 
cases,  perhaps,  far  more  important  —  than  the  i)lant  or  ma- 
chinery with  which  the  business  is  carried  on.  That  it  is 
property  is  abundantly  settled  by  authority,  and,  indeed,  is 
not  disputed.  That,  in  some  cases,  it  may  be  very  valuable 
property  is  manifest.  The  individual  who  has  created  it  by 
years  of  hard  work  and  fair  business  dealing  usually  experi- 
ences no  difficulty  in  finding  men  willing  to  pay  him  for  it, 
if  he  be  willing  to  sell  it  to  them.  .  .  .  Since  good-will  is 
property,  and  since,  in  some  cases,  it  is  valuable  property,  it 
would  follow  that,  in  some  way  or  other,  it  must  be  practi- 
cally possible  to  determine  what  that  value  is.  "Whether 
the  particular  method  employed  in  the  case  at  bar  to  ascer- 
tain such  value  is  or  is  not  a  proper  one,  and  whether  the 
appraisement  made  when  these  several  wall  paper  concerns 

1  Washburn  v.  National  Wall  Paper  Co.,  81  Fed.  19  (1897). 

454 


CHAP.    XXX.]     LAW  AFFECTING  CORPORATE  COMBINATIONS.      §  321 

were  bought  up  by  the  defendant  company  was  accurate,  we 
are  under  no  obligation  to  inquire  upon  the  complainants' 
request.  The  method  of  valuation  was  one  which  they  fully 
approved,  and  which  was  applied  in  fixing  the  value  of  their 
own  property.  .  .  .  They  certainly,  participating  in  the 
transaction,  and  reaping  its  benefits,  are  in  no  position  now 
to  claim  that  the  good-will  bought  by  the  defendant  company 
with  common  stock  was  overvalued." 

§  321.  Over-valuation  of  Property  acquired  by  Issue  of  Stock. 
—  The  formation  of  every  corporate  combination  is  in  the 
nature  of  an  experiment,  entered  into  for  the  anticipated 
benefit  of  the  owners  of  the  several  establishments  entering 
the  combination.  The  stock  of  the  new  corporation  is, 
necessarily,  of  uncertain  value.  The  valuation  to  be  placed 
upon  the  various  plants  and  the  good-will  of  the  Inisiness  of 
each  company  cannot  be  reached  by  the  application  of  any 
hard  and  fast  rule. 

In  determining  the  amount  of  stock  to  be  issued  for  prop- 
erty, including  good-will,  under  such  circumstances,  the  only 
requirement  is  that  the  contracting  parties  shall  act  in  good 
faith  in  the  transaction.  As  said  by  Judge  Bunn  in  Bicker- 
man  V.  Northern  Trust  Co.:^  "Assuming  that  the  stock  of 
the  new  company  was  of  par  value,  and  that  the  plants 
were  worth  only  the  prices  fixed  upon  them  in  the  several 
options,  of  course  there  would  appear  to  be  an  over-valua- 
tion in  the  sale.  But  this  is  an  assumption  that  would 
scarcely  be  warranted.  Probably  there  was  not  much  market 
value  for  the  stock,  especially  the  common  and  unpreferred 
stock.  It  was  supposed  that  the  new  enterprise  would  make 
the  plants  more  valuable,  so  that  the  value  of  any  plant 
before  the  transfer  would  not  be  evidence  of  its  value  after 
the  consolidation  should  be  completed.  Every  one  interested 
proceeded  with  his  eyes  open,  and  it  was  entirely  competent 
to  make  such  a  contract  as  they  might  agree  upon.  There 
was  no  compulsion  practiced  and  no  evidence  of  fraud.  The 
mill  owners  could  set  such  valuation  upon  their  plants  as 
they  chose,  or  as  they  could  agree  upon  with  those  taking 

1  Dickerman  v.  Northern  Trust  Co.,  80  Fed.  4.53  (1897). 

455 


§321 


INTERCORPORATE   RELATIONS. 


[part  V. 


the  options.  The  holders  of  options  and  the  new  company, 
in  the  absence  of  fraud,  could  do  the  same  thing  and  make 
such  bargain  for  the  transfer  as  they  saw  fit." 

When  stock  has  been  issued  as  fully  paid  up,  in  exchange 
for  property  acquired,  the  weight  of  authority  supports  the 
view  that  mere  over-valuation  is  not  sufficient  to  invalidate 
the  issue,  and  that  fraud,  actual  or  constructive,  must  be 
shown  ;^  and  the  same  rule  is  sometimes  provided  ])y  statute.^ 


'  I.  Cases  holdinr)  that,  unless  the  over- 
valuation of  the  property  is  intentional 
and,  consequently,  fraudulent,  the  issue 
of  stock  cannot  be  attacked  or  the  stock 
treated  as  only  partially  paid  up. 

United  i>tiites :  Coit  v.  Gold  Amal- 
gamating Co.,  ll'J  U.  S.  345  (1886), 
(7  Sup.  Ct.  Rep.  231);  Dickcrman  v. 
Northern  Trnst  Co..  80  Fed.  450  (1897); 
Northwestern  Mut.  Life  Ins.  Co.  i-.  Ex- 
change l^eal  Est.  Co.,  70  Fed.  157(1895); 
Dui'ont  f.  Tilden.  42  Fed.  87  (1890); 
Phelan  v.  Hazard,  5  Dill.  45(1878). 

Indiana:  Bruner  x\  Brown,  139  Ind. 
600  (1894),  (38  N.  E.  Hep.  318) ;  Cutliu 
V.  Hansdell,  110  Ind.  417  (18S7),  (II 
N.  E.  Rep.  20). 

Maryland :  Brant  i'.  Ehlen,  59  Md.  1 
(1882). 

Minnesota  :  Hastings  Malting  Co.  v. 
Iron  Range  Brew.  Co.,  65  Miuu.  28 
(1896),  (67  N.  W.  Rep.  653). 

Michigan  :  Young  i'.  Erie  Iron  Co., 
65  Mich.  Ill  (1887),  (31  N.  W.  Rep. 
814). 

Nebraska :  Troup  v.  Ilorbach,  53 
Neb.  795  (1808),  (74  N.  W.  Rep.  326). 
Compare  Gilkie.  etc.  Co.  v.  Daw.son,  etc. 
Co.,  46  Neb.  333  (1895),  (64  N.  W.  Rep. 
978). 

New  Jersey ;  Bickley  v.  Schlag,  46 
N.  J.  Eq.  533  (1890),  (20  Atl.  Rep. 
250).  See,  however,  Weatherby  r. 
Baker,  35  N.  J.  Eq.  501   (1882). 

Neio  York:  Seymour  v.  Spring  For- 
est Cam.  Ass'n,  144  N.  Y.  333  (1895), 
(39  N.  E.  Rep.  365);  Schenck  v.  An. 
drews,  57  N.  Y.  133  (1874);  Powers  v. 
Knapp,  85  Hun,  38  (1895),  (32  N.  Y. 
Supp.  622). 

North  Carolina  ;  Clayton  v.  Ore  Knob 

456 


Co.,  109N.  C.385(1891),(14S.  E.  Rep. 
36). 

Pennsylvania  :  Anierican  Tube,  etc. 
Co.  V.  Hays,  165  I'a.  St.  489(1895),  (30 
Atl.  Rep.  936);  Carr  i-.  Le  Fevre,  27 
I'a.  St.  413  (1856). 

Tennessee. :  Kelley  v.  Fletcher,  94 
Tenn.  1  (1895),  (28  S.  W.  Rep.  1099)  ; 
Jones  f.Whitworth, 94  Tenn.  602 (1895), 
(30  S.  W.  Rep.  736). 

Washington:  Kroenert  v.  Johnston, 
19  Wash.  96  (1898),  (62  Piic.  Rep. 
605). 

Enqland :  In  re  Wragg,  1  Ch.  Div. 
796  (1897)  ;  Curries  Case,  3  De  fiex,  J. 
&  S.  367  (1863). 

Canada  :  In  re  Hess  Mfg.  Co.,  23 
Can.  S.  C.  644  (1894). 

II.  Cases  holding  that  proof  nf  over- 
valuation, even  without  fraud,  leaves  the 
stock  only  paid  up  to  the  extent  of  the  true 
value. 

United  States  :  Altenburgh  v.  Grant, 
85  Feil  345  (1897),  construing  peculiar 
provision  of  Kentucky  constitution. 

Al(diama  :  Roman  v.  Dimmick,  115 
Ala.  233  (1897),  (22  So.  Rep.  109). 

Illinois:  Sprague  r.  National  Bank, 
172  111.  149  (1898),  (50  N.  E.  Rep.  19). 

Missouri :  Van  Cleve  v.  Berkey,  143 
Mo.  109  (1898),  (44  S.  W.  Rep.  743). 

Ohio :  Gates  v.  Tippecanoe  Stone 
Co.,  57  Ohio  St.  60(1897),  (48  N.  E. 
Rep.  285). 

Utah  :  Salt  Lake  Hardware  Co.  v. 
Tintic  Mill.  Co.,  13  Utah,  423  (1896), 
(45  Pac.  Rep.  200). 

2  New  Jersey  Corporation  Act  of 
1896,  §  49,  p.  293.  See  note  to  §  319, 
ante. 


CHAP.  XXX.]     LAW  AFFECTING  CORPORATE  COMBINATIONS.      §  323 

Gross  and  obvious  over-valuation  would,  however,  make  the 
transaction  presumptively  fraudulent. ^ 

Constitutional  provisions  have  been  adopted  and  statutes 
enacted,  in  many  States,  against  the  fictitious  issue  of  stock. 
A  consideration  of  these  provisions  and  of  the  remedies 
of  creditoi's  or  stockholders  in  the  case  of  watered  stock, 
belongs,  more  appropriately,  in  a  treatise  upon  general  cor- 
poration law. 

§  322.  Power  of  Vendor  Corporations  to  sell  Properties  for 
Stock  of  Purchasing  Corporation. — The  general  principles  of 
law  governing  the  exchange  of  corporate  property  for  stock 
in  other  corporations,  which  have  already  been  fully  con- 
sidered, arc  applicable  in  the  case  of  the  formation  of  a  cor- 
porate combination  and  do  not  require  further  examination. ^ 

§  323.  Corporate  Combinations  through  Formation  of  Holding 
Corporations.  —  Corporate  combinations  have  sometimes  been 
created  by  the  formation  of  a  corporation  to  acquire  control 
of  several  competing  corporations,  through  the  ownership  of 
a  majority  of  their  respective  shares. 

Upon  principles  elsewhere  considered,  such  holding  cor- 
porations can  only  be  organized  under  laws  permitting  corpo- 
rations to  acquire  and  hold  stock  in  other  corporations.  A 
corporate  combination,  by  means  of  a  holding  corporation, 
therefore,  depends  for  its  validity  upon  the  power  of  such 
corporation  to  hold  the  shares  of  the  several  subsidiary  com- 
panies. In  the  absence  of  such  power,  the  combination  is 
invalid,  and  the  holding  corporation  is  liable  to  be  pro- 
ceeded against  in  quo  tvarranto,  entirely  irrespective  of  the 
question  whether  the  combination  is  opposed  to  public 
policy.  2 

1  Coit  V.  Gold  Amalgamating  Co.,  Stock  of  Another."  See  also  an/e,  §  281  : 
119  U.  S.  343  (1886),  (7  Sup.  Ct.  Rep.  "  Pou-er  to  take  Stock  in  Exchange  for 
231)  ;  Lloyd  v.  Preston,  146  IT.  S.  630     Corporate  Assets." 

(1892);  Coleman  v.  Howe.  154  111.  458  »  People  v.  Chicago  Gas  Trust  Co., 

(1895),  (39  N.  E.  Kep.  725);  Hastings  130  111.  268  (1889),  (22  N.  E.  Rep.  798, 

Malting  Co.  r.  Iron  Range  Brew.  Co.,  17  Am.  St.  Rep.  319),  is  the    leading 

65  Minn.  28   (1896),   (67    N.   W.    Rep.  case  illustrating  the  principles  guvern- 

652).  ing  this  form  of  corporate  comhinatiou. 

2  See  ante,  subdiv.  TI.  ch.  11  :  "  Ex-  In  this  case  the  Court  said  (p.  2SS)  : 
change  of  Property  of  One  Corporation  for  "  Our  conclusion,  upon  this  branch    of 

457 


§324 


INTEKCORPORATE   RELATIONS. 


[part  V. 


ARTICLE    IT. 

COMBINATIONS  AS  AFFECTED  BY  PRINCIPLES  OF 
COMMON  LAW   AND   PUBLIC   POLICY. 


cnAPTi:R  XXXI. 


application  of  law  of  conspiracies. 


§  324.  Definition  and  Classification  of  Conspiracies. 

§  325.  Criiiiiii;il  ami  Civil  Conspiracies  distiupuished. 

§  326.  Aj>|<lii:iljility  of  Law  of  Conspiracies  to  Corporations. 

§  327.  What  Combinations  are  Conspiracies. 

§  328.  Modem  Combinations  of  Capital  seldom  Conspiracies. 

§  324.  Definition  and  Clcissification  of  Conspiracies. —  A  Con- 
spiracy is  a  species  of  the  genus  combination,  and  may  he 
broadly  defined  as  a  combination  to  effect  an  illegal  oljjcct, 
as  an  end  or  means;  or,  in  the  language  of  Lord  Denman,^ 
"to  do  an  unlawful  act,  or  a  lawful  act  by  unlawful  means. "^ 


the  case,  is,  that  if  the  Chicago  Gas 
Trust  Company  be  regarded  as  a  cor- 
poration formed  for  the  purpose  of 
erecting  or  operating  gas-works  and 
manufacturing  and  selling  gas,  it  has 
no  power  to  purcliase  and  hold  or  sell 
shares  of  stock  in  other  gas  companies, 
as  an  incident  to  such  purpose  of  its  for- 
mation, even  tlioiigh  such  power  is  spe- 
cified in  the  articles  of  incorporation." 

For  statement  of  the  facts  in  this 
case,  see  post,  §  346  :  "  Basis  of  Rule  — 
{E}  Case  of  the  Chicago  Gas  Trust." 
See  also  ante,  §  264 :  "  Necessity  for 
Statutory/  Authority  to  purchase  Stock, 
Rule  in   United  States." 

1  Jones'  Case,  4  B.  &  Ad.  349 
(1832). 

2  United  States.  Pettibone  i".  United 
States,  148  U.  S.  203  (1893),  (13  Sup. 
Ct.  Rep.  542)  :  "  A  conspiracy  is  suffi- 
ciently described  as  a  combination  of 
two  or  more  persons,  by  concerted  ac- 
tion, to  accomplish  a  criminal  or  unlaw- 

458 


ful  purpose,  or  some  purpose  not  in 
itself  criminal  or  unlawful,  l)y  criminal 
or  unlawful  means."  See  also  United 
States  V.  Cassidy,  67  Fed.  698  (1895). 

Illinois.  Smith  v.  People,  25  111.  17 
(1860),  (76  Am.  Dec.  780). 

Maine.  State  r.  Bartlett,  30  Me. 
134  (1849)  :  "  A  conspiracy  at  common 
law  consists  in  the  unlawful  agree- 
ment of  two  or  more  per-ons  to  com- 
pass or  promote  some  criminal  or  illegal 
purpose,  or  in  the  unlawful  agreement 
to  compa.ss  or  promote  a  purpose  not  in 
itself  criminal  or  unlawful,  by  criminal 
or  unlawful  means." 

2fassachusetts.  Commonwealth  v. 
Waterman,  122  Mass.  57  (1877) :  A  con- 
spiracy is  "the  combination  of  two  or 
more  [persons]  to  do  something  unlaw- 
ful, either  as  a  means  or  as  an  ultimate 
end." 

Michigan.  Alderman  v.  People, 
4  Mich.  414  (1857),  (69  Am.  Dec.  321). 


CHAP.  XXXI.]     APPLICATION  OF  LAW  OF  CONSPIRACIES. 


324 


Conspiracies  are  of  two  kinds,  criminal  and  civil.  A 
criminal  conspiracy  is  a  combination  of  two  or  more  persons 
to  accomplish,  by  concerted  action,  a  criminal  or  unlawful 
object;  or  a  lawful  object,  by  criminal  or  unlawful  means. ^ 

A  civil  conspiracy  is  a  combination  of  two  or  more  persons 
to  accomplish,  by  concerted  action,  an  unlawful  or  oppres- 
sive object;  or  a  lawful  object,  by  unlawful  or  oppressive 
means  — resulting  in  damage.  ^ 


^  See  definitions  in  preceding  note. 

In  Commonwealth  v.  Hunt,  4  Met. 
(Mass.)  123  (1842),  Chief  Justice  Shaw 
thus  defined  a  criminal  conspiracy  :  "A 
conspiracy  must  be  a  combination  of 
two  or  more  persons,  by  some  concerted 
action,  to  accomplish  some  criminal  or 
unlawful  purpose,  or  to  accomplish  some 
purpose,  not  criminal  or  unlawful,  by 
criminal  or  unlawful  means." 

The  term  "  unlawful,"  in  addition  to 
the  term  "  criminal,"  was  used,  said  the 
Chief  Justice,  because  "  it  is  manifest 
that  many  acts  are  unlawful  which  are 
not  punishable  by  indictment  or  other 
public  prosecution  ;  and  yet  there  is  no 
doubt,  we  think,  that  a  combination  by 
numbers  to  do  them  would  be  an  un- 
lawful conspiracy,  and  punishable  by 
indictment." 

As  to  the  use  of  the  phrase  "by 
concerted  action,"  see  United  States  v. 
Cassidy,  67  Fed.  698  (1895) ;  Alderman 
V.  People,  4  Mich.  424  (1857),  (69  Am. 
Dec.  321). 

The  manifest  difSculty  of  stating  a 
rule  for  determining  what  acts,  unlaw- 
ful but  not  criminal  when  committed 
by  an  individual,  constitute  a  criminal 
offence  when  committed  by  a  combi- 
nation of  individuals,  was  considered  by 
the  Supreme  Court  of  Errors  of  Con- 
necticut in  State  r.  Glidden,  55  Conn. 
70  (1887),  (8  Atl.  Rep.  890).  "It  has 
often  been  said  that  a  conspiracy  to 
effect  an  unlawful  purpose,  or  a  lawful 
purpose  by  unlawful  means,  is  an 
offence.  But  this  is  said  to  be  a  limi- 
tation rather  than  a  definition.  It  cer- 
tainly lacks  definiteness.  Many  acts  are 
said  to  be  unlawful  which  would  not  be 
the  subject  of  a   criminal  conspiracy. 


Other  acts  are  unlawful  because  they 
are  in  violation  of  the  criminal  law  or 
some  penal  statute.  If  the  end  or  means 
are  criminal  in  themselves,  or  contrary 
to  some  penal  statute,  the  conspiracy  is 
clearly  an  offence.  Between  these  two 
extremes  a  great  variety  of  cases  may 
arise,  many  of  which  ouglit  not  to  be 
regarded  as  criminal.  ...  If  we  were 
to  attempt  to  give  a  rule  applicable  to 
this  branch  of  tlie  subject,  we  should 
say  that  it  is  a  criminal  offence  for  two 
or  more  persons,  corruptly  or  mali- 
ciously to  confederate  and  agree  to- 
gether to  deprive  another  of  his  liberty 
or  property.  Such  a  rule  is  proximately 
correct  and  practically  just." 

The  theory  that  acts  merely  unlaw- 
ful may  become  criminal  when  done  in 
concert  is  supported  by  the  authorities 
to  such  an  extent  that  the  writer  has 
felt  obliged  to  follow  it  in  formulating 
a  definition  of  a  criminal  conspiracy. 
It  is  difficult,  however,  to  support  it 
upon  principle.  Mere  concert  of  action 
—  except  when  involving  force  or  false 
statement  —  is  not,  in  itself,  criminal; 
and  if  neither  the  object  nor  means  are 
criminal  wherein  lies  the  criminality  ? 
See,  in  this  connection,  Bohn  Mfg.  Co. 
r.  Hollis,  54  Minn.  223  (1893),  (55  N. 
Rep.  119). 

-  The  same  combination,  of  course, 
may  amount  to  a  criminal  as  well  as  a 
civil  conspiracy.  Acts  constituting  a 
criminal  conspiracy,  If  accompanied 
with  damage,  may  also  subject  the  con- 
spirators to  a  civil  action. 

For  consideration  of  the  element  of 
damage  in  civil  conspiracies,  see  next 
section. 

459 


§  325 


INTERCORPORATE   RELATIONS. 


[part 


S  325.  Criminal  and  Civil  Conspiraciea  diatlngulahed.  —  A 
criminal  aiul  a  civil  cunspiracy,  asiilf  from  tlie  cleiiunt  of 
criminalitv,  may  be  distinguished  from  the  fact  that  the  pist 
of  the  action  in  case  of  the  one  is  merely  an  act  of  a<:«jra- 
vation  in  the  other.* 

The  gist  of  the  ofTence  of  criminal  cons|)iracy  is  the  com- 
bination. The  ofTence  is  complete  when  the  confederacy  is 
made,  and  no  overt  act  is  necessary.  Any  act  in  pursuance 
of  the  combination  is  matter  of  aggravation.* 

Damage  is  essential  to  a  riglit  of  action  for  civil  conspiracy. 
It  is  the  gravamen  of  the  charge,  and  the  cimibination  is  only 
a  matter  of  aL'irravation.' 


1  III  Van  Horn  r.  Van  Horn,  52 
N.  J.  L.  28f)  (18'J(»),  (20  All.  Ucp.  483), 
tho  Court  said  :  "  It  is  not  iiccf>«.tary  to 
consider  tho  ofHco  of  tho  ani'ient  writ 
of  conspiracy,  Rnd  tho  process  h\  wliirh, 
in  time,  it  wa.s  superseded  hy  the  hitcr 
and  njoro  elliracious  action  on  tlio  case 
for  conspiracy,  and  tho  still  more 
modem  action  for  malicious  prosecu- 
tion. Nor  will  it  now  lie  advant.i;;e<>us 
to  show  liiiw  long  and  ditlicuU  it  wa.s  to 
separate  the  idea  of  a  criminal  conspir- 
acy at  common  law,  wliero  tho  aj^reo- 
mcnt  or  consinracy  wa.s  the  t/raramfn  of 
the  offence,  from  the  re.al  complaint  in 
a  civil  action,  that  the  comliination  of 
two  or  more  pcr-^ons  h.as  cnaMcil  them 
to  inlliit  a  great  wrong  on  the  plaintiff. 
The  combination  or  consjiiracy  in  the 
latter  case  was,  therefore,  a  matter  of 
aggravation  or  inducement  only,  of 
which  one  or  all  might  he  fouinl  guilty, 
while  in  the  former  it  wa.s  essential  to 
show  that  two  or  more  liad  joinetl  in  an 
agreement  to  do  an  uidawful  act,  or  to 
do  a  lawful  act  in  an  unlawful  manner. 
The  distinction  is  now  well  established, 
that  in  civil  actions  the  conspiracy  is 
not  the  gravamen  of  the  charge." 

2  Commonwealth  r.  Judd,  2  Mass. 
329  (1807),  {per  Parsons,  C.  J.)  :  "The 
gist  of  a  conspiracy  is  the  unlawful 
confederacy  to  do  an  unlawful  act,  or 
even  a  lawful  act  for  unlawful  purposes  ; 
the  offence  is  complete  when  the  con- 
federacy is  made ;  and  any  act  done  in 

460 


pnrsnancc  of  it  in  no  constituent  part  of 
the  ofTence,  but  merely  nn  aggravation 
of  it.  The  rule  of  tlic  common  law  is 
to  prevent  unlawful  combinations.  .  .  . 
The  unlawful  confederacy  is.  therefore, 
punished  to  prevent  tho  doing  of  any  act 
in  execution  of  it." 

Tcoplc  V.  Sheldon.  139  N.  Y.  264 
(1893),  (34  N.  E.  Hep.  785):  "The 
gravamen  of  tho  offence  of  conspir- 
acy i.s  tlio  combinatiou.  Agreements 
to  prevent  com|)etition  in  tra<ie  are,  in 
contemplation  of  law,  injurious  to  trade, 
because  they  are  liable  to  be  injuriously 
used." 

Both  of  these  opinions  refer  to 
criminnl  conspiracies  and  are  indicative 
of  tho  uniform  current  of  authority 
that,  unless  expressly  provided  by  stat- 
ute (as  is  sometinjes  tho  case),  proof 
of  an  overt  act  is  not  necessary  in  a 
prosecution  for  conspiracy ;  nor  is  it 
necessary  to  set  fortli  such  act  in  the 
imlictment. 

3  Robertson  i;.  Tarks,  76  Md.  135 
(1892),  (24  Atl.  Rep.  413):  "It  is  a 
general  rule,  that  a  conspiracy  cannot 
bo  made  the  subject  of  a  civil  action, 
unless  something  is  done  which,  without 
the  conspiracy,  would  give  a  right  of 
action.  The  damage  done  is  the  gist  of 
the  action,  not  the  conspiracy.  Where 
the  mischief  contemplated  is  accom- 
plished, the  conspiracy  becomes  impor- 
tant, as  it  may  affect  the  means  and 
measures  of  redress.    The  party  wionged 


CHAP.    XXXI.]      APPLICATION    OP   LAW   OF   CONSPIRACIES.         §  326 

§  326.     Applicability  of  Law  of  Conspiracies  to  Corporations. 

—  The  law  of  civil  conspiracies  is  equally  applicable  to  cor- 
porations and  to  individuals.  A  combination  of  corporations 
for  an  unlawful  or  oppressive  object  —  as  an  end  or  means  — 
is  a  conspiracy,  if  a  similar  combination  of  natural  persons 
would  amount  to  a  conspiracy ;  and  the  converse  of  the 
proposition  is  equally  true. 

In  Buffalo  Lubricating  Oil  Co.  v.  Standard  Oil  Go.  ^  the 
Court  said  :  "  We  entertain  no  doubt  that  an  action  against 
a  corporation  may  be  maintained  to  recover  damages  caused 
by  conspiracy.  ...  If  actions  can  be  maintained  against 
corporations  for  malicious  prosecution,  libel,  assault  and 
battery,  and  other  torts,  we  can  perceive  no  reason  for 
holding  that  actions  may  not  be  maintained  against  them 
for  conspiracy.  It  is  well  settled  by  the  authorities  cited, 
that  the  malice  and  wicked  intent  needful  to  sustain  such 
actions  may  be  imputed  to  corporations." 

Upon  similar  principles,  it  would  seem  that  a  combination 
of  corporations  for  a  criminal  object  would  amount  to  a 
criminal  conspiracy,  if  such  would  be  the  result  of  a  combina- 
tion of  individuals  for  the  same  purpose.  In  several  States, 
the  anti-trust  laws  expressly  provide  that  corporations,  as 
well  as  natural  persons,  violating  their  provisions,  shall  be 
guilty  of  the  crime  of  conspiracy .^ 

may  look  beyond  the  actual  participauts  See  also  Adler  v.  Fenton,  24  How. 

in  committing  the  injury,  and  join  with  (U.  S.)  407  (1860)  ;  Van  Horn  v.  Van 

them  as  defendants  all  who  conspired  Horn,  52  N.  J.  L.  284  (1890),  (20  Atl. 

to  accomplish  it ;  and  the  fact  of  con-  Rep.  485) ;  Kimball  v.  Harman,  34  Md. 

spiracy  may  aggravate  the  wrong;  but  407  (1871) ;  Stevens  v.  Rowe,  59  N.  H. 

the  simple  act  of  conspiracy  does  not  578(1880),  (47  Am.  Rep.  231).     Ilutch- 

furnish  a  substantial  ground  of  action."  ins  v.  Hutchins,  7  Hill,  104  (1845). 

Doremus  v.  Hennessey,  62  111.  App.  i  Buffalo  Lubricating  Oil  Co.  v. 
402  (1895)  :  "A  civil  action  will  not  lie  Standard  Oil  Co.,  106  N.  Y.  670  (1887), 
for  a  mere  conspiracy.  It  is  the  dam-  (12  N.  E.  Rep.  826). 
age  done  in  pursuance  of  the  conspiracy  "  The  Missouri  anti-trust  act  (see 
which  gives  the  right  of  action.  It  is  post,  §  405)  provides  in  its  first  section 
now  well  established  that,  in  civil  actions,  that  any  corporation,  individual  or 
the  conspiracy  is  not  the  gravamen  of  other  association  of  persons,  entering 
the  charge,  but  may  be  pleaded  and  into  any  combination  in  violation  of  its 
proved  in  aggravation  of  the  wrong  of  provisions,  "  shall  be  deemed  and  ad- 
which  the  plaintiff  complains,  and  as  judged  guilty  of  a  conspiracy  to  de- 
enabling  him  to  recover  against  all  the  fraud."  In  National  Lead  Co.  ;•.  Grote 
conspirators,  as  joint  tortfeasors."  Paint  Store  Co.,  80  Mo.  App.  247  (1899), 

461 


INTERCORPORATE   RELATIONS. 


[part  V. 


§  327.  What  Combinations  are  Conspiracies.  —  A  combina- 
tion amounts  to  a  criminal  conspiracy  only  when  the  end 
or  means  are  criminal  or  unlawful.  A  combination  amounts 
to  a  civil  conspiracy  only  when  the  ends  or  means  are  un- 
lawful or  oj^prossive,  and  the  legal  rights  of  others  are  in- 
fringed. Whether  a  particular  combination  is  a  conspiracy 
depends,  therefore,  ui>on  its  object,  and  the  means  adopted 
for  accomplishing  it.  The  question  of  motive  may  also  be  of 
importance. 

Thus  in  the  celebrated  Mogul  Steamship  Case^  Lord  Chief 


the  Missouri  Court  of  Appojils,  referring 
to  this  statute,  said  :  "  H_v  the  language 
of  the  first  section  of  that  enactment  a 
violation  of  its  provisions  is  ma«le  a 
cxinie,  i.  e.  *a  conspiracy  to  defraud' 
And  in  discussing  the  liability  of  a 
corporntiou  for  its  violation  the  Court 
said  (p.  269)  :  "A  corporation  can  only 
act  througii  \ts  nieinlwrs  or  their  agents. 
Tlic  corporate  entity  with  which  the 
law  clothes  it  fi>r  sjiecial  purjK^ses  is  not 
sclf-actiug.hence  there  was  no  thonghtof 
its  action  only  in  tlio  mind  of  the  frainers 
of  the  statute.  The  evident  purpose  of 
the  legislature  was  to  specify  certain 
acts,  which,  if  done  by  its  stockholders 
or  governing  bodies,  should  constitute  a 
crime  on  the  part  of  the  corporation. 
It  did  not  contemplate  the  commission 
of  an  offence  by  an  imp.ilpaMe  abstrac- 
tion, which  could  neither  think  nor  act ; 
but  it  intended  to  bind  this  corporate 
entity  by  the  in\puted  actions  of  its 
human  agencies." 

In  State  r.  Firemen's  Fund  Ins.  Co., 
152  Mo.  37  ( 1899),  (52  S.  W.  Rep.  595), 
the  Supreme  Court  of  Missouri  dis- 
cussed the  applicability  of  the  same  law 
to  insurance  companies : 

"It  could  not  be  tolerated  for  a 
moment  that  an  insurance  company 
could  hide  under  the  skirts  of  its  agents 
and  violate  tlie  anti-trust  laws  of  our 
State  with  impunity  .  .  .  The  company 
can  and  must  control  its  agents,  and 
must  see,  at  its  peril,  that  its  agents  do 
not  violate  the  law  while  attending  to 
the  business  of  the  company.     This  is 

462 


the  rule  as  to  liliels,  assaults,  malicious 
torts  by  agents  of  incorinirated  com- 
panies, aiul  there  is  greater  reast^n  for 
it  U'ing  the  true  rule  in  cases  involving 
the  anti  trust  laws" 

*  .Mogul  Steamship  Co.  r.  McGregor, 
L.  U.  21  g.  R.  552  (1888).  This  is 
the  leading  cx«c  upon  the  law  of  con- 
spiracies as  applied  totrade  comiK-tition, 
and,  in  it«  various  stages,  is  reported  iu 
L.  R  15  g.  B.  476  (1885),  L.K.  21  Q.  B. 
544  (1888).  L.  R.  23  Q.  B.  598  (1889), 
L.  li.  17  App.  Cas.  (1891)  25.  In  this 
case  certain  owners  o{  steam  vessels 
trading  between  China  and  F.nglanil, 
for  the  purpose  of  obtaining  a  monopoly 
of  the  homeward  tea  trade  and  main- 
t.iining  the  rates  of  freight  thereon, 
formed  an  a.ssociation,  and  offered  to  all 
shippers  of  tea  who  used  exclusively  the 
vessels  of  members  of  the  a.>80v  iation  a 
rebate  of  five  per  cent  on  all  freights. 
The  plaintiffs,  who  were  rival  ship 
owners,  were  excluded  from  the  l>enefit3 
of  the  association  to  their  damage,  as 
alleged,  and  they  instituted  an  action 
for  the  recovery  of  damages  and  for  an 
injunction.  The  gi.-t  of  the  plaintiffs' 
case,  as  stated,  was  a  coitsi'iraci/  on 
the  part  of  the  respondents  to  prevent 
the  plaintiffs  from  obtaining  cargoes  for 
their  steamers.  A  motion  for  a  prelimi- 
nary injunction  was  denied  (L.  R.  15 
Q.  B.  476)  (1885),  upon  the  ground  that, 
although  a  conspiracy  to  obtain  a  monop- 
oly of  a  carrying  trade  might  consti- 
tute an  actionable  conspiracy,  irrej'arable 
damage  warranting  an  injunction  had 


CHAP.   XXXI.]      APPLICATION   OF   LAW   OF   CONSPIRACIES.        §  327 

Justice  Coleridge  said  :  "  I  do  not  doubt  the  acts  done  by  the 
defendants  here,  if  done  wrongfully  and  maliciously,  or  if 
done  in  furtherance  of  a  wrongful  and  malicious  combination, 
would  be  ground  for  an  action  on  the  case  at  the  suit  of  one 
who  has  suffered  injury  from  them.  The  question  comes  at 
last  to  this :  What  was  the  character  of  those  acts,  and  what 
was  the  motive  of  the  defendants  in  doing  them  ?  " 

A  combination  entered  into  for  the  malicious  purpose  of 
injuring  a  person  in  his  business  may  amount  to  a  conspiracy, 
and  furnish  a  ground  of  action  for  the  damage  sustained. 
The  essential  element  of  a  conspiracy  —  the  unlawful  end  or 
means  —  may  be  the  intentional  doing  of  acts  detrimental 
to  the  business  of  a  competitor,  without  justification  or  excuse. 
But  combinations  without  such  ulterior  object,  and  merely 
for  the  purpose  of  promoting,  by  lawful  means,  the  common 
interests  of  the  parties,  are  not  conspiracies.  A  trader  or 
manufacturer  has  the  right  to  push  his  trade  or  business  in 
a  lawful  manner,  although  his  success  may  necessarily 
involve  loss  to  his  competitors.  So,  several  traders  and 
manufacturers  may  combine  for  mutual  advantage  and,  so 
long  as  the  motive  is  not  malicious,  the  object  not  unlawful 
or  oppressive,  and  the  means  neither  deceitful  nor  fraudulent, 
the  result  is  not  a  conspiracy,  although  it  may  necessarily 
work  injury  to  other  persons  engaged  in  the  same  business. 
The  essential  question  is  whether  the  object  of  a  combination 
is  to  do  harm  to  others  or  to  exercise  the  rights  of  the 
association  for  its  own  benefit.^ 

not  been  shown.     The  case  then  came  the    defendant.      The   case    was   then 

before  Lord  Coleridge  (C.  J.),  who  held  taken  to  the  House  of  Lords  and  the 

(L.  R.  21  Q.  B.  544)  (1888),  that  t^e  judgment    affirmed    upon    the    same 

essential  element  of  "  unlawfulmss  "  in  grounds  (L.  R.  17  App.  Cas.  (1891)  25). 

the  combination  had   not   been  shown  i  In    the    Mogul    Steamship    Case 

and  rendered  judgment  for  the  defend-  (L.   R.  23,   Q.    B.    614)    (1889),   Lord 

ants.     The  case  then  went  to  the  Court  Justice  Bowen  of  the  Court  of  Appeal 

of  Appeal,  which,  by  a  majority  of  its  considered    at    length    the    principles 

members,    held    that    the   association,  stated  in  the  text : 

being  formed  by  the  defendants  merely  "  What,  then,   are  the    limitations 

for  the  purpose  of  winning  trade  and  which  the  law  imposes  on  a  trader  in  the 

without  any  malice  or  ill-will  towards  conduct  of  his  business  as  between  him- 

the   plaintiffs  or  with  the  intention  of  self  and  other  traders?      There  seems 

ruining  their  trade,  did  not  constitute  a  to  be  no  burdens  or  restrictions  in  law 

conspiracy,  and  rendered  judgment  for  upon  a  trader  which  arise  merely  from 

463 


$  328 


INTERCOKPORATE   RELATIONS. 


[part  V. 


§  328.    Modern  Combinations  of  Capital  seldom  Conspiracies. 

—  A  combinatiuii  of  indiistriul  cor{ioration8  fur  the  promotion 
of  their  common  interests,  manifestly  can  possess  the  element 
of  criminality  only  when  entered  into  in  violation  of  some 
penal  statute,  or  when  criminal  means  are  employed  ;  and 
such  a  combination  becomes  a  conspiracy,  in  its  civil  aspect, 
only  when  the  clement  of  illegality  or  ojjprcssion  is  present.* 

tlie  fact  that  he  is  a  trailer,  ami  which  biuation  may  shew  that  the  ohject  ia 
are  not  e(ini\lly  laid  on  all  other  suiijects  simply  to  do  harm,  and  not  exerciseone's 
of  the  crown.  His  right  to  trade  freely  own  just  rif^hts.  .  .  .  The  question  to  be 
is  a  riglit  which  the  law  recognizes  and  Holved  is  whether  there  haa  been  any 
encourages,  but  it  is  one  which  places  such  [illegal)  ngreeinent  hero.  Have 
him  at  no  special  disudvaiitago  as  com-  the  defendants)  combined  to  doun  illegal 
pared  with  others.  No  man,  whether  act?  Have  they  combined  to  do  a  lawful 
trader  or  not,  can,  however,  justify  act  by  unlawful  means?  A  momcnt'ii 
damaging  another  in  his  commercial  consiiicration  will  l»e  sufficient  to  shew 
business  bv  frainl  or  misrepresentation,  that  this  new  incjuiryonly  drives  us  back 
.  .  .  Hut  the  defendants  have  been  to  the  circle  of  definitions  and  legal  pro- 
guilty  of  none  of  these  acts.  They  liave  positions  which  I  have  already  traversed 
done  no  more  against  the  ])Iuintifrs  in  the  previous  part  of  this  judgment, 
than  pursue  to  the  bitter  end  a  war  of  The  unlawful  act  agree<l  to,  if  any, 
competition  waged  in  the  interest  of  between  the  defcnilants  must  have  been 
tlieir  own  trade.  ...  I  can  find  no  au-  the  intentional  doing  of  some  act  to  the 
thority  for  the  doctrine  that  such  a  detriment  of  the  plaintiffs'  business 
commercial  motive  deprives  of  'just  witliout  just  cause  or  e.xcu.-^e.  Whether 
cause  for  excuse'  acts  done  in  the  there  was  any  such  justification  or  ex- 
course  of  trade  which  would  but  for  cuso  for  the  defendants  is  the  old  ques- 
such  motive  bo  justified.  So  to  hold  tion  over  again,  which,  so  far  as  regards 
would  be  to  convert  into  an  illegal  an  indiviilual  trader,  has  been  alre.ady 
motive  the  instinct  of  self-advancement  solved.  Tlio  only  differentia  that  can 
and  self-protection,  whicii  is  the  very  exist  must  arise,  if  at  all,  out  of  the 
incentive  to  all  trade.  ...  It  is  urged,  fact  that  tlie  acts  done  arc  the  joint  acta 
however,  on  the  part  of  the  i)laintiffs,  of  several  capitalists,  and  not  of  one 
that   even   if   the    acts  complained    of  capitalist   only." 

would  not  be  wrongful  had  they  been  >  .Morris  Hun  Coal  Co.  v.  Barclay 
committed  by  a  single  individual,  they  Coal  Co.,  68  Pa.  St.  173  (1871),  is  the 
become  actionable  when  they  are  the  leading  case  holding  a  combination  of 
result  of  concerted  action  among  sev-  corporations  for  the  suppression  of 
eral.  lu  other  words,  the  plaintiffs,  it  competition  a  conspinic;/.  The  rea.soii- 
is  contended,  have  been  injured  by  an  ing  of  the  Court,  however,  clearly  places 
illegal  conspiracy.  Of  the  general  ])Top-  the  illegality  of  the  combination  upon 
osition,  tliat  certain  kinds  of  conduct  grounds  of  public  policy  rather  than 
not  criminal  in  any  one  individual  may  npon  principles  of  the  law  of  con- 
become  criminal  if  done  by  combination  spiracies. 

among  several,  there  can  be  no  doul)t.  In  this  case  five  Pennsylvania  coal 

The  distinction  is  based  on  souudreason,  companies,  which  controlled  the  entire 

for  a  combination  may  make  oppressive  production     of     two    mining    regions, 

or  dangerous  that  which  if  it  proceeded  entered  into  an  agreement  relating  to 

only  from   a  single   person    would   be  production  and  prices  and  appointed  a 

otherwise,  and  the  very  fact  of  the  com-  supervising   committee  and  a  common 

464 


CHAP.    XXXI.]       APPLICATION    OF   LAW    OF   CONSPIRACIES.        §  328 


A  combination  of  corporations  may  have  for  its  ultimate  or 
immediate  object  injr.ry  to  the  business  of  a  competitor,  or  it 
may  be  brought  about  by  fraudulent  or  deceitful  means 
injuriously  affecting  tlie  public.^  Such  a  combination  may 
be  a  conspiracy,  but  such  combinations  have  little  place  in 
modern  business  life. 

Combinations  of  capital  —  whether  in  the  form  of  associa- 
tions, trusts  or  corporate  combinations  —  are  formed  for  the  sup- 
posed advantage  of  the  associates.  The  object  of  the  parties 
is  to  benefit  themselves,  not    to  injure    others.    The  attain- 


sales  agent.  The  committee  had  power 
to  adjust  prices  and  the  amonnt  of  pro- 
duction of  each  company  was  limited. 
The  Court  held  that  the  agreement  was 
invalid  and  amounted  to  a  conspiracy, 
saying  (p.  186)  :  "The  effects  produced 
on  the  public  interests  lead  to  the  con- 
sideration of  another  feature  of  great 
weight  in  determining  the  illegality  of 
the  contract,  to  wit :  the  combination 
resorted  to  by  these  five  companies. 
Singly,  each  might  have  suspended 
deliveries  and  sales  of  coal  to  suit  its 
own  interests,  and  might  have  raised 
the  price,  even  though  this  might  have 
been  detrimental  to  the  public  interest. 
There  is  a  certain  freedom  which  must 
be  allowed  to  every  one  in  the  manage- 
ment of  his  own  affairs.  When  com- 
petition is  left  free,  individual  error  or 
folly  will  generally  find  a  correction  in 
the  conduct  of  others.  .  .  .  This  com- 
bination has  a  power  in  its  confederated 
form  which  no  individual  action  can 
confer.  The  public  interest  must  suc- 
cumb to  it,  for  it  has  left  no  competition 
free  to  correct  its  baleful  iniluence. 
When  the  supply  of  coal  is  suspended 
the  demand  for  it  becomes  importunate, 
and  prices  must  rise.  Or,  if  the  supply 
goes  forward,  the  price  fixed  by  the 
confederates  must  accompany  it.  The 
domestic  hearth,  the  furnaces  of  the 
iron  master,  and  the  fires  of  the  manu- 
facturer, all  feel  the  restraint,  while 
many  dependent  hands  are  paralyzed, 
and  hungry  mouths  are  stinted.  The 
influence  of  a  lack  of  supply  or  a  rise  in 
the  price  of  an  article  of  such  prime 
30 


necessity  cannot  be  measured.  It  per- 
meates the  entire  mass  of  the  commu- 
nity, and  leaves  few  of  its  members 
untouched  by  its  withering  blight.  Such 
a  combination  is  more  than  a  contract, 
it  is  an  offence.  ...  In  all  such  com- 
binations, where  the  purpose  is  injurious 
or  unlawful,  the  gist  of  the  offence  is 
the  conspiracy.  Men  can  often  do  by 
the  combination  of  many  what  severally 
no  one  could  accomplish,  and  even 
what,  when  done  by  one,  would  be 
innocent." 

See  also  People  v.  Sheldon,  139 
N.  Y.  251  (1893),  (34  N.  Y..  Rep.  785). 

1  Fairbanks  v.  Leary,  40  Wis.  (643) 
(1876):  "The  law  does  not  and  did 
not  require  that  these  parties  should 
comjiete  in  the  purchase  of  produce. 
Individually  each  had  an  undoubted 
right  to  bid  therefor  as  low  as  he 
pleased.  Collectively,  they  had  the 
same  right,  unless  deception  was  prac- 
tised on  the  public.  But  if  they  held, 
themselves  out  as  competing  purcliasers, 
and  knew  that  the  people  wlio  sold  in 
the  market  where  they  operated  relied 
upon  such  competition  (as  well  they 
might),  as  a  guaranty  that  they  were 
obtaining  the  full  market  value  of  their 
produce,  while,  at  the  same  time,  the 
purchasers  were  not  in  competition  but 
in  a  secret  league  to  depress  the  market, 
the  agreement  under  which  the  latter 
operated  is  illegal  and  void,  and  no 
court  will  lend  its  aid  to  enforce  any  of 
its  stipulations."  See  also  Craft  v. 
McConoughy,  79  111.  346  (1875). 

465 


I  328  INTERCORPORATE    RELATIONS.  [PART    V. 

racnt  of  tliis  object  may  injuriously  affect  competitors,  but  the 
combination  docs  not,  for  that  reason,  become  a  conspiracy. 
"The  truth  is,"  said  Lord  Justice  Bowen  in  the  Mojul  Steam- 
ship Case}  "  that  the  combination  of  capital  for  purposes 
of  trade  and  competition,  is  a  very  different  thing  from  such 
a  combination  of  several  persons  aurainst  one,  with  a  view 
to  harm  him,  as  falls  under  the  head  of  an  indictable  con- 
spiracy. There  is  no  just  cause  or  excuse  in  the  latter  class 
of  cases.  There  is  such  a  just  cause  or  excuse  in  the  former. 
There  are  cases  in  which  the  very  fact  of  a  combination  is 
evidence  of  a  design  to  do  that  which  is  hurtful,  without  just 
cause,  —  is  evidence  —  to  use  a  technical  expression  —  of 
malice.  But  it  is  perfectly  legitimate,  as  it  seems  to  mo,  to 
combine  capital  for  all  the  mere  purposes  of  trade  for  which 
capital  may,  apart  from  combination,  be  legitimately  used  in 
trade.  To  limit  combinations  of  capital,  when  used  for 
purposes  of  competition,  in  the  manner  proposed  by  the 
argument  of  the  plaintiffs,  would,  in  the  present  day,  be 
impossible  —  would  be  only  another  method  of  attempting 
to  set  botmdarics  to  the  tides." 

The  fact  that  a  combination,  after  its  formation,  may 
become  a  party  to  a  conspiracy  —  may  intentionally  injure 
or  oppress  others — does  not  relate  back  to  and  invalidate 
the  original  combination  agreement.  The  combination  will 
be  liable  for  the  subsequent  conspiracy,  but  the  validity  of 
its  organization  will  depend  solely  upon  the  contract  as 
made,  and  the  facts  and  circumstances  attending  its 
execution. 

The  fact  that  a  combination  is  against  public  policy  does 
not  make  it  a  conspiracy.  If  contravening  the  rules  of  public 
policy  it  is  invalid,  and  it  is  made  no  more  invalid  by  desig- 
nating it  a  conspiracy.  The  inexact  use  of  terms  in  judicial 
decisions  has  occasioned  much  of  the  confusion  attending  the 
law  of  combinations. 

1  Mogul  Steamship  Co.  v.  McGregor,  L.  R.  23  Q.  B.  617  (1889). 


466 


CHAP.    SXXII.]       APPLICATION    OF    LAW    OF    MONOPOLIES.  §  330 

CHAPTER  XXXII. 

•     APPLICATIOX    OF   LAW    OF   MONOPOLIES. 

§  329.  Primary  Meaning  of  Term  "  Monopoly." 
§  330.  Gro-wth  of  Monopolies  —  Their  Illegality. 
§  331.     No    True    Monopolies    in    United    States.     Patents    and  other    Qutai- 

monopolies. 
§  332.     Modern  Use  of  Term  "  ilonopoly." 
§  333.     Direct  Test  of  Validity  of  Combination  not  -whether  it  is  a  Monopoly. 

§  329.  Primaxy  Meaning  of  Term  "  Monoply."  —  The  mean- 
ing of  the  term  ••  monopoly.""  used  in  a  historic  and  exact 
sense,  is  best  expressed  in  the  early  definition  of  Lord  Coke  : 
'•  A  monopoly  is  an  institution,  or  allowance  by  the  king  by 
his  grant,  commission,  or  otherwise,  to  any  person  or  persons, 
bodies  politicque,  or  corporate,  of,  or  for.  the  sole  buying, 
selling:,  making,  working,  or  using  of  anything,  whereby  any 
person  or  persons,  bodies  politicque  or  corporate,  are  sought 
to  be  restrained  of  any  freedome.  or  liberty  that  thay  had 
before,  or  hindred  in  their  lawful  trade.'"  ^ 

§  330.  Growth  of  Monopolies  —  Their  lUeeality,  —  Monopo- 
lies, of  the  character  described  by  Lord  Coke,  were  grants 
from  the  crown  of  exclusive  rights  to  control  the  manufac- 
ture or  sale  of  commodities  and,  while  employed  by  earlier 
English  sovereigns,  reached  their  extreme  development  in 
the  reign  of  Queen  Elizabeth.  She  husbanded  her  own 
resources  at  the  expense  of  her  people,  and  rewarded  her 
favorites  by  grants  of  innumerable  patents  for  monopolies. 
The  natural  result  was  an  increase  in  price  of  the  neces- 
saries of  life.     "There  was  scarcely  a  family  in  the  realm."' 

1  3  Coke's  Inst.  ISl.     This  definition  celebrated  case   of  East   India  Co.  v. 

of  Lord  Coke  was  quoted  with  approval  Sandys,  10  How.  State  Tr.  371  (16S+). 
by  Justice  Story  in  his  dissenting  opinion  A  monopoly  is  "a  license  or  privi- 

in  the  Charles  River  Bridge  Case,  11  ledge  allowed  by  the  king  for  the  sole 

Pet.  (U.  S.)  606  (lS37).and  by  Justice  buying  and  selling,  making,  working,  or 

Field  in  his   dissenting  opinion  in  the  using  of  anything  whatsoever ;  wherebj 

Slaughter   House   Cases.  16  Wall.  102  the  subject  in  general  is  restrained  from 

(1ST2).     See   also  arguments   of   Holt  that  liberty  of  maDofactiiring  or  tiad- 

and  Treby,  afterwards  Chief  Justices  of  ing  which  he  had  before."     4  Blackst. 

the   Kings  Bench,  as  counsel,  in   the  C<Mn.  159. 

467 


§  330 


INTERCORPORATE    RELATIONS. 


[part  V. 


says  Lord  Macaulay,*  "that  ilid  not  feci  itself  ajrgricvcd  hy 
the  oppression  and  extortion  which  the  abuse  naturally 
caused.  Iron,  oil,  vinegar,  coal,  lard,  starch,  yarn,  leather, 
glass,  could  be  bought  only  at  exorbitant  prices. " 

Relief  first  came  from  the  courts,  and  in  the  great  Cane  of 
the  MonopolicH,"^  decided  during  the  reign  of  Queen  Elizabeth, 
grants  of  monopolies  were  held  to  be  void.  The  common 
law  against  monopolies,  thus  established,  was  reinforced, 
after  the  dcatli  of  Elizabeth,  by  the  Statute  21  James  I. 
ch.  3,  which  provided  that  all  grants  of  monopolies,  with  a 
few  exceptions,  were  "altogether  contrary  to  the  laws  of  this 
realm  and  so  arc  and  shall  be  utterly  void  and  of  none  effect 
and  in  no  wise  to  be  put  in  use  or  execution." 

The  English  common  law,  including  the  Statute  of  James 
I.  against  monopolies,  is  the  basis  of  American  jurispru- 
dence,^ and  a  monopoly,  in  the  sense  in  which  the  term  has 


1  Macaulay's  History  of  England, 
vol.   1,  p.  58. 

2  Darcy  v.  Allein,  Coke,  Part  11, 
86  b  (1(>02),  (Noy,  173).  In  this  case 
It  was  declared  that  a  patent  from 
Queen  Elizabeth  conferring  upon 
])arcy  the  exclusive  privilege  of  manu- 
facturing playing  cards  for  t\venty-<jne 
years  was  a  monopoly  and  void,  as  being 
against  public  policy.  The  Court  stated 
the  following  incidents  of  monojiolies  : 

(a)  "  The  price  of  tlie  same  commod- 
ity will  be  raised,  for  he  who  has  the 
sole  selling  of  any  commodity,  may  and 
will  make  the  prices  as  ho  pleases.  .  .  . 

(b)  "  The  second  incident  to  a  monop- 
oly is  that,  after  the  monopoly  is  granted, 
the  commodity  is  not  so  good  and  mer- 
chantable as  it  was  before :  for  the 
patentee  having  the  sole  trade,  regards 
only  his  private  benefit,  and  not  the 
commonwealth. 

(c)  "  It  tends  to  the  impoverishment 
of  divers  artificers  and  other.o,  who,  be- 
fore, by  the  labor  of  their  hands,  in  their 
art  or  trade,  had  maintained  themselves 
and  their  families,  who  now  will  of 
necessity  be  constrained  to  live  in  idle- 
ness and  beggary." 

8  Justice    Field,   in    his    dissenting 

468 


opinion  in  the  Slnnghter  House  Cases, 
If.  Wall.  (U.  S.)  104  (1872),  said:  "The 
conimon  law  of  England  is  the  basis  of 
the  jurisprudence  of  the  United  States. 
It  was  brought  to  this  country  by  the 
colonists,  together  with  the  English 
statutes,  and  was  established  here  so 
far  as  it  was  applicable  to  their  condi- 
tion. The  law  and  the  benefit  of  such 
of  the  English  statutes  as  existed  at  the 
time  of  their  colonization,  and  which 
they  ha<l  by  experience  found  to  be 
applicable  to  their  circumstances,  were 
claimed  by  the  Congress  of  the  United 
Colonies  in  1774  as  a  part  of  their 
'  indubitable  rights  and  liberties.' 
Of  the  statutes,  the  benefits  of  which 
was  thus  claimed,  the|  statute  of  .lames 
I.  against  monopolies  was  one  of  the 
most  important.  And  when  the  Colo- 
nies separated  from  the  mother  country 
no  privilege  was  more  fully  recognized 
or  more  completely  incorporated  into 
the  fundamental  law  of  the  country 
th:in  that  every  free  subject  in  the 
British  empire  was  entitled  to  pursue 
his  happiness  by  following  any  of  the 
known  established  trades  and  occupa- 
tions of  the  country,  subject  only  to 
such  restraints  as   equally  affected   all 


CHAP.    XXXII.]       APPLICATION   OF   LAW   OP    MONOPOLIES.  §  331 

been  used  —  if  ever  granted  —  would  be  illegal  and  void  in 
this  country,  independent  of  statutory  enactment. 

§  331.  No  True  Monopolies  in  United  States.  Patents  and 
other  Quasi-monopoiies.  —  A  monopoly  in  its  primary  sense 
is,  stating  essential  elements,  (a)  a  grant  from  the  State  of 
(5)  an  exclusive  privilege  whereby  (<;)  a  class  of  persons  are 
deprived  of  privileges  previously  enjoyed. 

There  are  no  monopolies  of  this  character  in  the  United 
States.  Combinations  of  corporations  for  the  purpose  of 
suppressing  competition  may  possess  the  last  two  elements. 
They  may  obtain  for  themselves  the  absolute  control  of  the 
market  for  an  article  of  necessity,  and  thus  restrain  others 
"from  that  liberty  of  manufacturing  and  selling  which  they 
had  before."  Such  combinations  may  be  against  public 
policy  and  illegal,  but  they  are  not  monopolies,  strictly 
speaking,  because  the  essential  element  —  a  legislative  grant 
—  is  lacking. 

Patents,  copyrights  and  grants  of  exclusive  franchises  are 
denominated  monopolies,  and  a  patent  is  sometimes  selected 
as  an  illustration  of  a  true  monopoly.^  They  have  the  first 
two  elements  of  a  monopoly,  but  not  the  last.  They  are 
legislative  grants  of  exclusive  privileges,  but  they  do  not 
necessarily  encroach  upon  existing  rights.  Patents  are 
granted  for  now  inventions,  and  copyrights  for  new  books. 
Grants  of  exclusive  franchises  for  the  operation  of  public 
utilities  not  previously  existing,  do  not  deprive  any  class 
of  persons  of  privileges  possessed.  Patents,  copyrights  and 
exclusive  franchises  are,  however,  in  the  nature  of  monopo- 
lies, and  may  properly  be  designated  ^-i^asz-monopolies. 

others.  The  immortal  document  which  "The  present  complainants  are  entitled, 
proclaimed  the  independence  of  the  conn-  by  the  patent  laws,  to  a  monopoly,  for 
try  declared  as  self-evident  truths  that  the  term  of  the  patent,  of  the  manufac- 
the  Creator  had  endowed  all  men  ture  and  sale  of  the  lamps  made  under 
'  with  certain  inalienable  rights,  and  it.  The  right  to  this  monopoly  is  the 
that  among  these  are  life,  liberty,  and  very  foundation  of  the  patent  system." 
the  pursuit  of  happiness,  and  that  to  Letters  patent  for  new  inventions 
secure  these  rights  governments  are  for  limited  periods  were  expressly  ex- 
instituted  among  men.'  "  cepted  from  the  operation  of  tiie  statute 
1  Edison  Electric  Light  Co.  v.  Saw-  against  monopolies.  21  James  I.,  eh.  3 
yer-Man  Electric  Co.,  53  Fed.  598'(1892) :  (1624). 

469 


§332 


INTERCORPORATE   RELATIONS. 


[part  V. 


§332.  Modern  Use  of  Term  "Monopoly."  —  The  principal 
injury  to  the  public  resulting;  from  the  grant  of  monopolies 
arose  from  the  exercise  of  tlie  power  to  control  and,  conse- 
quently, to  enhance  the  prices  of  commodities  of  connnerce  — 
especially,  of  the  necessaries  of  life.  This  power,  however, 
may  be  practically  accpiired  by  agreement,  as  well  as  by 
grant.  When,  l)y  a  combination  between  manufacturers  or 
ti-aders,  the  control  of  the  market  for  a  commodity  is  con- 
centrated in  the  hands  of  a  single  company  or  association  of 
companies,  the  evils  attending  the  unrestrained  control  of 
prices  may  result. 

The  possible  elTect  of  combinations  being,  therefore,  the 
same  as  the  effect  of  the  early  monopolies,  the  term  "monop- 
oly," in  modern  times,  is  used  to  describe  such  comi)inations, 
and  has  acipiired  a  much  broader  meaning  than  that  origi- 
nally attaching  to  it.^     As  so  used,  it  may  be  broadly  defined 


^  The  meaning  now  attached  to  the 
word  "  mnnopoly  "  is  indicated  by  the 
following  extracts  from  judicial  deci- 
aious  in  different  States: 

California.  Herriman  i*.  Menzies, 
115  Cal.  16  (18'.16).  (44  Pac.  Rep.  660, 
56  Am.  vSt.  Rep.  81,  35  L.  K.  A.  319): 
"  A  monopoly  e.xi.sts  where  all,  or  nearly 
all,  of  an  article  of  trade  or  commerce 
within  a  community  or  district  is 
brought  witiiiu  the  hands  of  one  man  or 
set  of  men  so  as  to  practically  bring  the 
handling  or  production  of  the  commod- 
ity or  thing  within  such  single  control, 
to  the  exclusion  of  competition  or  free 
traffic  therein.  Anything  less  than 
this  is  not  monopoly.  Webster  defines 
it  as  the  sole  power  of  dealing  in  any 
species  of  goods,  and  IJouvier  as  the 
abuse  of  free  commerce,  by  which  one 
or  more  individuals  liave  procured  the 
advantage  of  selling  all  of  a  particular 
kind  of  merchandise.  And  these  defini- 
tions accord  with  that  given  by  later 
writers.  Spelling,  Trusts,  §  133.  An 
agreement,  tlie  purpose  or  effect  of 
which  is  to  create  a  monopoly,  is  un- 
lawful if  it  relate  to  some  staple  com- 
modity, or  thing  of  general  requirement 

470 


and  use  or  of  necessity,  and  not  some 
thing  of  mere  luxury  or  convenience." 

Illinois.  People  v.  Chicago  CJas  Trust 
Co.,  130  111.  294  (1889),  (22  N.  K.  Hep. 
798.  17  Am.  St.  Hep.  319):  "Contracts 
creating  monopolies  are  null  and  void 
as  being  contrary  to  public  p(^licy." 
(Quoting  from  2  Addis(jn  on  Cont.  743.) 

Craft  r.  McConoughy,  79  III.  349 
( 1 875)  :  "  In  other  words,  the  four  firms, 
by  a  shrewd,  deep  laid,  secret  combi- 
nation, attempted  to  control  and  mo- 
nopolize the  entire  grain  trade  of  the 
town  and  surrounding  country." 

Iowa.  Chapin  v.  lirown,  83  Iowa, 
162  (1891),  (48  N.  W.  Rep.  1074): 
"  The  agreement  is  against  public  pol- 
icy. It  plainly  tends  to  monopolize  the 
butter  trade  at  Storm  Lake  and  destroy 
competition  in  that  business." 

Michif/nn.  Richardson  r  Buhl,  77 
Mich.  658  (1889),  (43  N.  W.  Rep.  1102), 
("  Diamond  Match  Case  ") :  "  All  combi- 
nations among  persons  or  corporations 
for  the  purpose  of  raising  or  controlling 
the  prices  of  merchandise,  or  any  of 
the  necessaries -of  life,  are  monopolies 
and  intolerable,  and  ought  to  receive 
the  condemnation  of  all  courts." 


CHAP.    XXXII.]       APPLICATION    OF   LAW   OF   MONOPOLIES.         §  333 

as  the  concentration  of  business  in  the  hands  of  a  few.  In  the 
initial  decision  in  the  Sui^ar  Trust  Case,^  Judge  Barrett  said: 
"The  monopoly  with  which  the  law  deals  is  not  limited  to 
the  strict  equivalent  of  royal  grants  or  people's  patents. 
Any  combination,  the  tendency  of  which  is  to  prevent  com- 
petition in  its  broad  and  general  sense  and  to  control,  and 
thus  at  will  enhance  prices,  to  the  detriment  of  the  public,  is 
a  monopoly." 

§  333.  Direct  Test  of  Validity  of  Combination  not  whether  it 
is  a  Monopoly. — •  As  already  shown,  grants  of  monopolies 
were  invalid  at  common  law  even  before  the  enactment  of 
the  Statute  21  James  L,  and  — the  common  law  being  the 


New  York.  De  Witt  Wire  Cloth 
Co.  V.  New  Jersey  Wire  Cloth  Co.,  16 
Daly,  529  (1891),  (UN.  Y.  Supp.  279)  : 
"  Neither  need  tlie  agreement  or  com- 
bination, in  order  to  expose  it  to  the 
denunciation  of  the  law,  constitute  a 
complete  monopoly  or  effect  a  total 
suppression  of  competition." 

Ohio.  Central  Ohio  Salt  Co.  v. 
Guthrie,  35  Ohio  St.  672  (1880) :  "  The 
clear  tendency  of  such  an  agreement 
is  to  establish  a  monopoly,  and  to 
destroy  competition  in  trade,  and  for 
that  reason,  on  grounds  of  public  policy, 
courts  will  not  aid  in  its  enforcement." 

Pennsylvania.  Nester  v.  Continental 
Brewing  Co.,  2  Dist.  R.  177  (1894): 
"  Where  a  pool  or  combination  reserves 
the  right  to  regulate  prices,  they  can, 
by  the  manipulation  of  prices,  drive 
their  competitors  out  of  business,  create 
a  monopoly,  and  enhance  at  their  pleas- 
ure the  prices  to  consumers." 

Texas.  The  constitution  of  Texas 
declares  :  "  Pepetuities  and  monopolies 
are  contrary  to  the  genius  of  a  free 
government,  and  shall  never  be  allowed.'' 
Const.  1876,  Art.  I.  §  26.  In  construing 
this  provision  it  was  said  by  a  federal 
court  (Laredo  v.  International  Bridge, 
etc.  Co.,  66  Fed.  246)  (1895):  "There 
are  classes  of  exclusive  privileges  which 
certainly  do  not  amount  to  "  monopo- 
lies," within  the  meaning  of  the  com- 


mon law  or  of  the  Texas  constitution. 
Courts  of  last  resort  have  generally 
refrained  from  propounding  an  author- 
itative affirmative  definition  of  the 
"  monopoly  "  so  odious  to  the  common 
law  and  to  the  genius  of  a  free  govern- 
ment. It  would  try  the  power  of  expres- 
sion of  most  judges,  if  not  of  human 
speech,  to  frame  such  a  definition,  out- 
side of  which  a  grant  or  contract  must 
wholly  and  clearly  rest  to  escape  the 
stroke  of  nullity." 

The  Texas  anti-trust  act  of  May  25, 
1899  (Acts  1899,  p.  246;  Sums.  Sayles' 
Tex.  Civ.  Stat.  1897,  vol.  V,  p.  214, 
thus  defines  a  monopoly  :  "  A '  monopoly' 
is  any  union  or  combination  or  consolida- 
tion or  affiliation  of  capital,  credit,  prop- 
erty, assets,  trade,  custom,  skill  or  acts, 
or  of  any  other  valuable  thing  or  posses- 
sion, by  or  between  persons,  firms  or 
corporations,  or  associations  of  persons, 
firms  or  corporations,  whereby  any  one 
of  the  purposes  or  objects  mentioned  in 
this  act  is  accomplished  or  sought  to  be 
accomplished,  or  whereby  any  one  or 
more  of  said  purposes  are  promoted 
or  attempted  to  be  executed  or  carried 
out,  or  whereby  the  several  results 
described  herein  are  reasonably  calcu- 
lated to  be  produced."  See  post,  §  405. 
1  People  V.  North  River  Sugar  Ref. 
Co.,  54  Hun  (N.  Y.),  377  (1889),  note. 

471 


§  333  INTEUCOIJPOIUTE   RELATIONS.  [pART   V. 

basis  of  American  law  —  such  monopolies  are   illegal   and 
void  in  the  United  States. 

A  modern  combination  of  capital,  however,  for  the  purpose 
of  controlling  the  market  for  a  commodity,  is  not  founded 
upon  legislative  concession  and  does  not  amount  to  a  monop- 
oly, according  to  the  common  law  use  of  that  term.  It  may, 
however,  fall  within  the  broad  definition  of  a  monopoly 
already  stated ;  but,  in  that  case,  the  test  of  its  validity  is 
a  rule  of  j)ublic  policy,  rather  than  common  law  principles 
applicable  to  monopolies  of  an  essentially  different  nature. 
Such  a  combination  is  invalid,  not  because  it  is  a  monopoly 
but  because  it  is  against  public  policy.  The  statement 
in  judicial  decisions  that  "  whatever  tends  to  create  a 
monopoly  is  unlawful  as  being  contrary  to  public  policy,"* 
merely  states  an  intermediate  and  unnecessary  standard 
of  validity.  The  essential  question  is  whether  a  combina- 
tion —  the  result  of  certain  agreements  and  acts  —  is  against 
public  policy;  and  no  useful  purpose  is  served  in  determin- 
ing whether  it  may  not  also  properly  be  denominated  a 
monopoly,  according  to  the  modern  use  of  that  term. 

In  view  of  the  confused  state  of  the  law  upon  the  question 
of  the  validity  of  combinations,  it  is  necessary,  in  formulat- 
ing any  rule,  to  reduce  the  legal  principles  involved  to  their 
simplest  and  most  exact  terms,  and,  in  so  doing,  the  use  of 
the  term  "monopoly,"  although  commonly  employed  in 
modern  decisions,  seems  undesirable. 


1  People  ?-.  Chic.igo  Gas  Trast  Co.,     17     Am.   St.    Rep.    319);    Stanton 
130  111.  293  (1889),  (22  N.  E.  Rep.  798,     Allen,  5  Deuio  (N.  Y.),  434  (1848;. 


472 


CHAP.    XXXIII.]       CONTRACTS    IN   RESTRAINT   OP   TRADE.  §  334 

CHAPTER   XXXIII. 

APPLICATION    OP   LAW   OP    CONTRACTS   IN   RESTRAINT   OP   TRADE. 

§  334.     Definition  and  Nature  of  "  Contract  in  Restraint  of  Trade." 

§  335.     Connection   between   Contracts   in  Restraint   of  Trade   and  Corporate 

Combinations. 
§  336.     Modern  Use  of  Phrase  "  Contract  in  Restraint  of  Trade." 
§  337.     Direct  Test  of  Validity  of  Combination  not  whether  it  is  in  Restraint  of 

Trade. 

§  334.  Definition  and  Nature  of  "  Contract  in  Restraint  of 
Trade."  —  The  phrase  "contract  in  restraint  of  trade,"  ac- 
cording to  its  primary  and  historic  meaning,  may  be  defined 
as  a  contract  entered  into  by  a  person,  — ancillary  to  a  prin- 
cipal contract  to  which  he  is  a  party,^  —  wherein  he  binds 
himself,  for  a  consideration,  not  to  engage  in  a  particular 
trade,  business  or  occupation,  for  a  stated  term,  within  a 
prescribed  territory. ^ 

Contracts  of  this  nature  are  usually  entered  into  by 
vendors  upon  the  sale  of  a  business,  property  or  practice, 
with  the  good-will  attaching  thereto,  and  are  necessary  in 
order  to  make  the  transfer  of  the  good-will  effective.  They 
may,  however,  when  conformable  to  governing  principles, 
lawfully  be  entered  into  as  ancillary  to  various  other  con- 
tracts. 

In  United  States  v.  Addyston  Pipe,  etc.  Co.^  Judge  Taft, 
speaking  for  the  Circuit  Court  of  Appeals,  said :  "  Cove- 
nants in  partial  restraint  of  trade  are  generally  upheld  as 
valid  when  they  are  agreements  (1)  by  the  seller  of  property 
or  business,  not  to  compete  with  the  buyer  in  such  a  way  as  to 

1  Chappell  r.  Brockway,  21  Wend.  ^  "Strictly  speaking,  a  contract  in 
(N.  Y.)  162  (1839)  :  "A  man  cannot  for  restraint  of  trade  is  any  contract  where- 
money  alone,  where  he  has  no  other  inter-  by  any  party  binds  himself  not  to  follow 
est  in  the  matter,  purchase  a  valid  contract  some  particular  occupation,  trade,  call- 
in  restraint  of  trade,  however  limited  ing  or  profession,  or  engage  in  some 
may  be  the  circle  of  its  operation."  particular   business  or  enterprise  for  a 

See  also  Fox,  etc.  Steel  Co.  r.  Schoen,  period  within   a   particular   territory." 

77    Fed.    29    (1896)  ;   United   States   v.  2  Eddy  on  Combinations,  §  688. 
Addyston   Pipe,  etc.  Co.,  85   Fed.  271  ^  United   States  v.  Addyston   Pipe, 

(1898).  etc.  Co.,  85  Fed.  281   (1898). 

473 


§  So5  INTERCORPORATE    RELATIONS.  [PART    V. 

derogate  from  the  value  of  the  property  or  business  sold ;  (2) 
by  a  retiring  partner  not  to  compete  with  the  firm;  (3)  by  a 
partner,  pending  the  partncrsbip,  not  to  do  anything  to  inter- 
fere, by  competition  or  otherwise,  with  the  business  of  the 
firm  ;  (4)  l)y  the  buyer  of  })ropcrty  nut  to  use  the  same  in  con- 
nection with  the  business  retained  Ijy  tlie  seller  ;  and  (o)  by  an 
assistant,  servant,  or  agent  not  to  compete  with  his  master 
or  employer  after  the  exi)iration  of  his  time  of  service." 

§  335.  Connection  betw^een  Contracts  in  Restraint  of  Trade  and 
Corporate  Combinations. — Contracts  in  restraint  of  trade,  as 
defined  in  the  preceding  section,  have  but  an  incidental 
connection  with  combinations  of  corporations.  A  vendor 
corporation,  and  the  persons  interested  in  it,  as  ancillary  to 
the  contract  of  sale,  might  agree  with  the  purchasing  corpo- 
ration, in  the  formation  of  a  corporate  combination,  not  to 
engage  in  the  same  business  again.  Such  an  agreement,  if 
within  the  limitations  applicable  to  such  contracts,  would 
be,  strictly,  a  contract  in  restraint  of  trade.  But  the  jirin- 
cipal  contract  between  the  corporations  —  even  though  de- 
signed to  suppress  competition  —  could  only  be  referred  to  as 
a  contract  in  restraint  of  trade  by  ignoring  the  meaning 
originally  attaching  to  that  phrase. 

While  conventional  contracts  in  restraint  of  trade  arc 
only  of  adventitious  interest  in  considering  the  legal  prin- 
ciples governing  combinations  of  corporations,  it  may  be 
noted  that  the  law  concerning  such  contracts,  as  laid  down 
by  the  courts,  has  undergone  a  process  of  relaxation  — 
from  strict  disapproval  to  liberal  enforcement.  As  said  hy 
Lord  Macnaghten  in  the  leading  case  of  Nordenfelt  v.  Maxim- 
Nordenfelt  Co.  :^  "In  [the  age  of  Queen  Elizabeth,  all  re- 
straints of  trade,  whatever  they  were,  general  or  partial, 
were  thought  to  be  contrary  to  public  policy,  and  therefore 
void. 2  In  time,  however,  it  was  found  that  a  rule  so  rigid 
and  far-reaching  must  seriously  interfere  with  transactions 

1  Nordenfelt    v.    Maxim-Nordenfelt         ^  (^jting  Colgate  i;.  Bacheler,  1  Croke, 
Co.,   App.   Cas.   (1894),  564   (63    L.   J.     872   (1602). 
Ch.  923).     See  also  Wright  v.  Rider, 
36  Cal.  342  (1868). 

474 


CHAP.    XXXIII.]      CONTRACTS   IN   RESTRAINT   OP   TRADE.  §  335 

of  every-day  occurrence.  Traders  could  hardly  venture  to 
let  their  shops  out  of  their  own  hands;  the  purchaser  of  a 
business  was  at  the  mercy  of  the  seller;  every  apprentice 
was  a  possible  rival.  So  the  rule  was  relaxed.  It  was 
relaxed  as  far  as  the  exigencies  of  trade  for  the  time  being 
required,  gradually  and  not  without  difficulty,  until  it  came 
to  be  recognised  that  all  partial  restraints  might  be  good, 
though  it  was  thought  that  general  restraints,  that  is,  re- 
straints of  general  application  extending  throughout  the 
kingdom,  must  be  bad." 

There  has  never  been  a  departure  from  the  principle  that 
contracts  restraining  a  person  from  engaging  in  any  business 
or  occupation  are  absolutely  void.  In  other  directions,  how- 
ever, the  early  rule  has  been  modified,  and  the  courts  have 
uniformly  enforced  contracts  in  partial  restraint  of  trade, 
limited  as  to  duration  and  the  territory  embraced,  and  have 
stated  various  arbitrary  rules  for  determining  what  limita- 
tions of  time  and  place  are  required  by  considerations  of 
public  policy.  1     While  the  American  courts  have  not  fol- 

1  The  development  of  the  law  con-  Massachusetis :     Pierce    v.     Fuller, 

cerning  contracts  in  restraint  of  trade,  8  Mass.  223  (1811) ;  Alger  v.  Thacher,  19 

in  their  primary  sense,  is  illustrated  in  Pick.  51   (1837);  Taylor  v.  Blanchard 

the  following  list  of  early  and  recent  13  Allen,  370  (1866)  ;  Gamewell  Fire 

cases,  .selected  with  reference  to  such  Alarm  Tel.  Co.  v.  Crane,  160  Mass.  50 

contracts  in  restraint  of  trade  as  might  (1893),   (35  N.  E.   Rep.  98);  Anchor, 

naturally  he  incidental  to  the  transfer  etc.   Mfg.   Co.    v.    Hawkes,   171    Mass. 

of  a  business  in  the  formation  of  a  cor-  101  (1898),  (50  N.  E.  Rep.  509). 
porate  combination :  Michigan :    Hubbard    r.  Miller,   27 

United    States:    Navigation    Co.    v.  Mich.   15    (1873);    Beal  v.  Chase,   31 

Winsor,  20  Wall.  64  (1873)  ;  Fowle  v.  Mich.  490  (1875). 

Parke,  131  U.  S.  88  (1889),  (9  Sup.  Ct.  New  Jersey  :  Trenton  Potteries  Co. 

Rep.    658)  ;    Chicago,     etc.  R.  Co.   v.  v.  Olyphant,  58  N.  J.  Eq.  507    (1899), 

Pullman  Southern  Car  Co.,  139  U.  S.  (43  Atl.  Rep.  723). 

79(1891),  (U  Sup. Ct.  Rep.  490);  United  New  Yor/c:  Lawrence  v.  Kidder,  10 

States  V.  Addyston  Pipe,  etc.    Co.,  85  Barb.  641  (1851);  Diamond  Match  Co. 

Fed.  271  (1898),  affirmed  175  U.  S.  211  v.   Roeber,  106   N.  Y.  473  (1887),   (13 

(1899),  (20  Sup.  Ct.  Rep.  96).  N.  E.  Rep.  419);  Tode  v.  Gross,   127 

California:  Wright  v.  Rider,  36  Cal.  N.  Y.  480  (1891);  (28  N.  E.  Rep.  469), 

342   (1868);   Callahan  v.  Donnolly,  45  Leslie  i-.Lorillard,  110  N.Y.  519  (1888), 

Cal.  152  (1872).  (18  N.  E.  Rep.  363). 

Indiana :   Beard   v.   Dennis,  6   Ind.         Ohio :  Lange   v.   Werk,   2   Ohio   St. 

200    (1855);  Eisel   v.   Hayes,  141  Ind.  519(1853). 
41  (1895),  (40  N.  E.  Rep.  119).  Wisconsin:   Berlin  Machine  Works 

Maine:  Whitney  v.  Slayton,  40  Me.  v.  Perry,  71  Wis.  495  (1888),  (38  N.  AV. 

224  (1855).  Rep.  82). 

475 


§  336  .  INTERCORPORATE   RELATIONS.  [PART    V. 

lowed  the  most  recent  English  decisions^  in  holding  that  a 
contract  in  restraint  of  trade  may,  under  certain  circum- 
stances, be  enforced,  although  unlimited  both  in  regard  to 
time  and  territory,  there  is  a  tendency  both  in  England  and 
America,  in  determining  the  validity  of  such  a  contract,  to 
apply  the  reasonable  test  stated  by  Lord  Chief  Justice  Tin- 
dall  in  Horner  v.  Graves:'^  "  Wc  do  nut  see  how  a  better  test 
can  be  applied  to  the  question,  whether  reasonable  or  not, 
than  by  considering  whether  the  restraint  is  such  only  as  to 
afford  a  fair  protection  to  the  interests  of  the  party  in  favour 
of  whom  it  is  given,  and  not  so  large  as  to  interfere  with  the 
interests  of  the  public.  Whatever  restraint  is  larger  than 
the  necessary  protection  of  the  party,  can  be  of  no  benefit  to 
either,  it  can  only  be  opi)ressive;  and  if  oppressive,  it  is,  in 
the  eye  of  the  law,  unreasonable." 

§  336.  Modern  Use  of  Phrase  "Contract  in  Restraint  of  Trade." 
—  The  phrase  "contract  in  restraint  of  trade,"  in  the  absence 
of  an  acquired  meaning,  would  have  a  broad  application. 
"Competition  is  the  life  of  trade,"  and  any  contract  having 
for  its  object  the  restriction  of  competition  might  appropri- 
ately be  described  as  a  contract  in  restraint  of  trade.  In 
this  sense,  the  phrase  is  used  in  many  modern  statutes  and 
judicial  decisions.^ 

England:      Mitchel     v.    Reynolds,  United  States,  175  U.  S.  244  (1899),  (20 

1  P.  Wms.  181    (1711),  (Smith's  Lead-  Sup.  Ct.  Rep.  96),  Mr.  Justice  Peckham 

ing  Cases,  7  Eng.  Ed.  407,  8  Am.  Ed.  said  :  "  Wc  have  no  doubt  that  where 

756)  ;  Ward  v.  Byrne,  5  M.  &  W.  548  the   direct   and   immediat-   effect  of   a 

(18.39);  Whittaker   v.    Howe,  3  Beav.  contract  or  combination  among  particu- 

383   (1841);  Jones  u.  Lees,  1  H.  &  N.  lar  dealers  in  a  commodity  is  to  destroy 

189   (1856);  Leather  Cloth  Co.  v.  Lor-  competition  between  them  and  others, 

Bont,  L.  R.  9  Eq.  345  (1869)  ;  Rousillon  so   that  the  parties  to  the  contract  or 

V.  Rousillon,  L.  R.   14  Ch.   Div.   351;  combination  may  obtain  imreased  prices 

Nordenfelt  v.    Maxim-Nordenfelt    Co.,  for  themselves,  such  contract  or  com- 

App.  Cas.  (1894)  535  (63  L.  J.  Ch.  908).  bination  amounts  to  a  restraint  of  trade 

1  Nordenfeldt  i'.  Maxim-Nordenfelt  in  the  commodity,  even  though  con- 
Co.,  App.  Cas.  (1894)  535  (63  L.  J.  Ch-  tracts  to  buy  such  commodity  at  the 
908) ;  Badische  Anilin  und  Soda  Fabrik  enhanced  price  are  continually  being 
V.  Schott,  61  L.  J.  Ch.  698  (1892)  ;  Un-  made." 

derwood    v.   Barker,  1  Ch.  300  (1899),  In   Nester  v.   Continental   Brewing 

(68L.  J.  Ch.  201).  Co.,    161   Pa.  St.  481   (1894),   (29  AtL 

2  Horner  v.  Graves,  7  Biug  743  Rep.  102),  the  Supreme  Court  of  Penn- 
(1831).  sylvania  said  of  an  agreement  among 

8  In    Addyston    Pipe,    etc.    Co.    v.     brewers  to  regulate  the  price  of  beer: 

476 


CHAP.    XXXIII.]       CONTRACTS   IN    RESTRAINT   OP   TRADE.  §  336 

Such  use  of  the  phrase  should  be  condemned.  The  phrase 
has  acquired  a  well-defined  meaning.  As  already  shown,  for 
three  hundred  years  it  has  been  applied  to  ancillary  con- 
tracts to  refrain  from  engaging  in  a  particular  business,  and 
other  contracts  of  that  nature ;  and  there  is  no  apparent 
reason  why  confusion  should  be  occasioned  by  its  use,  at  the 
present  time,  to  describe  contracts  of  an  essentially  different 
nature,  however  appropriate,  in  the  choice  of  words,  such 
use  may  be.  But  the  more  serious  objection  to  the  modern 
use  of  the  phrase  is  that  it  offers  a  false  standard  for  deter- 
mining the  validity  of  industrial  combinations.  The  validity 
of  a  combination  for  the  suppression  of  competition  depends 
upon  considerations  of  public  policy.  Rules  governing  con- 
ventional contracts  in  restraint  of  trade  have  no  application. 
And  yet,  an  examination  of  reported  cases  will  show  that 
the  courts,  in  determining  the  validity  of  such  combinations, 
repeatedly  refer  to  those  rules,  and,  in  some  cases,  that  con- 
tracts manifestly  against  the  rules  of  public  policy  have 
been  declared  lawful  because  limitations  in  regard  to  time 
and  space  were  reasonable.  ^ 


"  The  test  question,  in  every  case  like 
the  present,  is  whether  or  not  a  contract 
in  restraint  of  trade  exists  which  is  in- 
jurious to  the  public  interests.  If  in- 
jurious, it  is  void  as  against  public 
policy." 

American  Biscuit,  etc.  Co.  v.  Klotz, 
44  Fed.  725  (1891) :  "  So  far,  therefore, 
as  the  complainant's  business  is  a  com- 
bination in  restraint  of  trade,  .  .  .  the 
law  stamps  it  as  unlawful,  and  the 
courts  should  not  encourage  it." 

John  D.  Park  &  Sons  Co.  v.  Nat. 
Wholesale  Druggists  Ass'n,  50  N.  Y. 
Supp.  1665  (1896):  "  It  is  in  restraint 
of  trade  and  unlawful  for  such  manu- 
facturer to  become  a  party  to  a  com- 
bination which  shall  prevent  any  of  bis 
customers  from  obtaining  other  goods 
of  other  manufacturers,"  etc. 

India  Bagging  Ass'n  i\  Kock,  14  La. 
Ann.  164  (1849):  "  The  agreement  be- 
tween the  parties  [not  to  sell  cotton 
bagging   except   under    certain   condi- 


tions] was  palpably  and  unequivocally 
a  combination  in  restraint  of  trade,  and 
to  enliance  in  the  market  an  article  of 
ordinary  necessity  to  cotton  planters." 

Distilling,  etc.  Co.  v.  People,  156  111. 
486  (1895),  (41  N.  E.  Rep.  188)  :  "No 
one  .  .  .  can  .  .  .  doubt  that  it  was 
designed  to  be,  and  was  in  fact,  a  com- 
bination in  restraint  of  trade,  and  that 
it  was  organized  for  the  purpose  of 
getting  control  of  the  manufacture 
and  sale  of  all  distillery  products,  so  as 
to  stifle  competition."  See  also  State  v. 
Nebraska  Distilling  Co.,  29  Neb.  700 
(1890),  (46  N.  W.  Rep.  155). 

The  federal  anti-trust  statute  (post, 
§  376)  also  uses  the  phrase  "  contract 
in  restraint  of  trade "  in  the  broad 
sense. 

1  "  The  utter  inadequacy  of  the  doc- 
trine condemning  contracts  iu  restraint 
of  trade,  as  a  basis  to  which  to  refer, 
that  against  restrictions  upon  compe- 
tition seems  to  us,  to  be  made  clear  by 

477 


§  337 


INTERCORPORATE   RELATIONS. 


[part  V. 


§  337.  Direct  Test  of  Validity  of  Combination  not  whether  it 
is  in  Restraint  of  Trade.  —  Even  if  the  modern  use  of  tlie 
phrase  "contract  in  restraint  of  trade  "  were  unobjectionable, 
it  is  unnecessary. 

Contracts  and  combinations  in  restraint  of  trade  are  de- 
clared to  be  contrary  to  public  policy  and,  therefore,  invalid. 
But  the  test  of  the  validity  of  a  combination,  as  i)ointed  out 
in  reference  to  monopolies,*  is  whether  the  particular  acts 
and  agreements  of  the  parties  in  forming  it  are  of  such  a 
nature,  and  for  such  a  purpose,  as  to  be  against  ])ublic  policy. 
If  so,  the  combination  is  invalid;  and,  if  not  against  public 
policy,  it  is  immaterial  whether  it  is  in  restraint  of  trade. 

The  syllogism:  All  contracts  in  restraint  of  trade  are 
against  public  policy;  this  combination  is  a  contract  in 
restraint  of  trade;  therefore,  it  is  against  public  policy, 
formulates  the  reasoning  in  many  decisions.  This  reason- 
ing, while  logical,  is  circuitous.  The  essential  question  is 
whether  the  coml)ination,  itself,  is  oj)posed  to  j)ublic  jjolicy. 
The  determination  of  this  question  is  not  promoted  by  the 
intervention  of  another  standard. 


illustration.  At  least  until  very  recently, 
the  doctrine  agiiiust  contracts  in  re- 
straint of  trade  would  have  been  so 
applied  as  to  hold  illegal  the  with- 
drawal (without  limit  as  to  time  or 
space)  of  one  out  of  a  thousand  trade 
competitors  in  a  given  city,  notwith- 
standing that  the  continuance  of  the 
other  nine  hundred  and  ninety-nine 
would  have  effectually  prevented  the 
danj^er  of  a  mono])oly.  On  the  other 
hand,  the  same  doctrine  would  (.as  mod- 
ified as  to  space)  have  been  ordina- 
rily so  applied    as   to   hold  legal  the 


withdrawal,  by  agreement,  of  the  nine 
hundred  and  ninety-nine,  though  such 
withdrawal  would  seem  to  be  ordinarily 
within  the  condemnation  of  the  present 
doctrine  against  restriction  upon  com- 
petition." Article  in  33  Am.  Law 
Rev.  6S,  entitled  "  Anti-Trust  Legisla- 
tion and  the  Doctrine  against  Contracts 
in  Restraint  of  Trade."  See  also  note  to 
Harding  v.  American  Glucose  Co.,  74 
Am.  St.  Rep  23,5. 

^'Ante,  §  333:  "Direct  Test  of  Va- 
liditi/  of  Combination  not  whether  it  is  a 
Monopoly." 


478 


CHAP.    XXXIV.]  FORMULATION    OF   RULES,  §  338 

CHAPTER  XXXIV. 

FORMULATION   OF  RULES   OF  PUBLIC  POLICY. 

§  338.  Definition  and  Nature  of  Public  Policy. 

§  339.  Necessity  for  Rules  of  Public  Policy. 

§  340.  Difficulty   of  formulating   Rules  of  Public  Policy   concerning   Combi- 
nations. 

§  341.  Formulation  of  Rules.     Basis  in  Judicial  Decisions. 

§  342.  Basis  of  Rules—  (A)  Case  of  the  Sugar  Trust. 

§  343.  Basis  of  Rules—  (B)  Case  of  the  Standard  Oil  Trust. 

§  344.  Basis  of  Rules —  (C)  Whiskey  Trust  Cases. 

§  345.  Basis  of  Rules —  (D)  Case  of  the  Preservers  Trust. 

§  346.  Basis  of  Rules  —  (E)  Case  of  the  Chicago  Gas  Trust. 

§  347.  Basis  of  Rules —  (F)  Case  of  the  Diamond  Match  Company. 

§  348.  Basis  of  Rules  —  (G)  Case  of  the  Glucose  Combination. 

§  349.  Basis  of  Rules —  (H)  Miscellaneous  Cases. 

§  338.  Definition  and  Nature  of  Public  Policy.  — "  Public 
policy,"  said  Lord  Brougham,  "is  that  principle  of  the  law 
which  holds  that  no  subject  can  lawfully  do  that  which  has  a 
tendency  to  be  injurious  to  the  public,  or  against  the  public 
good."^  A  more  precise  definition  cannot  well  be  stated. 
Although  the  fundamental  principles  are  unchangeable,^ 
public  policy,  in  its  very  nature,  is  uncertain  and  fluctuating. ^ 

1  Egerton  v.  Brownlow,  4  H.  L.  dples  are  required.  Whatever  tends  to 
Cas.  196  (18.53).  See  also  People  v.  injustice  and  oppression,  restraint  of 
Chicago  Gas  Trust  Co.,  130  111.  268  liberty,  restraint  of  legal  right ;  what- 
(18S9),  (22  N.  E.  Rep.  798,  17  Am.  St.  ever  tends  to  the  obstruction  of  justice, 
Rep.  319).  a  violation  of  a  statute,  or  the  obstruc- 

2  Brooks  V.  Cooper,  50  N.  J.  Eq.  769  tion  or  perversion  of  the  administration 
(1893),  (26  Atl.  Rep.  981 ), /je?- Lippin-  of  the  law;  v^hatever  tends  to  interfere 
cott,  J. :  "  It  has  been  declared  that  with  or  control  the  admini.'^tration  of 
public  policy  is  a  variable  quality,  but  the  law,  as  to  executive,  legislative  or 
the  principles  to  be  applied  have  al:  other  official  action,  whenever  embodied 
ways  remained  unchanged  and  un-  in  and  made  the  subject  of  a  contract, 
changeable,  and  public  policy  is  only  the  contract  is  against  public  policy, 
variable  in  so  far  as  the  habits,  capacities  and  therefore  void,  and  not  susceptible 
and  opportunities  of  the  public  have  of  enforcement.  All  contracts  prejudi- 
become  more  varied  and  complex.  The  cial  to  the  interests  of  the  public,  such 
relations  of  society  become  from  time  as  contracts  tending  to  prevent  compe- 
to  time  more  complex  ;  statutes  defining  tition,  whenever  the  statute  or  any 
and  declaring  public  and  private  rights  known  rule  of  law  requires  it,  are  void." 
multiply  rapidly,  and  public  policy  ^  Jn  Richardson  v.  Mellish,  2  Bing. 
often  changes  as  the  laws  change,  and  252  (1824),  Mr.  Justice  Burrough  said: 
therefore  new  applications  of  old  prin-  "  I,  for  one,   protest,  as  my  Lord  has 

479 


§  338 


INTERCOnPORATE    RELATIONS. 


[I'ART    V. 


It  varies  with  tho  times. ^  The  growth  of  trade  and  com- 
merce has  made  acts  and  contracts  which  formerly  were  in 
conflict  with  public  policy,  recognized  and  approved  methods 
of  doing  business.  It  is  as  impossible  to  give  an  exact  defi- 
nition of  the  phrase  as  it  is  to  define  fraud.  The  rule  staled 
by  Judge  Story,^  however,  may  safely  be  applied:  "  When- 
ever any  contract  conflicts  tvith  the  morals  of  the  timi\  and 
contravenes  an  established  interest  of  society^  it  is  void,  as  being 
ayainst  jjnblic  policy. " 

The  public  policy  of  a  State  is  manifested,  primarily,  by 
its  statutes  and,  secondarily,  by  its  judicial  decisions.' 
Questions  of  public  policy,  however,  generally  arise  in  con- 
nection with  contracts  which  arc  neither  mala  prohibita  nor 
mala  in  se.  The  former  arc  expressly  prohilnted  and  the 
latter  are  manifestly  unlawful..  In  testing  the  validity  of 
this  middle   class  of   contracts  by   the  standard   of   public 


done,  aj^aiust  arguing  too  strongly 
upon  puhlic  policj  ;  it  is  a  very  unruly 
horse,  and  wlieu  once  you  get  a.striilo  it 
yon  never  know  where  it  will  carry 
you." 

1  In  Koehler  »;.  Feurbach,  2  Mo. 
App.  14  ( 1 87G),  the  Court  said  :  "  What 
constitutes  public  policy  is  not,  perhaps, 
exactly  determinable  ;  it  is  indefinite  in 
its  nature,  changing  with  the  habits, 
wants,  and  opinions  of  society.  Fore- 
stalling, regrating,  and  engrossing 
were  prohibited  by  statute  in  England 
three  hundred  years  ago,  and  were  con- 
sidered to  be  against  public  policy  so 
late  as  the  time  of  Blackstone.  They 
are  now  the  great  basis  of  profits ;  are 
not  only  practiced  every  day,  but  are 
recognized  as  the  very  life  of  trade,  and 
without  them  it  may  be  said  that  com- 
merce, as  known  amongst  us,  would  be  at 
an  end.  .  .  .  Contracts  in  total  restraint 
of  trade,  or  of  marriage,  against  the 
prohibitions  of  statutes,  to  infringe  a 
copyright,  to  defraud  the  government 
or  third  parties,  to  oppress  third  parties 
or  prevent  the  due  course  of  justice,  or 
induce  a  violation  of  public  duty,  that 
tend  to  encourage  unlawful  or  immoral 
acts,   or  that  are  founded  on  trading 

480 


with  an  enemy,  are  all  against  public 
pidicy,  and  void.  And,  probably,  this 
is  a  complete  enumeration  of  the  sev- 
eral classes  to  which  contracts  against 
public  policy  may  be  reduced." 

2  1  Story  on  Contracts,  049. 

*  United  States  v.  Trans-Missouri 
Freight  Ass'n,  166  U.  S.  340  (1897), 
(17  Sup.  Ct.  Rep.  5.=i9)  :  "The  public 
policy  of  the  government  is  to  be  found 
in  its  statutes,  and  when  they  have  not 
directly  spoken,  tiien  in  the  decisions  of 
the  courts  and  the  constant  practice  of 
the  government  officials;  but  when  the 
law-making  power  speaks  upon  a  par- 
ticular subject,  over  which  it  has  con- 
stitutional power  to  legislate,  public 
policy  in  such  a  case  is  what  tlie  statute 
enacts.  If  the  law  pr()hil)it  any  con- 
tract or  combination  in  restraint  of 
trade  or  commerce,  a  contract  or  com- 
bination made  in  violation  of  such  law 
is  void,  whatever  may  have  been  there- 
tofore decided  by  the  courts  to  have  been 
the  public  policy  of  the  country  on  that 
subject." 

See  also  Harding  v.  American  Glu- 
cose Co.,  182  111.  551  (1899),  (55  N.  E. 
Rep.  577,  74  Am.  St.  Rep.  235.) 


CHAP.    XXXIV.]  FORMULATION   OF   RULES.  §  339 

policy,  the  right  of  the  individual  to  contract — a  funda- 
mental right  —  is  liable  to  be  impaired,  and  such  contracts 
should  be  set  aside  only  when  clearly  inimical  to  estab- 
lished interests  of  society.^ 

§  339.  Necessity  for  Rules  of  Public  Policy. — As  already 
shown,  the  application  of  the  law  of  monopolies  and  of  con- 
tracts in  restraint  of  trade  in  determining  the  validity  of  a 
particular  combination,  only  leads  to  the  result  that  if  it  is 
against  public  policy,  it  is  illegal. 

The  same  consequence  follows  the  application  of  other 
tests  which  have  been  stated  by  the  courts  and  text  writers. 
Thus,  it  has  been  said  that  the  test  of  the  illegality  of  a  com- 
bination is  the  injury  to  the  public.  It  is  undoubtedly  true 
that  the  law  condemns  only  those  combinations  which  are 
injurious  to  the  public,  but,  as  an  effective  test  of  the  validity 
of  a  combination,  the  statement  is  valueless.  In  applying  it^ 
the  only  result  obtainable  is  that  if  a  particular  combination 
injures  the  public  it  is  illegal ;  but  the  essential  question, 
whether  it  is  injurious,  can  only  be  determined  by  the  appli- 
cation of  a  rule  of  public  policy.  So,  in  a  more  definite 
form,  it  is  stated  that  a  combination  of  competing  producers 
is  illegal  which  has  for  its  object  the  maintenance  of  prices 
and  restriction  of  production.  But  agreements  to  maintain 
prices  and  limit  production  are  only  means  of  restraining 
competition,  and  power  to  control  prices  and  restrict  produc- 
tion is  only  an  incident  of  the  suppression  of  competition. 
To  what  extent  combinations  in  restraint  of  competition  are 
invalid  depends  upon  the  application  of  a  rule  of  public 
policy. 

The  formulation  of   rules  of   public   policy  is,  therefore, 

1  Kellogg  V.  Larkin,  3  Pin.  (Wis.)  court  should  determine  a  contract  which 
136  (1851),  (56  Am.  Dec.  164):  "I  by  has  been  made  in  good  faith,  stipulating 
no  means  intend  to  deny  the  right  or  for  nothing  that  is  malum  in  se,  nothing 
propriety  of  judicially  determining  that  that  is  made  malum  prohibitum,  to  be 
a  contract  that  is  actually  at  war  with  void  as  contravening  the  policy  of  the 
any  established  interest  of  society  is  State,  it  should  be  satisfied  that  the  ad- 
void,  however  individuals  may  suffer  vantage  to  accrue  to  the  public  from  so 
thereby,  because  the  interest  of  individ-  holding  is  certain  and  substantial,  not 
uals  must  be  subservient  to  the  public  theoretical  or  problematical." 
welfare.      But  I  insist  that   before  a 

31  481 


§  341  INTERCORPORATE    RELATIONS.  [PART    V. 

necessary  in  order  to  ol)tain  definite  standards  for  determin- 
ing the  legality  or  illegality  of  any  combination. 

§  340.  DifBculty  of  Formulating  Rules  of  Public  Policy  con- 
cerning Combinations.  —  When  i)ul)lic  policy  is  manifested  l»y 
statute,  the  statute  is  itself  the  rule;^  when  it  is  manifested 
by  judicial  decisions,  based  upon  a  uniform  course  of  reason- 
ing, the  formulation  of  a  rule  of  public  policy  requires  only 
the  classification  of  governing  princij)le3.  But  whatever 
rules  of  public  policy  may  exist  for  determining  the  validity 
of  a  combination  of  corporations  have  been  evolved  coincident- 
ally  with  the  development  of  the  combination  itself,  and  the 
process  of  evolution  has  been  circuitous.  The  courses  of 
reasoning  by  which  different  courts  have  arrived  at  the  same 
conclusion  have  varied  widely;  and,  upon  the  same  state  of 
facts,  different  conclusions  havo  been  reached. 

The  formulation  of  rules  from  conflicting  decisions  upon 
a  subject  uncertain  in  its  nature  is,  obviously,  attended  with 
difficulties. 

§  341.  Formulation  of  Rules.  Basis  in  Judicial  Decisions. — 
While  the  framing  of  rules  of  public  policy  concerning 
combinations  is  difficult,  both  by  reason  of  the  subject  and 
conflicting  decisions,  certain  broad  principles  may  be  gath- 
ered from  the  current  of  authority.  Combinations  of  a 
certain  nature  are  clearly  against  public  policy  and  void. 
Other  combinations  are  clearly  valid.  Concerning  still 
others,  there  is  an  irreconcilable  diversity  of  judicial 
opinion. 

In  ascertaining  these  principles,  an  extended  examination 
of  the  decisions  of  the  courts  is  necessary.  Judicial  decisions 
form  the  basis  of  any  rule  of  public  policy  not  established  by 
statute,  and  leading  cases  must  be  carefully  examined  to 
ascertain  their  underlying  principles.  In  presenting  the 
result  of  such  an  examination  in  a  treatise,  general  proposi- 
tions may  be  misleading.  The  law,  in  cases  of  combinations, 
is  closely  interwoven  with  the  facts.     An  exact  appreciation 

1  When  a  combination  is  authorized     policy.     Stewart   v.   Erie,  etc.  Transp. 
or  prohibited  by  statute,   that   fact   is     Co.,  17  Minn.  372  (1871). 
conclusive  upon  the  question  of  public 

482 


CHAP.    XXXIV.]  FORMULATION   OP   RULES. 


342 


of  the  principles  of  public  policy  enunciated  can  only  be 
obtained  by  examining  the  reasons  and  reasoning  of  the 
court,  in  connection  with  the  facts  of  the  case.  It,  there- 
fore, seems  advisable  to  state  the  conclusions  of  the  courts 
—  extracts  from  the  opinions  —  in  the  leading  cases  upon 
combinations  of  corporations,  together  with  facts  sufficient 
to  indicate  the  scope  of  the  decisions  —  as  indicating  the 
basis  of  rules  of  public  policy. 

§  342.     Basis  of  Rules  —  (A)  Case  of  the    Sugar  Trust The 

two  leading  cases  upon  the  validity  of  combinations  are,  un- 
doubtedly, the  cases  of  the  Sugar  and  Standard  Oil  Trusts. 

In  the  Sugar  Trust  Case,^  the  trial  court,  Judge  Barrett, 


1  People  V.  North  River  Sugar  Eef'g 
Co.,  121  N.  Y.  582  (1890),  (24  N.  E. 
Eep.  834,  18  Am.  St.  Rep.  843),  s.  c. 
54  Hun,  354  (1889),  (3  N.  Y.  Supp.  401). 
(The  latter  report  includes  both  the 
general  and  special  term  decisions.) 

The  Sugar  Trust  was  a  combina- 
tion of  sugar  refineries,  formed  in  1887, 
under  the  name  of  the  Sugar  Refin- 
eries Company.  Individuals  and  firms 
took  the  form  of  corporations  before 
entering  the  combination.  All  the  stock 
of  the  several  corporations  was  trans- 
ferred to  a  board  of  eleven  trustees,  who 
issued  in  lieu  thereof  "trust  certifi- 
cates" for  corresponding  proportionate 
amounts.  The  object  of  the  "trust," 
as  stated  in  the  agreement,  was  as  fol- 
lows: 

"  ( 1)  To  promote  economy  of  admin- 
istration and  reduce  the  cost  of  refining, 
thus  enabling  the  price  of  sugar  to  be 
kept  as  low  as  is  consistent  with  reason- 
able profit. 

"  (2)  To  give  to  each  refinery  the 
benefit  of  all  appliances,  known  or  used 
by  the  others,  and  useful  to  improve 
the  quality  and  diminish  the  cost  of  re- 
fined sugar. 

"  (3)  To  furnish  protection  against 
unlawful  combinations  of  labor. 

"  (4)  To  protect  against  inducements 
to  lower  the  standard  of  refined  sugars. 

"  (5)  Generally  to  promote  the  inter- 
ests of  the  parties  hereto  in  all  lawful 
and  suitable  ways." 


The  trustees  received  the  profits  from 
all  the  plants  and  distributed  them  as 
dividends  upon  the  "  trust  certificates." 
Directors  of  the  several  corporations 
were  chosen,  but  had  no  power.  Quo 
warranto  proceedings  were  instituted 
by  the  attorney-general  of  New  York 
against  the  North  River  Sugar  Refin- 
ing Company,  a  constitueut  corporation, 
upon  the  ground  that  it  was  a  party  to 
an  unlawful  combination,  and,  also,  had 
exceeded  its  chartered  powers.  The 
case  was  first  heard  before  Judge  Bar- 
rett, at  special  term,  who  held  that  the 
combination  was  a  monopoly,  and  that 
the  defendant  corporation  had  forfeited 
its  charter  by  itltra  vires  acts  injurious 
to  the  public.  Upon  appeal  to  the  gen- 
eral term,  the  former  decision  was  sus- 
tained upon  similar  .  grounds.  The 
Court  of  Appeals,  however,  while  affirm- 
ing the  judgment,  placed  its  decision 
solely  upon  the  ground  that  the  corpo- 
ration had  forfeited  its  charter  by  enter- 
ing into  an  unlawful  partnership  of 
corporations,  and  by  attempting  to 
practically  consolidate  with  other  cor- 
porations without  following  the  consoli- 
dation statute. 

The  decision  in  this  case  was,  how- 
ever, without  practical  effect.  The 
trust  was  reorganized  under  the  laws 
of  New  Jersey  in  the  form  of  a  corpo- 
rate combination,  and  has  done  business 
ever  since. 

For  other  cases  relating  to  the  Sugar 

483 


§  342  INTERCORPORATE   RELATIONS.  [PART    V. 

said:  "Any  combination,  the  tendency  of  which  is  to  prevent 
competition  in  its  broad  and  general  sense,  and  to  control, 
and  thus  at  will  enhance,  prices  to  the  detriment  of  the  public, 
is  a  legal  monopoly.  And  this  rule  is  applicable  to  every 
monopoly,  whether  the  supj)ly  be  restricted  by  nature  or  sus- 
ceptible of  indefinite  production.  The  difliculty  of  ofTccting 
the  unlawful  purpose  may  be  greater  in  one  case  than  in  the 
other,  but  it  is  never  impossible.  Nor  need  it  be  permanent 
or  complete.  It  is  enough  that  it  may  be  even  temporarily 
and  partially  successful." 

Upon  appeal,  the  general  term,  Judge  Daniels,  said :  "  In 
this  case  it  was  a  leading  object  to  combine  together  the  dif- 
ferent corporations  and  individuals  engaged  in  this  business, 
not  only  in  and  about  the  City  of  New  York,  but  throughout 
the  country,  and  to  secure  that  control  by  a  substantial 
organization  for  an  indefinite  period  of  time.  This  was  not 
to  be  done,  and  was  not,  in  fact,  done  for  an  idle  purpose, 
or  merely  to  furnish  the  means  of  protection  against  unlawful 
combinations  or  for  any  other  mere  economical  object,  but  it 
was,  manifestly,  to  place  this  business  within  the  control,  and 
subject  to  the  dictation,  of  this  association,  and  of  the  l)oard 
selected  for  the  government  of  its  affairs.  And,  after  putting 
forth  the  efforts  necessary  to  secure  the  end,  it  would  not 
only  be  idle,  but  absurd,  to  indulge  in  the  supposition  that 
it  was  not  intended  to  wield  the  authority,  in  this  manner 
secured,  for  the  pecuniary  advantage  of  the  associates.  And 
the  direct  and  usual  way  in  which  that  is  acomplished,  fol- 
lowing out  the  common  impulses  of  practical  business  men, 
is  by  the  advancement  of  the  prices  of  the  commodities 
manufactured  and  sold,  in  the  course  of  the  business  whose 
control  may  be  in  this  way  secured.  When  the  opportunity 
to  do  that  is  provided,  human  selfishness  is  sure  to  turn  it 
to  a  profitable  account.  A  jury  certainly  would  be  fully 
justified  in  concluding,  from  the  agreement  and  the  other 

Trust,  see  People  v.  American  Sugar  Ref'g  Co.,  57  Hun.  (N.  Y.),  592  (1890), 

Refg  Co.  (Cal),  7  Ry.  &  Corp.  L.  J."  83  (10  N.  Y.  Supp  632) ;  United  States  v. 

(1890).     Cameron    v.    Havemeyer,   25  E.  C.  Knight  Co.,  136  U.  S.  1    (1895), 

Abb.  N.  C.  438  (1890),  (12  N.  y".  Supp.  (15  Sup.  Ct.  Rep.  249). 
126);    Gray  i'.  De  Castro,  etc.  Sugar 

484 


CHAP.    XXXIV.]  FORMULATION   OP  RULES.  §  343 

facts  in  evidence  in  the  case,  that  the  governing  object  of 
the  association  was  to  promote  its  interests  and  advance  the 
prosperity  of  the  associates,  by  limiting  the  supply,  when 
that  could  properly  be  done,  and  advancing  the  prices  of  the 
products  produced  by  the  companies.  To  conclude  otherwise 
would  be  to  violate  all  the  observations  and  experiences  of 
practical  life.  This  is  a  controlling  feature  in  this  contro- 
versy. And  that  it  was  intended  to  be  secured  by  the 
organization  provided  for,  and  which  actually  took  place,  is 
reasonably  free  from  doubt.  And  where  that  appears  to  be 
the  fact,  the  agreement,  association,  combination  or  arrange- 
ment, or  whatever  else  it  may  be  called,  having  for  its 
objects  the  removal  of  competition  and  the  advancement 
of  prices  of  necessaries  of  life,  is  subject  to  the  condem- 
nation of  the  law,  by  which  it  is  denounced  as  a  criminal 
enterprise." 

The  Court  of  Appeals,  however,  finally  decided  the  case 
upon  grounds  peculiar  to  corporation  law,  saying:  "We 
have  reached  our  conclusion,  and  it  appears  to  us  to  have 
been  established  that  the  defendant  corporation  has  violated 
its  charter  and  failed  in  the  performance  of  its  corporate 
duties,  and  that  in  respects  so  material  and  important  as  to 
justify  a  judgment  of  dissolution.  Having  reached  that 
result,  it  becomes  needless  to  advance  into  the  wider  dis- 
cussion over  monopolies  and  competition  and  restraint  of 
trade  and  the  problems  of  political  economy.  Our  duty  is 
to  leave  them  until  some  proper  emergency  compels  their 
consideration." 

§  843.  Basis  of  Rules —  (B)  Case  of  the  Standard  Oil  Trust.  — 
In  the  Case  of  the  Standard  Oil  Trust  ^  the  Supreme  Court  of 
Ohio,  by  Judge  Minshall,  said: 


1  State  V.  Standard  Oil  Co.,  49  Ohio  a  trust  agreement,  substantially  in  the 

St.  137  (1892),  (30  N.  E.  Rep.  379,  34  following  form  : 

Am.  St.  Rep.  541,  15  L.  R.  A.  145,  36  (1)  "As  soon  as  practicable,  a  cor- 

Am.  &  Eng.  Corp.  Cas.  1).  ^  poration  shall  be  formed  in  each  of  the 

The  celebrated  Standard  Oil  Trust,  following  States  under  the  laws  thereof, 

a  combination  of  corporations  engaged  to  wit:  Ohio,  New  York,  Pennsylvania 

in  the  production  and  sale  of  petroleum  and  New  Jersey.  .  .  ." 
and  its  products,  was  formed  in  1882  by  (2)  "The  purpose    and    powers  of 

.  485 


§343 


INTERCORPORATE   RELATIONS. 


[part  V. 


"By  this  agreement,   indirectly  it  is  true,  but  none  the 
less  effectually,  the  defendant  is  controlled  and  managed  hy 


said  corporation  shall  be  to  mine  for, 
produce,  manufacture,  refine,  and  deal 
in  petroleum  and  all  its  products,  and 
all  the  materials  used  in  such  businesses, 
and  transact  other  business  collateral 
thereto.  .  .  ." 

(3)  "At  any  time  hereafter,  .  .  . 
similar  corporations  may  be  formed  in 
otiier  States  and  Territories." 

(4)  "  Each  of  said  corporations  shall 
be  known  as  the  Standard  Uil  Co.  of 
[name  of  State]." 

(5)  "The  capital  stock  of  each  of 
Baid  corporations  shall  be  fixed  at  such 
an  amount  as  may  seem  necessary.  .  .  ." 

(6)  "The  shares  of  stock  of  each 
corporation  shall  be  issued  only  for 
money,  property,  or  assets,  e(iual  at  a 
fair  valuation  to  the  j>ar  value  of  the 
stock  delivered  tlierefor." 

(7)  "All  of  the  property,  real  and 
personal,  assets  and  business  of  each 
and  all  of  the  corporations  .  .  .  men- 
tioned in  class  first  ...  in  or  of  each 
particular  State,  shall  be  transferred  to 
and  vested  in  the  Standard  Oil  Company 
of  that  particular  State.  .  .  ." 

(8)  "  The  individuals  embraced  in 
class  second  .  .  .  agree  ...  to  sell,  as- 
sign, transfer,  convey  and  set  over  all 
the  property,  real  and  personal,  a-ssets 
and  business  mentioned  and  embraced 
in  scliedules  accompanying  such  sale 
and  transfer  to  the  Standard  Oil  Com- 
pany, or  Companies,  of  the  proper  State 
or  States.  .  .  ." 

(9)  "The  parties  embraced  in  class 
third  .  .  .  agree  to  assign  and  transfer 
all  the  stock  held  by  them  in  the  corpo- 
rations .  .  .  herein  named  to  the  trus- 
tees herein  provided  for.  .  .  .  And 
whenever  and  as  often  as  all  the  stocks 
of  any  corporation  .  .  .  are  vested  in 
said  trustees,  the  proper  steps  may  then 
be  taken  to  have  all  the  money,  property, 
real  and  personal,  of  such  corporation 
.  .  .  conveyed  to  the  Standard  Oil  Com- 
pany of  the  proper  State,  ...  in  which 
event  the  trustees  shall  receive  stocks 
of  the  Standard  Oil  Companies  equal  to 

486 


the  value  of  tlie  money,  property,  and 
business  a.-<signed.  .  .  ." 

(10)  "  The  consideration  for  the  trans- 
fer ...  to  eadi  or  any  of  the  Standard 
Oil  Companies,  shall  be  the  stock  of  tiie 
respective  .  .  .  company  to  which  such 
transfer  or  conveyance  is  made.  .  .  . 
Said  stock  shall  be  delivered  to  the 
trustees.  .  .  ." 

(11)  "The  consideration  for  any 
stocks  delivered  to  said  trustees  .  .  . 
shall  be  tiie  delivery  ...  to  the  persons 
entitled  tliercto  of  trust  certificates  .  .  . 
eijual  at  ])ar  value  to  the  jiar  value  of 
the  stock  of  the  said  Standani  ( )il  Com- 
panies  so   received    by  said   trustees." 

This  agreement  was  signed  hy  all  the 
officers  and  stockholders  of  the  Stand- 
ard Oil  Co.  of  Ohio,  —  the  defendant  in 
the  case,  —  but  its  corporate  name  and 
seal  wcrt;  not  aflSxed. 

Quo  warranto  proceedings  were  insti- 
tuted by  the  attorney -general  of  ( )hio 
upon  the  ground  that  the  defendant  cor- 
poration had  misused  its  franchises  by 
becoming  a  party  to  an  agreement  op- 
posed to  public  j)olicy. 

The  Supreme  Court  of  Ohio  held 
upon  demurrer  to  the  defendant's  an- 
swer: 

1.  That  the  defendant  company  en- 
tered into  the  agreement  in  its  corporate 
capacity. 

2.  That  the  agreement  subjected  the 
defendant  to  a  control  inconsistent  with 
its  character  as  a  corporation. 

3.  That  it  provided  for  an  associa- 
tion contrary  to  public  policy. 

Judgment  of  absolute  ouster  was  de- 
nied on  account  of  the  statute  of  limita- 
tions, but  it  was  decreed  that  the 
defendant  he  ousted  "  from  the  power 
to  make  and  perform  "  said  agreement. 

This  judgment  was  rendered  in  1892, 
and  at  the  time  of  writing  (1902),  the 
same  Standard  Oil  Trust  is  carrying  on 
a  business  of  far-reaching  and  ever- 
increasing  magnitude. 

For  consideration  of  rights  of  holders 
of  Standard  Oil  "  trust  certificates,"  see 


CHAP.    XXXIY.]  FORMULATION    OF   RULES.  §  344 

the  Standard  Oil  Trust,  an  association  with  its  principal 
place  of  business  in  New  York  City,  and  organized  for  a 
purpose  contrary  to  the  policy  of  our  laws.  Its  object  was 
to  establish  a  virtual  monopoly  of  the  business  of  producing 
petroleum,  and  of  manufacturing,  refining  and  dealing  in  it 
and  all  its  products,  throughout  the  entire  country,  and  by 
which  it  might  not  merely  control  the  production,  but  the 
price,  at  its  pleasure.  All  such  associations  are  contrary  to 
the  policy  of  our  State  and  void.  .  .  .  Much  has  been  said 
in  favor  of  the  objects  of  the  Standard  Oil  Trust,  and  what 
it  has  accomplished.  It  may  be  true  that  it  has  improved 
the  quality  and  cheapened  the  cost  of  petroleum  and  its 
products  to  the  consumer.  But  such  is  not  one  of  the  usual 
or  the  general  results  of  a  monopoly ;  and  it  is  the  policy  of 
the  law  to  regard,  not  what  may,  but  what  usually  happens. 
Experience  shows  that  it  is  not  wise  to  trust  human  cupidity 
when  it  has  the  opportunity  to  aggrandize  itself  at  the 
expense  of  others.   .   .   . 

"A  society  in  which  a  few  men  are  the  employers,  and 
the  great  body  are  merely  the  employees  or  servants,  is 
not  the  most  desirable  in  a  republic ;  and  it  should  be  as  much 
the  policy  of  the  laws  to  multiply  the  numbers  engaged  in 
independent  pursuits  or  in  the  profits  of  production,  as  to 
cheapen  the  price  to  the  consumer.  Such  policy  would  tend 
to  an  equality  of  fortunes  among  its  citizens,  thought  to  be 
so  desirable  in  a  republic,  and  lessen  the  amount  of  pauper- 
ism and  crime." 

§  344.  Basis  of  Rules  —  (C)  Whiskey  Trust  Cases.  —  In  the 
Case  of  the  Distillers  and  Cattle  Feeders  Triisf^  ("Whiskey 

Rice    V.    Rockefeller,    134   N.   Y.    174  wines,  and  other  liquors.     The  object 

(1892),  (31  N.  E.  Rep.  907.)  of  the  trust  was  accomplished  by   its 

J  State  V.   Nebraska  Distilling  Co.,  getting  control  of  as  many  distilleries 

29  Neb.  700  (1890),  (46  N.  W.  Rep.  15.5).  as  possible,  and  the  method  adopted  is 

The     Distillers     and     Cattle    Feeders  stated  in  the  report  as  follows :    "  An 

Trust,   an   unincorporated   association,  arrangement  or  agreement  is  made  by 

was  formed  in  1887  by  the  owners  of  which  the  company  is  to  transfer  its 

nine  distilleries  located  north  and  west  capital  stock  to  the  trustees  of  the  Dis- 

of  the  Ohio  River,  for  the  purpose  of  tillers   and    Cattle  Feeders  Trust,  for 

restricting  the  output,  regulating  prices,  which  said  tru.stees  are  to  issue  certifi- 

and    suppressing    competition    in    the  cates  of  the  trust.     The  real  estate  upon 

manufacture  and  sale  of  alcohol,  high  which  the  distillery  plant  is  situated  is 

487 


§344 


INTERCORPORATE   RELATIONS. 


[part  V. 


Trust"),  the  Supreme  Court  of  Nebraska  said:  "The  find- 
ings in  this  case,  to  which  no  objection  is  made,  clearly 
show  that  the  object  of  the  Distilling  Company  in  entering 
into  the  illegal  combination  was  to  destroy  competition  and 
create  a  monopoly,  not  only  by  limiting  the  production  of 
alcohol;  but,  by  dismantling  as  many  distilleries  as  the  trust 
saw  fit,  absolutely  prevent  the  manufacture  of  the  article 
except  in  the  few  establishments  controlled  by  the  trust,  and 
thus  it  would  1)0  enabled  to  control  prices,  prevent  produc- 
tion, and  create  a  monopoly  of  the  most  offensive  character." 


deeded  to  some  one  niomber  of  the 
company  as  trustee  for  the  storkholders, 
and  the  trustee  then  leases  said  real  es- 
tate to  the  company  for  the  terra  of 
twenty-five  years.  The  capital  stock  of 
the  company  is  canrollcd  and  new  stix-k 
issued  to  said  nine  trustees  of  the  trust, 
for  which  tlie  trustees  give  the  agreed 
amount  of  certificates  of  the  trust.  The 
board  of  directors  of  the  comj)any  rc- 
gif^ns  and  a  new  board  is  elected,  a  ma- 
jority of  which  are  taken  from  the  nine 
trustees  of  the  trust.  .  .  .  The  trustees 
of  the  trust  have  almost  unlimited  power 
and  control  over  all  distilleries  that 
enter  it.  They  can  limit  their  produc- 
tion or  suspend  their  operation  alto- 
gether. .  .  .  The  trustees  confine  the 
production  of  the  distilleries  under 
their  control  to  the  large  houses  situated 
in  favorable  localities,  which  can  be 
run  at  less  expense  than  small  houses 
located  in  unfavorable  places.  .  .  . 
The  said  trustees  can,  and  do,  at  will 
restrict  and  limit  the  production  and 
supply  of  alcohol,  spirits,  and  other 
liquors,  and  thereby  enhance  their 
Talue." 


Trust  being  thus  attacked,  a  corpora- 
tion, called  the  Distilling  and  Cattle 
Feeiiing  Company,  was  formed,  in  1890, 
for  the  i)urpose  of  taking  over  the  assets 
of  the  trust  and  it  issued  its  certificates 
of  stock  in  lien  of  the  old  trust  certifi- 
cates. 

Quo  warranto  proceedings  against 
the  new  corporation  were  in.stituted 
by  the  attorney-general  of  Illinois  upon 
the  ground  that  it  was  a  mere  continu- 
ation, in  corporate  form,  of  an  illegal 
trust,  and  tiie  Supreme  Court  of  Illinois, 
in  Distilling  and  Cattle  Feeding  Co.  v. 
People.  156  111.  448  (1895),  (41  N.  E. 
Rep.  188),  held  that  the  conveyance 
from  the  trust  to  the  corporation  was 
merely  a  form  ;  that  (p  4'Jl)  "  the  trust, 
.  .  .  being  rfj)ugnant  to  public  policy 
and  illegal,  it  is  impossible  to  see  why 
the  same  is  not  true  of  the  corpora- 
tion which  succeeds  to  it  and  takes 
its  place." 

Judgment  of  ouster  was  thereupon 
pronounced  against  the  company. 

Prior  to  final  decree,  however,  a  re- 
ceiver of  the  corporation  had  been  ap- 
pointed by  the   United   States  Circuit 


The  Nebraska  Distilling   Company  Court  (Olmstead  r.  Distilling  and  Cattle 

became  a  party  to  the  trust  in  the  man-  Feeding  Co.,  73  Fed.  44  (1895)),  and  the 

ner  described.     Quo  warranto  proceed-  property  of  the  corporation  was  subse- 

ings  were  instituted  against  that  corpo-  quently  sold,  and,  through  a  re-organi- 

ration,  and,  upon  the  facts  stated,  the  zation  plan,  another  corporation.  The 

Supreme  Court  of  Nebraska  held  that  American  Spirits  Manufacturing  Com- 

the    trust   agreement  was    contrary  to  pany,  organized  under  the  laws  of  New 


public  policy  and  void,  and  that  the  de- 
fendant corporation  had  forfeited  its 
charter. 

The  Distillers   and  Cattle  Feeders 

488 


Jersey,  acquired  the  assets  and  l)usines8. 
Various  re-organizations  have  taken 
place  since  that  time. 


CHAP.  XXXIV.]  FORMULATION    OP   RULES. 


§345 


In  a  later  case  against  the  Distilling  and  Cattle  Feeding 
Company,^  successor  to  the  Distillers  and  Cattle  Feeders 
Trust,  the  Supreme  Court  of  Illinois  said,  concerning  the 
latter  combination:  "There  can  be  no  doubt,  we  think,  that 
the  Distillers  and  Cattle  Feeders  Trust,  which  preceded  the 
incorporation  of  the  defendant,  was  an  organization  which 
contravened  well-established  principles  of  public  policy,  and 
that  it  was,  therefore,  illegal.  No  one  who  intelligently  con- 
siders the  scheme  of  this  trust,  as  detailed  in  the  informa- 
tion, can  for  a  moment  doubt  that  it  was  designed  to  be, 
and  was,  in  fact,  a  combination  in  restraint  of  trade,  and 
that  it  was  organized  for  the  purpose  of  getting  control  of 
the  manufacture  and  sale  of  all  distillery  products,  so  as  to 
stifle  competition,  and  to  be  able  to  dictate  the  amount  to 
be  manufactured  and  the  prices  at  which  the  same  should  be 
sold,  and  thus  to  create,  or  tend  to  create,  a  virtual  monopoly 
of  the  manufacture  and  sale  of  products  of  that  character." 

§  345.  Basis  of  Rules  —  (D)  Case  of  the  Preservers  Trust.  —  In 
Bishop  V.   American  Preservers   Co.^  the  Supreme  Court  of 

ered  to  organize  other  corporations,  to 
carry  on  the  business  of  the  trust  and 
to  acquire  and  hold  the  stock  of  such 
corporations.  The  trust  was  to  con- 
tinue twenty-five  years,  unless  sooner 
terminated  by  the  act  of  a  certain 
number,  in  excess  of  a  majority,  of  the 
certificate  holders. 

In  accordance  with  the  provisions  of 
the  trust  agreement,  the  trustees  formed 
a  corporation  called  the  American 
Preservers  Company.  Tiiis  company 
instituted  an  action  of  replevin  against 
one  Bishop  to  recover  possession  of 
certain  property  which  he  had  agreed 
to  transfer  to  the  corporation,  aud  of 
which  he  had  given  a  bill  of  sale  and 
for  which  trust  certificates  had  been 
issued  to  him.  Bishop  had  previously 
tendered  his  certificates  back,  retained 
possession  of  the  property,  and  defended 
the  suit  upon  the  ground  that  the  cor- 
poration was  merely  an  instrument  of 
an  \inlawful  trust  and  without  standing 
in  court  to  enforce  the  agreement. 
The    Supreme   Court  of  Illinois  held 

489 


1  Distilling  and  Cattle  Feeding  Co. 
V.  People,  156  111.  486  (1895),  (41  N.  E. 
Rep.  188). 

2  Bishop  V.  American  Preservers 
Co.,  157  111.  311  (1895),  (41  N.  E.  Rep. 
765,  48  Am.  St.  Rep.  317),  per  Mc- 
Gruder,  J. 

The  American  Preservers  Trust  was 
a  voluntary  association  formed,  origi- 
nally, by  the  stockholders  of  seven  cor- 
porations located  in  different  States, 
and  engaged  in  the  business  of  preserv- 
ing fruit.  TJie  trust  agreement  pro- 
vided for  the  creation  of  a  board  of 
nine  trustees,  to  whom  the  parties 
agreed  to  transfer  their  stock  in  ex- 
change for  trust  certificates.  The 
trustees  were  to  hold  in  trust  the 
etocks  transferred  to  them,  receive 
the  dividends  thereon,  and  distribute 
the  same  in  the  form  of  dividends 
upon  the  certificates.  The  trustees 
were  also  authorized  to  purchase  the 
stock,  or  the  plants  and  property,  of 
other  corporations  by  the  issue  of  trust 
certificates.    They   were  also    empow- 


§  34G  INTERCORPORATE    RELATIONS.  [PART    V. 

Illinois  said:  "The  agreement  recites  that  it  is  designed  \>y 
its  signers  to  form  a  trust  for  the  purpose  of  securing  co- 
operation in  the  business  of  manufacturing  preserves,  etc., 
and  of  selling  and  dealing  in  the  same  in  home  and  foreign 
markets.  This  co-operation,  to  be  secured  through  the  ex- 
traordinary powers  conferred  upon  the  nine  trustees  named 
in  the  agreement,  six  of  whom  arc  designated  by  name  and 
authorized  to  elect  three  others,  could  not  result  otherwise 
than  in  a  grinding  monopoly,  controlling  all  trade  in  the 
business  specified,  and  raising  or  depressing  prices  therein 
at  the  will  of  the  trustees.  ...  It  will  thus  be  seen  that  the 
agreement  in  question  makes  provision  for  welding  together 
all  the  interests  engaged  in  the  business  named  in  the 
agreement,  into  one  giant  combination  or  partnership  under 
the  aljsolute  dominion  and  control  of  a  board  of  nine 
trustees.  Its  illegal  purpose  is  apparent  upon  its  face,  and, 
therefore,  under  the  decisions  above  referred  to,  it  must  be 
held  to  be  void,  as  being  injurious  to  the  j)ublic  interest." 

§  34G.  Basis  of  Rules —  (E)  Case  of  the  Chicago  Gas  Trust.  — 
In  People  v.  Chicayo  Gas  Trust  Co  J  the  Supreme  Court  of 
Illinois  said: 

that  the  trust  agreement  was  an  illegal  act  of  Illinois,  for  two  purposes,  as 
contract  and  refused  to  grant  relief,  st.-ited  iu  its  articles  of  incorporation  : 
saying  (p.  316)  :  "  The  law  will  not  aid  First,  to  erect  and  operate  gas  works 
the  appellee  to  recover  the  property,  for  the  manufacture  and  sale  of  gas 
but  will  leave  both  it  .ind  the  appellant  in  tlie  C'ity  of  Chicago,  and  other  places 
•where  they  were  when  the  suit  was  in  Illinois.  Second,  to  purchase,  hold 
begun."  *n*l  sell  the  ca])ital  stock,  or  purcliase 
In  American  Preservers  Tmst  v.  or  lease  the  property,  plants,  good- 
Taylor  Mfg.  Co.,  46  Fed.  152  (1891).  will,  rights  and  franchi.ses  of  other  gas 
this  trust  was  also  held  to  be  invalid  companies  in  Chicago  or  elsewhere  in 
upon    principles    of    corporation    law.  Illinois. 

Judge  Thayer  said  :  "The  question  now         The   corporation    did   not   erect    or 

before  the  court  is,  whether  a  business  operate  any  gas  works,   but  sought  to 

corporation,  organized  under  the  laws  exercise  the  power  claimed  under  the 

of  this  State,  has  the  right  to  become  a  second  clause  and  acijuired  a  majority 

member   of  such   an    association   with  of  the  capital  stock  of  four  independent 

such  extensive  power,  and  that  inquiry  gas  companies  then  doing  business  in 

must  be  answered  in  the  negative."  Chicago,  thereby  controlling  them. 

1  People  V.  Chicago  Gas  Trust  Co.,  Quo    warranto    proceedings   against 

130  111.  294  (1889),   (22  N.  E.  Rep.  798,  the    Trust    Company    were    instituted 

17    Am.  St.   Rep.  319).     The   Chicago  by  the  attorney-general  of  Illinois  upon 

Gas  Trust  Company  was  organized  in  the   ground   that   it   had    usurped  and 

1887,  under  the  general  incorporation  exercised     "  powers,     liberties,    privi- 

490 


CHAP.    XXXIV.]  FORMULATION    OF   RULES.  §  346 

"Public  policy  is  that  principle  of  the  law  which  holds 
that  no  subject  or  citizen  can  lawfully  do  that  which  has  a 
tendency  to  be  injurious  to  the  public  or  against  the  public 
good.  This  principle  owes  its  existence  to  the  very  sources 
from  which  the  common  law  is  supplied.  ^  The  common 
law  will  not  permit  individuals  to  oblige  themselves  by  a 
contract  either  to  do  or  not  to  do  anything  when  the  thing 
to  be  done  or  omitted  is  in  any  degree  clearly  injurious 
to  the  public.  .  .  .  '  Contracts  creating  monopolies  are  null 
and  void  as  being  contrary  to  public  policy. '^  AH  grants 
creating  monopolies  are  made  void  by  the  common  law.^  In 
the  Case  of  the  Monopolies^  it  was  decided  as  long  ago  as 
the  forty-fourth  year  of  the  reign  of  Queen  Elizabeth,  that  a 
'  grant  to  the  plaintiff  of  the  sole  making  of  cards  within  the 
realm  was  utterly  void,  and  that  for  two  reasons:  1.  That 
it  is  a  monopoly  and  against  the  common  law.  2.  That  it 
is  against  divers  acts  of  parliament. '  ...  Of  what  avail  is 
it  that  any  number  of  gas  companies  may  be  formed  under 
the  general  incorporation  law,  if  a  giant  trust  company  can 
be  chartered  with  the  power  of  buying  up  and  holding  the 
stock  and  property  of  such  companies,  and,  through  the  con- 
trol thereby  attained,  can  direct  all  their  operations  and  weld 
them  into  one  huge  combination?  The  several  privileges  or 
franchises  intended  to  be  exercised  by  a  number  of  com- 
panies are  thus  vested  exclusively  in  a  single  corporation. 
To  create  one  corporation  for  the  express  purpose  of  enabling 
it  to  control  all  the  corporations  engaged  in  a  certain  kind  of 

leges  and  franchises  not  conferred  by  of  such  power  was  unlawful;  (5)  That 
law."  Tlie  defendant  pleaded  that  it  the  stock  of  the  four  companies  was 
acted  within  the  powers  conferred  by  acquired  by  the  Trust  Company  with 
its  charter.  the  design  of  bringing  them  ''  under 
A  demurrer  to  the  plea  was  over-  its  control,  and  by  crushing  out  corn- 
ruled  by  the  lower  court,  but  sustained  petition  to  monopolize  the  gas  business 
by  the  Supreme  Court  of  Illinois  upon  of  Chicago." 

the    following    grounds:  (1)    That  the  i  Citing  Greenhood  on  Public  Pol- 
corporation  had   no   express  power   to  icy,  pp.  2,  3. 

hold   the   stock  of  other   corporations.  ^  (Jjtjng   2   Addison    on    Contracts, 

(2)  That  it  did  not  acquire  such  power  743. 

by  claiming  it  in  its  articles  of  associa-  3  Citing  7  Bacon's  Abridgment,  22. 

tion ;    (3)    Tliat   it   had    no   such   inci-  *  Citing   Case   of    the    Monopolies, 

dental  power;    (4)    That  its  exercise  Part  11,  Coke,  86  b  (1602). 

491 


§347 


INTERCORPORATE   RELATIONS. 


[part  V. 


business,  and  particularly  a  business  of  a  public  character, 
is  not  only  opposed  to  the  public  policy  of  the  State,  but 
is  in  contravention  of  the  spirit,  if  not  the  letter,  of  the 
constitution.  That  the  exercise  of  the  power  attempted  to 
be  conferred  upon  the  appellee  company  must  result  in  the 
creation  of  a  monopoly,  results  from  the  very  nature  of  the 
power  itself." 

§  347.  Basis  of  Rules  —  (F)  Case  of  the  Diamond  Match  Com- 
pany.—  In  Richardson  v.  Buhl  (''Diamond  Match  Company 
Case  ")»  ^  the  Supreme  Court  of  Michigan  (^per  Judge  Sher- 
wood) said:  "The  organization  is  a  manufacturing  company. 
The  business  in  which  it  is  engaged  is  making  friction 
matches.     Its  articles  provide  for  the  aggregation  of  an  enor- 


1  Richardson  v.  Buhl,  77  Mich.  657 
(1889),  (43  N.  W.  Hep.  1102). 

The  following  facts  were  stated  in 
the  opinions  :  "  It  appeared  from  the 
testimony  that  the  Diamond  Match 
Company  was  organized  fur  the  pur- 
pose of  controlling  the  manufacture 
and  trade  in  matches  in  the  United 
States  and  Canada.  The  ohject  was  to 
get  all  the  manufacturers  of  matches  in 
the  United  States  to  enter  into  a  com- 
bination and  agreement,  by  which  the 
manufacture  and  output  of  all  the 
match  factories  should  be  controlled  by 
the  Diamond  Match  Company.  Those 
manufacturers  who  would  not  enter  into 
the  scheme  were  to  be  bought  out, 
those  who  proposed  to  enter  into  the 
business  were  to  be  bought  off,  and  a 
strict  watch  was  to  l>e  exercised  to  dis- 
cover any  person  who  proposed  to  en- 
gage in  such  business,  that  be  might 
^e  prevented,  if  possible.  All  who  en- 
tered into  the  combination,  and  all  who 
were  bought  off,  were  required  to  enter 
into  bonds  to  the  Diamond  Match 
Company  that  they  would  not,  directly 
or  indirectly,  engage  in  the  manufacture 
or  sale  of  friction  matches,  nor  aid  nor 
assist,  nor  encourage  any  one  else  in  said 
business,  where,  by  doing  so,  it  might 
conflict  with  the  business  interests,  or 
diminish  the  sales,  or  lessen  the  prof- 
its, of  the  Diamond   Match  Company. 

492 


These  restrictions  varied  in  individual 
cases,  as  to  the  time  it  was  to  continue, 
from  ten  to  twenty  years.  Thirty-one 
manufacturers,  being,  substantially,  all 
the  factories  where  matches  were  made 
in  the  Uniteil  States,  either  went  into 
the  combination  or  were  purchased  by 
the  Diamond  Match  Company,  and  out 
of  this  number  all  were  closed  except 
thirteen." 

An  action  involving  the  construction 
of  a  contract  entered  into  in  connection 
with  the  formation  of  the  combination 
came  before  the  Supreme  Court  of 
Michigan.  No  questions  as  to  the  valid- 
ity of  the  contract  or  combination  upon 
grounds  of  public  policy,  or  otherwise, 
were  raised  by  the  parties ;  but  the 
Court,  of  its  own  volition,  held  both  the 
combination  and  the  contract  unlawful 
and  refused  to  grant  relief,  saying :  "  A 
court  of  equity  will  leave  the  parties 
.  .  .  where  it  finds  them,  outside  the 
rules  of  courts  of  justice,  '  in  pari 
delicto,'  and  they  must  settle  their  own 
grievances  and  unlawful  transactions." 

Compare,  however.  Diamond  Match 
Co.  V.  Roeber,  106  N.  Y.  473  (1887), 
(13  N.  E.  Rep.  419),  where  the  New 
York  Court  of  Appeals  enforced  one  of 
the  bonds  above  referred  to  without 
rai.sing.any  question  as  to  the  validity 
of  the  combination. 


CHAP,    XXXIV.]  FORMULATION    OF   RULES.  §  347 

mous  amount  of  capital,  sufficient  to  buy  up  and  absorb  all  of 
that  kind  of  business  done  in  the  United  States  and  Canada, 
to  prevent  any  other  person  or  corporation  from  engaging  in 
or  carrying  on  the  same,  thereby  preventing  all  competition 
in  the  sale  of  the  article  manufactured.  This  is  the  mode  of 
conducting  the  business  and  the  manner  of  carrying  it  on.  The 
sole  object  of  the  corporation  is  to  make  money,  by  having  it 
in  its  power  to  raise  the  price  of  the  article,  or  diminish  the 
quantity  to  be  made  and  used,  at  its  pleasure.  Thus,  both 
the  supply  of  the  article  and  the  price  thereof  are  made  to 
depend  upon  the  action  of  a  half-dozen  individuals,  more  or 
less,  to  satisfy  their  cupidity  and  avarice,  who  may  happen 
to  have  the  controlling  interest  in  this  corporation,  an  arti- 
ficial person,  governed  by  a  single  motive  or  purpose,  which 
is  to  accumulate  money  regardless  of  the  wants  or  neces- 
sities of  over  sixty  million  of  people.  The  article  thus 
completely  under  their  control,  for  the  last  fifty  years  has 
come  to  be  regarded  as  one  of  necessity,  not  only  in  every 
household  in  the  land,  but  one  of  daily  use  by  almost  every 
individual  in  the  country.  It  is  difficult  to  conceive  of  a 
monopoly  which  can  affect  a  greater  number  of  people,  or 
one  more  extensive  in  its  effect  on  the  country,  than  that  of 
the  Diamond  Match  Company.  It  was  to  aid  that  company 
in  its  purposes,  in  carrying  out  its  object,  that  the  contract 
in  this  case  was  made  between  these  parties,  and  which  we 
are  now  asked  to  aid  in  enforcing.  Monopoly  in  trade  or  in 
any  kind  of  business  in  this  country  is  odious  to  our  form  of 
government.  It  is  sometimes  permitted  to  aid  the  govern- 
ment in  carrying  on  a  great  public  enterprise,  or  public 
work  under  government  control,  in  the  interest  of  the  public. 
Its  tendency  is,  however,  destructive  of  free  institutions, 
and  repugnant  to  the  instincts  of  a  free  people,  and  contrary 
to  the  whole  scope  and  spirit  of  the  federal  Constitution, 
and  is  not  allowed  to  exist  under  express  provision  in  several 
of  our  State  constitutions.  Indeed,  it  is  doubtful  if  free 
government  can  long  exist  in  a  country  where  such  enormous 
amounts  of  money  are  allowed  to  be  accumulated  in  the 
vaults  of  corporations,  to  be  used  at  discretion  in  controlling 

493 


§  348  INTERCORPORATE   RELATIONS.  [PART   V. 

the  property  and  business  of  the  country  against  the  interest 
of  the  public  and  that  of  the  people,  for  the  personal  gain 
and  aggrandizement  of  a  few  individuals.  It  is  always  de- 
structive of  individual  rights,  and  of  that  free  competition 
which  is  the  life  of  business,  and  it  revives  and  perpetuates 
one  of  the  great  evils  which  it  was  the  object  of  the  framers 
of  our  form  of  government  to  eradicate  and  prevent.  It  is 
alike  destructive  to  both  individual  enterprise  and  individual 
prosperity,  whether  conferred  upon  corporations  or  individ- 
uals, and  therefore  public  policy  is,  and  ought  to  be,  as  well 
as  public  sentiment,  against  it.  All  combinations  among 
persons  or  corporations  for  the  purpose  of  raising  or  control- 
ling the  prices  of  merchandise,  or  any  of  the  necessaries  of 
life,  are  monopolies,  and  intolerable;  and  ought  to  receive 
the  condemnation  of  all  courts." 

Judge  Champlin  said,  in  concurring:  "Such  a  vast  com- 
bination as  has  been  entered  into  under  the  above  name  is  a 
menace  to  the  public.  Its  object  and  direct  tendency  is  to 
prevent  free  and  fair  competition,  and  control  prices  through- 
out the  national  domain.  It  is  no  answer  to  say  that  this 
monopoly  has,  in  fact,  reduced  the  price  of  friction  matches. 
That  policy  may  have  been  necessary  to  crush  competition. 
The  fact  exists  that  it  rests  in  the  discretion  of  this  company 
at  any  time  to  raise  the  price  to  an  exorbitant  degree.  Such 
combinations  have  frequently  been  condemned  by  the  courts 
as  unlawful  and  against  public  policy." 

§  3-48.  Basis  of  Rules — (G)  Case  of  the  Glucose  Combination. 
—  In  the  recent  case  of  Harding  v.  American  Glucose  Com- 
pany,^ the  Supreme  Court  of  Illinois  reaffirmed  its  earlier 

^  Harding  v.  American  Glucose  Co.,  these  corporations  in  a  single  corpora- 
182  111.615  (1899),  (55  N.  E.  Rep.  577).  tion,  and  all  of  said  companies,  except 
The  following  is  a  brief  summary  of  one  —  the  smallest  —  became  parties 
the  facts  in  this  important  case  :  Prior  to  such  arrangement.  Accordingly, 
to  1897,  seven  competing  corporations  the  Glucose  Sugar  Refining  Company 
alone  were  engaged  in  the  manufacture  was  organized  under  the  laws  of  New 
of  glucose  —  a  corn  product  —  in  the  Jersey  for  the  purpose  of  acquiring  the 
corn  belt  of  the  United  States,  which  plants  of  the  several  companies.  Option 
is  the  only  territory  in  which  it  can  be  contracts  were  signed  by  each  company 
successfully  manufactured.  In  that  wherein  it  agreed  to  sell  all  its  real  and 
year,  a  scheme  was  entered  into  for  the  personal  property,  good-will,  trade- 
purpose  of  combining  the  properties  of  marks,  etc.,  to  a  trust  company  or  its 

49-4 


CHAP.    XXXIV.]  FORMULATION   OF   RULES.  §  348 

decisions  that  trusts  and  combinations,  for  the  prevention  of 
competition,  are  against  public  policy:  "Any  combination  of 
competing  corporations  for  the  purpose  of  controlling  prices, 
or  limiting  production,  or  suppressing  competition,  is  con- 
trary to  public  policy,  and  is  void.  ...  In  the  present  case 
each  of  six  corporations,  engaged  in  the  manufacture  of 
glucose,  made  a  contract  to  sell  its  plant  to  a  new  corpora- 
tion to  be  organized,  and  agreed  not  to  engage  in  such  manu- 
facture for  a  term  of  years,  and  then  conveyed  all  its  property 
to  the  new  corporation  organized  to  conduct  the  same  kind 
of  business;  and  it  did  all  this  with  the  knowledge  and 
understanding  that  each  of  five  other  competing  corporations 
was  making  the  same  kind  of  contract,  and  executing  the 
same  kind  of  conveyance  in  respect  to  their  own  respective 
properties,  all  to  be  consummated  and  delivered  at  the  same 
time,  and  under  the  direction  and  management  of  agents  or 
promoters  employed  by  all  the  corporations.  If  the  trans- 
actions referred  to  in  the  bill  in  this  case  did  not  amount  to 
an  absolute  agreement  made  in  advance  between  the  six 
corporations,  they  at  least  constituted  a  scheme  understood 
by  all  the  corporations,  and  participated  in  by  them  all. 
The  cari-ying  out  of  the  scheme,  thus  understood  and  par- 
ticipated in,  would  necessarily  result  in  the  suppression 
of  competition  in  the  manufacture  of  glucose,  and  in  the 
creation  of  a  monopoly  in  that  business.  .  .  .  The  material 
consideration  in  the  case  of  such  combinations  is,  as  a  gen- 
transferee,  if  requested  within  a  reason-  to  the  combination  upon  the  ground 
able  time.  These  contracts  provided  that  the  whole  arrangement  was  for 
that  payment  for  the  properties  trans-  the  purpose  of  controlling  prices,  sup- 
ferred  should  be  in  stock  of  the  new  pressing  competition,  and  creating  a 
company,  or,  sometimes,  partly  in  cash     monopoly. 

and  partly  in  stock.  The  options  were  The  Supreme  Court  of  Illinois,  for 
exercised,  and  the  plants  and  other  the  reasons  stated  in  the  text,  and 
property  of  the  companies  were  trans-  others,  sustained  the  claim  of  the  com- 
ferred  or  about  to  be  transferred  to  the  plainant,  and  granted  the  relief  prayed 
new  corporation.  for. 

Thereupon  a  stockholder  of  one  of  The  case  is   also  of  importance   in 

said  companies — the  American  Glucose  determining  the  rights  and  status  of 
Company,  a  New  Jersey  corporation  —  corporations  and  their  stockholders  — 
who  objected  to  the  transfer,  filed  a  bill  parties  to  unlawful  combinations  —  in 
for  an  injunction  to  restrain  the  trans-  foreign  States,  with  reference  to  prop- 
fer  of  the  property  of  his  corporation     erty  there  situated. 

495 


§  349  INTERCORPORATE    RELATIONS.  [PART    V. 

eral  thing,  not  that  prices  are  raised,  but  that  it  rests  in  the 
power  and  discretion  of  the  trust  or  corporation,  taking  all 
the  plants  of  the  several  corporations,  to  raise  prices  at  any 
time,  if  it  sees  fit  to  do  so.  It  does  not  relieve  the  trust  of 
its  objectionable  features  that  it  may  reduce  the  price  of  the 
articles  which  it  manufactures,  because  such  reduction  may 
be  brought  about  for  the  express  purpose  of  crushing  out 
some  competitor  or  competitors." 

§  349.     Basis  of  Rules  —  (H)  Miscellaneous  Cases.  — 

I.  American  Biscuit  Combination.  In  American  Biscuit^ 
etc.  Co.  V,  Klotz  1  the  Court  said :  "  We  are  not  satisfied  that 
the  complaint's  business  is  legitimate.  While  the  nominal 
purpose  of  the  complainant  corporation,  as  stated  in  its 
charter,  is  the  manufacture  and  sale  of  biscuit  and  confec- 
tionery, its  real  scope  and  purpose  seem  to  be  to  combine 
and  pool  the  large  competing  bakeries  throughout  the  coun- 
try into  practically  what  is  known  and  called  a  '  trust,'  the 
effect  of  which  is  to  partially,  if  not  wholly,  prevent  compe- 
tition, and  enhance  prices  of  necessary  articles  of  food,  and 
secure,  if  not  a  monopoly,  a  large  control  of  the  supply  and 
prices  in  leading  articles  of  brcadstuffs. " 

II.  National  Lead  Trust.  In  National  Lead  Co.  v.  Grote 
Paint  Store  Co.,^  the  Court  of  Appeals    in   Missouri  said: 

^  American  Biscuit,  etc.  Co.  v.  Klotz,  made  on  the  basis  of  the  stock  assigned 
44  Fed.  723  (1891).  The  American  to  each  bakery  "  (p.  724). 
Biscuit  and  Manufacturing  Company  Klotz  &  Co.  sold  their  bi.scuit  and 
was  formed  for  the  nominal  purpose  confectionery  business  to  the  combiua- 
of  manufacturing  and  selling  biscuit  tion  for  stock  at  an  agreed  valuation, 
and  confectionery.  In  its  actual  opera-  One  Klotz,  of  the  firm  of  Klotz  &  Co., 
tion  it  had  acquired,  at  the  time  of  this  continued  to  manage  the  business  as 
decision,  control  of  thirty -five  of  the  agent  for  the  company  for  some  time, 
leading  bakeries  in  twelve  different  when  he  repudiated  the  transfer  and 
States  of  the  West  and  South.  The  resumed  possession  of  the  property  in 
stock  of  the  company  was  parcelled  out  behalf  of  Klotz  &  Co.  The  American 
in  payment  for  the  plants  acquired  Biscuit  and  Manufacturing  Company 
"on  an  agreed  value  of  the  property  then  brought  suit  for  an  injunction, 
and  a  large  estimate  of  good-will,  accounting  and  receiver.  The  Court 
Each  bakery  when  secured  to  be  car-  declined  to  appoint  a  receiver  in  inter- 
ned on  by  its  former  managers,  sub-  locntory  proceedings  for  the  reasons 
ject,  however,  as  to  control  of  funds,  stated  in  the  te.xt. 
territory,  prices,  and  competition  to  the  *  National  Lead  Co.  v.  Grote  Paint 
central  management ;  all  profits  pooled.  Store  Co.,  80  Mo.  App.  266  (1899). 
and  of  course,   division  thereof  to  be         The  question  involved  in  this  case 

496 


CHAP.    XXXIV,]  FORMULATION   OF   RULES.  §  349 

"That  the  predecessor  of  the  plaintiff,  the  '  National  Lead 
Trust,'  was  an  unlawful  combination,  both  in  purpose  and 
fact,  is  sufficiently  established  by  the  nature  of  the  agreement 
under  which  it  was  created  and  the  methods  and  practices 
resorted  to  in  furtherance  of  that  agreement.  The  agreement 
can  only  be  construed  as  a  contract  to  suppress  competition, 
fix  the  price  of  commodities  and  limit  their  production,  and 
to  restrain  trade.  Unless  some  one  or  all  of  these  purposes 
had  been  entertained  by  the  signers  of  the  trust  agreement, 
it  would  not  have  contained  provisions  looking  to  the  acqui- 
sition by  the  trustees  of  the  entire  lead  business  of  the 
country,  nor  would  it  have  united,  in  the  accomplishment  of 
that  end,  a  majority  of  the  stockholders  of  the  largest  cor- 
porations dealing  in  that  product.  .  .  .  While  the  conclusion 
of  the  illegal  purpose  of  the  trust  agreement  is  irresistible 
upon  a  consideration  of  its  several  provisions  and  the  man- 
ner in  which  they  were  carried  out,  it  will  appear  from  an 
examination  of  the  cases  that  this  result  had  been  declared 
by  every  court  called  upon  to  review  that  agreement,  or 
others  substantially  like  it." 

///.  National  Harrow  Company.  In  National  Harrow  Co. 
V.  Heneh  ^  Judge  Acheson  said :  "  It  will  be  perceived  that 
the  corporation,  through  whose  instrumentality  the  purposes 

was  -whether  the  plaintiff  corporation,  license  to  manufacture  the  particular 
successor  to  the  "  Trust,"  was  a  party  kind  of  harrow  previously  made,  but 
to  an  illegal  combination  in  violation  of  reserved  the  right  to  fix  the  price  at 
the  Missouri  anti-trust  act,  and  the  case  which  the  same  should  be  sold.  A  cer- 
is  considered  in  connection  with  that  tain  manufacturer  having  failed  to  fulfil 
act.  See/^osf,  ch.  42  :  "  Construct, on  and  theconditionsof  the  license,  the  National 
Application  of  State  Anti-tr-ust  Statutes."  Harrow  Company  sued  for  an  injunc- 
^  National  Harrow  Co.  v.  Hench,  tion,  which  was  denied  upon  the  grounds 
76  Fed.  669  (1896);  affirmed  83  Fed.  stated  in  the  opinion. 
36  (1897).  Certain  manufacturers  of  For  other  cases  holding  the  National 
spring-tooth  harrows — about  twenty  Harrow  Company  an  unlawful  combi- 
corporations  and  firms  —  assigned  the  nation  see  National  Harrow  Co.  v. 
patents  owned  by  them  —  eighty-five  Bement,  21  App.  Div.  (N.  Y.)  290  (1897), 
in  number  —  to  the  National  Harrow  (47  N.  Y.  Supp.  462) ;  National  Harrow- 
Company,  a  New  York  corporation  Co.  r.  Quick,  67  Fed.  130  (1895)  ;  Strait 
formed  for  the  purpose,  receiving,  in  v.  National  Harrow  Co.,  18  N.  Y.  Supp. 
return,  shares  of  stock  in  such  company  224  (1891).  Compare  Strait  v.  National 
in  proportion  to  the  value  of  the  patents.  Harrow  Co.,  51  Fed.  819  (1892);  Be- 
The  National  Harrow  Company  then  ment  r.  National  Harrow' Co.,  22  Sup. 
gave    back    to    each    manufacturer    a  Ct.  Rep.  747  (1902). 

32  497 


§  349  INTERCORPORATE   RELATIONS.  [PART   V. 

of  the  combination  are  effected,  is  simply  clothed  with  the 
legal  title  to  the  assigned  patents,  while  the  several  assignors 
are  invested  with  the  exclusive  right  to  sell  and  manufacture 
their  old  style  of  harrows  under  their  own  patents;  but  all 
of  thutn  must  sell  at  uniform  ])rices  and  upcjnthe  same  terms, 
without  respect  to  cost  or  the  merits  of  their  respective  styles 
of  harrows,  and  all  the  members  of  the  combination  are 
strictly  forbidden  to  manufacture  or  sell  any  other  style  or 
kind  of  float  spring-tooth  harrow  than  they  are  thus  licensed 
to  make  and  sell.  Now,  it  is  quite  evident  to  me,  as  well 
by  the  papers  themselves  as  from  the  testimony  of  witnesses, 
that  this  scheme  was  devised  for  the  purpose  of  regulating 
and  enhancing  prices  for  float  spring-tooth  harrows,  and 
controlling  the  manufacture  thereof  throughout  the  whole 
country,  and  that  the  combination,  especially  by  force  of  the 
numbers  engaged  therein,  tends  to  stifle  all  competition  in 
an  important  branch  of  business.  I  am  not  aware  that  such 
a  far-reaching  combination  as  is  here  disclosed  has  ever  been 
judicially  sustained.  On  the  contrary,  the  courts  have  re- 
peatedly adjudged  combinations  between  a  number  of  persons 
engaged  in  the  same  general  business  to  prevent  competition 
among  themselves,  and  maintain  prices,  to  be  against  sound 
policy,  and  therefore  illegal." 

IV.  Cases  of  Associations.  Of  an  association  of  manu- 
facturers for  the  purpose  of  regulating  the  ju-ice  of  wire 
cloth,  a  New  York  court ^  said:  "The  people  have  a  right 
to  the  necessaries  and  conveniences  of  life  at  a  price 
determined  by  the  relation  of  supply  and  demand,  and  the 
law  forbids  any  agreement  or  combination  whereby  that 
price  is  removed  beyond  the  salutary  influence  of  legitimate 
competition." 

Of  an  association  for  the  purpose  of  controlling  the  manu- 
facture and  sale  of  salt,  the  Supreme  Court  of  Ohio  '^  said : 
"  Public  policy,  unquestionably,  favors  competition  in  trade, 
to  the  end  that  its  commodities  may  be  afforded  to  the  con- 

1  De  "Witt  Wire  Cloth  Co.  v.  New         2  Central  Ohio  Salt  Co.  v.  Guthrie, 
Jersey  Wire  Cloth  Co.,  16  Daly  (N.  Y.),     35  Ohio  St.  672  (1880). 
529  (1891),  (14  N.  Y.  Supp.  278). 

498 


CHAP.   XXXV.]  RULES   OF   PUBLIC   POLICY.  §  350 

sumer  as  cheaply  as  possible,  and  is  opposed  to  monopolies, 
which  tend  to  advance  market  prices  to  the  injury  of  the 
general  public." 

And  in  the  leading  case  of  Morris  Run  Coal  Co.  v.  Bar- 
clay Goal  Co.,^  already  referred  to  at  length,  the  Court  said 
of  an  association  of  five  coal  companies:  "This  combination 
has  a  power  in  its  confederated  form  which  no  individual 
action  can  confer.  The  public  interest  must  succumb  to 
it,  for  it  has  left  no  competition  free  to  correct  its  baleful 
influence." 


CHAPTER   XXXV. 

RULES   OF   PUBLIC    POLICY. 


§  350.    In  General. 

§  351.     Distinction  between  Rules  of  Public  Policy  applicable  to  Private  and 

Quasj-public  Corporations. 
§  352.     Rules. 

§  353.     Rules  Conservative  Standards. 
§  354.     Analysis  of  Rule  governing  Private  Corporations.     Form  of  Combination 

immaterial. 
§  355.     Analysis  of  Rule  —  Objects  and  Tendencies  of  Combinations. 
§  356.     Analysis  of  Rule  —  Control  of  the  Market. 
§  357.     Analysis  of  Rule —  Extent  of  Territory. 
§  358.     Analysis  of  Rule  —  Useful  Commodities. 
§  359.     Analysis  of  Rule  applicable  to  Quasi-public  Corporations. 

§350.  In  General. — In  formulating  the  rules  of  public 
policy  stated  in  this  chapter  from  the  decisions  of  the  courts 
which  form  their  basis,  the  cases  have  been  examined  with  a 
view  of  ascertaining  and  harmonizing,  so  far  as  possible, 
their  underlying  principles.  No  attempt  has  been  made  to 
follow  the  language,  or  to  use  the  particular  expressions 
employed  in  the  opinions.  Thus,  the  phrase  "control  of  the 
market,"  in  the  rule  governing  private  corporations,  appears 
in  few  cases,  but  it  is  made  use  of  because  it  appears  to 
embody,  in  a  concise  expression,  the  conception  of  the  courts 

1  Morris  Run  Coal  Co.  v.  Barclay  Coal  Co.,  68  Pa.  St.  186  (1871).  See 
ante,  §  328,  note. 

499 


§  352  INTERCORPORATE   RELATIONS.  [I'ART   V. 

in  the  phrases  "destruction  of  competition,"  "establish- 
ment of  a  virtual  monopoly,"  "control  of  supjjly  and  prices," 
"control  of  all  trade  in  the  business  "  and  others  of  a  similar 
nature.  So  the  phrase  "useful  commodity,"  in  the  rule,  has 
seldom  been  employed  by  the  courts,  but  it  includes  "the 
necessaries  of  life "  mentioned  in  many  cases,  and  places 
only  a  slight  —  though  necessary  —  limitation  ui)on  the 
"commodities  of  commerce"  referred  to  in  others. 

§  351.  Distinctiou  bet'weeu  Rules  of  Public  Policy  applicable 
to  Private  and  Qucisi-public  Corporations.  —  A  rule  of  public 
policy  governing  industrial  combinations  a}»i>lies  alike  to 
private  corporations  and  individuals.  The  right  of  trading 
and  producing  companies  to  combine  is  not  affected  by  their 
corporate  character,  except  so  far  as  princijtles  of  corporation 
law  are  involved.  Jn  framing  a  rule  for  determining  the  valid- 
ity of  such  combinations,  regard  must  be  had,  on  the  one 
hand,  to  the  right  of  contract,  and,  on  the  other,  to  the 
effect  of  the  exercise  of  the  right  upon  the  public  welfare. 

^wa«t-public  corporations,  in  consideration  of  the  grant  of 
special  privileges  and  franchises,  assume  the  performance  of 
public  duties.  In  formulating  a  rule  of  public  policy  re- 
specting such  corporations,  it  is  of  primary  imj)ortance  to 
regard  the  corporation  as  a  party  to  a  contract  with  the 
State,  and  to  consider  the  effect  of  a  combination  upon  its 
ability  to  perform,  in  a  manner  most  beneficial  to  the 
public,  the  obligations  it  has  assumed. 

The  State  has  an  indirect  interest  in  combinations  of 
private  corporations  to  see  that  nothing  is  done  prejudicial 
to  the  public  welfare,  it  has  a  direct  contractual  interest 
to  see  that  the  grantee  of  public  franchises  properly  fulfils 
its  covenants. 

§  352.  Rules.  —  (1)  Any  comhination  of  corporations  or 
individuals  the  object  of  which  is,  or  the  necessary  or  natural 
consequence  of  the  operation  of  which  will  he,  the  control  of 
the  market  for  a  useful  commodity,  is  against  public  policy 
and  unlawful. 

(2)  Any  combination  of  quasi-public  corporations,  the  object 
of  ivhich  is,  or  the  necessary  or  natural  consequence  of  the 
500 


CHAP.    XXXV.]  RULES   OF   PUBLIC   POLICY.  §  354 

operation  of  ivhich  will  be,  the  increase  of  diaries  beyond 
reasonable  rates,  or  the  curtailment  of  facilities  afforded  the 
public,  is  against  public  policy  and  unlauful. 

§  353.  Rules  Conservative  Standards. —  The  rules  state  con- 
servative standards.  That  relating  to  private  corporations 
furnishes  rather  a  test  of  illegality  than  of  legality.  There 
are,  undoubtedly,  combinations  contrary  to  public  policy 
which  do  not  contravene  its  provisions,  but,  on  the  other 
hand,  it  is  believed  that  every  combination  which  does  come 
within  its  provisions  is  against  public  policy  and  invalid. 
Combinations  for  the  restriction  of  competition,  not  amount- 
ing to  a  control  of  the  market,  have,  in  many  cases,  been 
declared  invalid.  But  conflicting  decisions  are  equally 
numerous,  and  the  line  between  lawful  and  unlawful  restric- 
tion is  not  readily  drawn.  Unlawful  combinations  may  be 
in  such  form  that  it  is  impossible  to  say  that  their  object  is 
to  control  the  market  for  a  commodity,  but  these  are  excep- 
tions and  will  often  be  found  to  be  within  the  rule  applicable 
to  quasi-^nhXiQ,  corporations. 

The  latter  rule  was  more  readily  formulated  and  is 
more  easily  applied.  The  nature  of  the  quan-]}Vi\A\c  cor- 
poration enters  into  the  rule.  Any  combination  which 
interferes  with  the  performance,  in  the  most  advantageous 
manner,  of  its  obligations  to  the  State  is  against  public 
policy. 

§  35-1:.  Analysis  of  Rule  Governing  Private  Corporations.  Form 
of  Combination  immaterial.  — The  test  of  the  legality  of  a 
combination  lies  in  its  object  and  not  in  its  form.  The 
view  that  a  combination  by  means  of  a  purchasing  corpora- 
tion is  less  vulnerable  than  other  forms  of  combination  is 
well  founded  only  with  reference  to  questions  of  corporation 
law. 

An  association  of  corporations  may  be  ultra  vires  of  its 
members;  a  trust  contravenes  elementary  legal  principles; 
a  corporate  combination,  per  contra,  may  be  formed  through 
the  exercise  of  the  ordinary  corporate  powers  of  purchase 
and  sale.  But  the  same  principles  of  public  policy  are 
applicable.     That  which  public  policy  forbids  in  the  case  of 

501 


§  354  INTERCORPORATE    RELATIONS.  [PART    V. 

an  association  or  trust  cannot  lawfully  be  done  by  a  corpo- 
rate combination,   and  vice  versa. '^ 

A  distinction  has  been  drawn  between  contracts  of  inde- 
pendent manufacturers,  for  the  purpose  of  restricting  com- 
petition, and  the  purchase  by  one  corporation,  under  the 
power  contained  in  its  charter,  of  the  properties  and  busi- 
ness of  competing  corporations,  which  may  have  the  effect 
of  suppressing  competition.  The  suppression  of  competition, 
in  the  former  case,  is  said  to  be  opposed  to  i)ublic  policy; 
while,  in  the  latter  case,  it  is  declared  to  be  only  the  neces- 
sary result  of  the  exercise  of  an  express  statutory  power. 
Thus,  in  Trenton  Potteries  Co.  v.  Oli/jjhant,^  the  Supreme 
Court  of  New  Jersey  said:  "Contracts  by  independent  and 
unconnected  manufacturers  or  traders  looking  to  the  control 
of  the  prices  of  their  commodities,  either  by  limitation  of 
production,  or  by  restriction  on  distribution,  or  by  express 
agreement  to  maintain  specified  prices,  are,  without  doubt, 
opposed  to  public  policy.  .  .  .  Corporations,  however,  may 
lawfully  do  any  acts  within  the  corporate  powers  conferred 
on  them  by  legislative  grant.  .  .  .  Under  such  powers,  it  is 
obvious  that  a  corporation  may  purchase  the  plant  and  busi- 
ness of  competing  individuals  and  concerns.  The  legislature 
might  have  withheld  such  powers,  or  imposed  limitations 
upon  their  use.  In  the  absence  of  prohibition  or  limitation 
on  their  powers  in  this  respect,  it  is  impossible  for  the 
courts  to  pronounce  acts,  done  under  legislative  grants,  to  be 
inimical  to  public  policy.  The  grant  of  the  legislature 
authorizing  and  permitting  such  acts  must  fix  for  the  courts 
the  character  and  limit  of  public  policy  in  that  regard.     It 


1  Harding  v.  American  Glucose  Co.,  solidate  their  interests  hy  conveying 
182  111.  615  (1899),  (55  N.  E.  Rep.  577,  all  their  property  to  a  corporation,  or- 
74  Am.  St.  Rep.  235):  "A  trust  has  ganized  for  the  purpose  of  taking  their 
usually  appeared  in  the  form  of  an  property.  Any  combination  of  corn- 
agreement  between  stockholders  in  petiug  corporations  for  the  purpose  of 
many  corporations  to  place  all  their  controlling  prices,  or  limiting  produc- 
stock  in  the  hands  of  trustees,  and  to  tion,  or  suppressing  competition,  is  con- 
receive  trust  certificates  therefor  from  trary  to  public  policy,  and  is  void." 
the  trustees.  But  the  question  in  the  ^  Trenton  Potteries  Co.  i'.  Olyphant, 
present  case  is  whether  a  trust  is  created  58  N.  J.  Eq.  507  (1899),  (43  Atl.  Rep. 
where  a  majority  of  stockholders  con-  728). 

502 


CHAP.   XXXV.]  RULES   OF   PUBLIC   POLICY.  §  354 

follows  that  a  corporation,  empowered  to  carry  on  a  particular 
business,  may  lawfully  purchase  the  plant  and  business  of 
competitors,  although  such  purchases  may  diminish,  or  for 
a  time,  at  least,  destroy,  competition.  Contracts  for  such 
purchases  cannot  be  refused  enforcement." 

These  conclusions  may  be  well  founded  in  their  application 
to  an  actual  sale  in  the  transaction  of  business,  as  distin- 
guished from  a  combination  in  the  form  of  a  sale.^  A 
corporation,  having  general  power  to  dispose  of  its  property, 
may,  like  an  individual,  in  good  faith,  sell  to  a  competing 
corporation  without  violating  the  rule  of  public  policy. ^ 
There  is  no  combination  in  such  a  purchase.  But  if  the  sale 
is  for  the  purpose  of  forming  a  corporate  combination,  in 
which  the  vendor  corporation  participates,  the  same  rule  of 
public  policy  is  applicable  as  in  the  case  of  any  combina- 
tion of  corporations.  As  already  stated,  the  object  of  a 
combination,  or  the  necessary  or  natural  consequence  of  its 
operation,  determines  its  legality.  The  form  —  trust,  cor- 
porate combination  or  association  —  will  not  serve  as  a 
cloak  for  conspiracy  nor  prevent  the  application  of  the  rule 
of  public  policy. 

Corporate  power  to  purchase  no  more  authorizes  the  exer- 
cise of   such  power  for  purposes  opposed  to  public  policy, 

^  National  Lead  Co.  v.  Grote  Paint  2  Jq  Carter-Crume  Co.  v.  Peurrung, 
Store  Co.,  80  Mo.  App.  267  (1899):  86  Fed.  439  (1898),  the  plaintiff  entered 
"  The  record  in  the  case  under  review  into  contracts  with  several  manufac- 
shows  that  the  beneficial  owners  of  the  turers  of  butter-dishes  for  the  purcliase 
property  were  the  subscribers  to  the  of  their  products.  Its  purpose  was  to 
National  Lead  Trust  and  holders  of  its  control  the  market  for  these  articles, 
certificates,  and  that  these  same  persons  but  the  manufacturers  had  no  knowl- 
remained  tlie  beneficial  owners  of  the  edge  of,  and  did  not  participate  in, 
same  property  after  it  was  converted  such  unlawful  purpose.  In  sustaining 
into  the  capital  of  the  plaintiff  corpora-  one  of  these  contracts  the  Court  said: 
tion,  the  only  difference  being  that  each  "The  transaction  with  Peurrung 
holder  of  a  trust  certificate  received,  in  Brothers  &  Co.  was,  on  its  face,  legiti- 
lieu  thereof,  shares  of  stock  in  the  new  mate,  and  it  cannot  be  impeached 
corporation  at  an  agreed  rate  of  ex-  simply  by  evidence  that  the  Carter- 
change,  and  the  further  fact  that  the  Crume  Company  understood  and  in- 
legal  title  to  the  property  was  put  into  tended  it  as  one  step  in  a  general  illegal 
a  corporate  entity  of  a  body  of  nine  scheme  for  monopolizing  the  trade  in 
trustees  appointed  under  the  trust  wooden  butter-dishes  and  controlling 
agreement.  The  sale  itself  was  titular  prices." 
rather  than  real." 

503 


§  355  INTERCORPORATE   RELATIONS.  [pART   V. 

than  a  general  power  to  make  contracts  authorizes  the  exe- 
cution of  airreeiu(!nts  conflicting  with  the  ])ul)lic  interests,^ 

§  355.  Analysis  of  Rule  —  Objects  and  Tendencies  of  Com- 
binations. —  Where  the  objects  and  purposes  of  a  combination 
of  corporations,  as  stated  in  tlie  instruments  of  its  forma- 
tion, are,  upon  their  face,  contrary  to  public  policy,  the  com- 
bination is,  manifestly,  void.  But  an  alTirmation  of  purposes 
inimical  to  public  policy  is  hardly  to  be  expected  from  the 
organizers  of  a  combination,  and  the  law  docs  not  place  a 
premium  upon  evasion  by  making  the  test  of  validity  the 
object  stated.  On  the  contrary,  the  court,  in  determining 
the  validity  of  a  combination,  upon  grounds  of  public  policy, 
should  place  itself  in  the  position  of  its  members  at  tho  time 
of  its  formation,  and,  from  that  point  of  view,  determine  the 
real,  and  not  the  ostensible,  purpose  of  the  combination. 

As  said  by  Judge  Daniels  in  the  Sugar  Trust  Ca%e -."^  '*Tho 
law  does  not  require  that  instruments  of  this  description, 
before  they  may  be  declared  to  be  illegal,  shall,  in  plain 
language,  affirm  the  intention  to  be  to  prevent  competition 
and  control  the  market,  or  advance  the  prices  of  necessary 
commodities.  .  .  .  But  the  courts,  as  in  other  cases,  are 
permitted  to  place  themselves  in  the  position  of  the  parties 
entering  into  the  agreement  or  arrangement  to  discover  the 
objects  or  designs  by  which  they  may  have  been  actuated." 

Moreover,  in  determining  the  validity  of  a  combination 
upon  principles  of  public  policy,  its  actual  effect  when  put 

1  As  to  the  power  of  a  corporation  to  property  as  is  necessary  for  carrying  on 

purchase  competing  plants  for  the  pur-  its  distillery  business,  and  no  more.     Its 

pose  of  suppressing  competition  see  Dis-  power  to  acquire  and  hold  property  i3 

tilling,  etc.  Co.  v.  People,  156  111.  491  limited  to  that  purpose;  and  it  has  no 

(1895J,  (41  N.  E.  Rep.  188),  where  the  power,  by  its  cliarter,  to  enter  upon  a 

Court  said:  "But  it  is  urged  that  the  scheme  of  getting  into  its  hands  and 

defendant,  by  its  charter,  is  authorized  under  its  control   all,  or  sub.^tantially 

to  purchase  and  own  distillery  property,  all,  the  distillery  jilants  and  the  distil- 

and  that  there  is  no  limit  pl.aced  upon  lery  business   of   the   country,  for   the 

the  amount  of  property  which  it  may  purpose  of  controlling  production  and 

thus  acquire.     By  its  certificate  of  or-  prices,  of  crushing  out  competition,  and 

ganization,  it  is  authorized  to   engage  of  establishing  a  virtual  monopoly  in 

in  a  general  distillery  business  in  Illinois  that  business." 

and  elsewhere,  and  to  own  the  property  ^  People  v.  North  River  Sugar  Rf'g 

necessary   for    that    purpose.  .  .  .  The  Co.,  54  Hun  (N.  Y.),  376  (1889),  (3  N.  Y. 

defendant  is  authorized    to  own   such  Supp.  401). 

504 


CHAP.    XXXV.]  RULES   OF   PUBLIC   POLICY. 


§  355 


into  operation  is  immaterial.  The  question  is  not  what  has 
been  done  mider  the  combination  but  what  might  have  been 
done  under  it.^  The  inquiry  is  whether  a  natural  result  of 
the  operation  of  the  combination  would  be  prejudicial  to  the 
public  interests."^ 

The  courts  have  generally  held  that  a  combination  is 
void  as  being  against  pul)lic  policy,  the  tendency  of  which 
is  injurious  to  the  public. ^  Testing  the  validity  of  acts  or 
contracts  by  their  tendencies,  real  or  supposed,  is  making 
a  standard  of  that  which  is  essentially  uncertain  and  indefi- 
nite. Two  courts  may  honestly  disagree  as  to  the  tendency 
of  a  particular  agreement,  and  the  phrase  "  injurious  tend- 
ency" is  too  often  a  generality  taking  the  place   of   exact 


1  People  V.  Sheldon.  139  N.  Y.  2.^1 
(1893),  (34  N.  E.  Kep.  785):  "The 
question  here  does  not  turn  on  the  point 
whether  the  agreement  between  the 
retail  dealers  iu  coal  did,  as  a  matter 
of  fact,  result  in  injury  to  the  public, 
or  to  the  community  in  Lockport.  The 
question  is.  Was  the  agreement  one,  in 
view  of  what  might  liave  been  done 
under  it  and  the  fact  that  it  was  an 
agreement,  the  effect  of  which  was  to 
prevent  competition  among  the  coal 
dealers,  one  upon  which  the  law  fastens 
the  brand  of  condemnation  1  " 

Judd  I'.  Harrington,  139  N.  Y.  105 
(1893),  (34  N.  E.  Rep.  790):  "Courts 
will  not  aid  parties  seeking  to  enforce 
such  an  agreement,  irrespective  of  the 
question  whether,  in  fact,  it  produced 
the  evil  results  to  which  it  tended,  or 
was  harmless.  .  .  .  The  illegal  charac- 
ter of  the  agreement  appeared  upon  its 
face,  and  was  a  necessary  legal  conclu- 
sion from  its  provisions." 

2  Texas  Standard  Oil  Co.  v.  Adoue, 
83  Tex.  650  (1892),  (19  S.  W.  Rep.  274, 
29  Am.  St.  Rep.  690) :  "  The  agreement 
may  be  illegal  if  the  natural  or  necessary 
consequences  of  its  operation  are  to  pre- 
vent competition  and  create  fictitious 
prices  independent  of  the  law  of  demand 
and  supply  and  to  such  an  extent  as  to 
injuriously  affect  the  interests  of  the 
public,  or  the  interests  of  any  particular 


class  of  citizens  who  may  be  especially 
interested,  eitlier  as  producers  or  con- 
sumers, in  the  articles  or  staples  which 
are  the  subject  of  the  restrictions  im- 
posed by  the  contract." 

^  Anheuser-Busch  Brew.  Ass'n  v. 
Houck  (Tex.  1894),  27  S.  W.  Rep.  696: 
"  The  effect  on  the  public  of  an  agree- 
ment which  is  against  public  policy  is 
not  essential ;  the  tendency  is  enough 
to  bring  it  within  the  condemnation  of 
the  courts." 

Nester  v.  Continental  Brewing  Co., 
161  Pa.  St.  481  (1894),  (29  Atl.  Rep. 
102):  "Courts  will  not  stop  to  inquire 
as  to  the  degree  of  injury  inflicted.  It 
is  enough  to  know  that  tlie  natural  tend- 
ency of  such  contracts  is  injurious." 

Central  Ohio  Salt  Co.  v.  Guthrie,  35 
Ohio  St.  672  (1880):  "The  clear  ten- 
dency of  such  an  agreement  is  to  estab- 
lish a  monopoly  and  destroy  competition 
in  trade,  and,  for  that  reason,  on  gi'ounds 
of  public  policy,  courts  will  not  aid  in 
its  enforcement.  It  is  no  answer  to 
say  that  competition  in  the  salt  trade 
was  not,  in  fact,  destroyed,  or  that  the 
price  of  the  commodity  was  not  un- 
reasonably advanced.  Courts  will  not 
stop  to  inquire  as  to  the  degree  of  in- 
jury inflicted  upon  the  public;  it  is 
enough  to  know  that  the  inevitable 
tendency  of  such  contracts  is  injurious 
to  the  public." 

505 


§  356 


INTERCORPORATE   RELATIONS. 


[part  V. 


reasoning.  The  distinction  between  the  natural  consequences 
of  the  operation  of  a  combination  and  its  tendencies  may  be 
slight  but  it  is  essential. 

§  356.  Analysis  of  Rule  —  Control  of  the  Market.  ' —  The 
phrase  "control  of  the  market,"^  as  employed  in  the  rule  of 
public  policy,  means  the  control  of  the  disposition  of  a  given 
product  in  a  given  market.  It  involves,  primarily,  the 
suppression  of  competition,   and,  as  incidental  thereto: 

(1)  The  control  of  production. 

(2)  The  regulation  of  prices. 

It  is  not  essential,  however,  to  the  control  of  the  market, 
within  the  rule,  that  it  should  be  complete.  Practical  con- 
trol is  sulhcient;  and  this  does  not  imply  an  absolute  elimi- 
nation of  competition.^ 


Richardson  v.  Buhl,  77  Mich.,  660 
(1889),  (43  N.  W.  Rep.  1102),  (Champlin 
J.,  conrurring  opinion) :  "  Such  a  va.st 
combination  as  lias  been  entered  into 
under  the  above  name  is  a  menace  to 
the  public.  Its  object  and  direct  ten- 
dency is  to  prevent  free  and  fair  compe- 
tition, and  control  the  prices  throughout 
the  national  domain." 

See  also  Addyston  Pipe,  etc.  Co.  v. 
United  States,  17.5  U.  S.  211  (1899),  (20 
Sup.  Ct.  Rep.  96) ;  United  States  v. 
Trans-Missouri  Freight  Ass'n,  166  U.  S. 
290  (1897),  (17  Sup.  Ct.  Rep.  540) ;  State 
V.  Portland  Natural  Gas,  etc.  Co.,  153 
Ind.  483  (1899),  (53  N.  E.  Rep.  1089); 
Stanton  ;;.  Allen,  5  Denio  (N.  Y.),  434 
(1848);  State  v.  Nebraska  Distilling 
Co.,  29  Neb.  700  (1890),  (46  N.  W.  Rep. 
155) ;  Distilling  and  Cattle  Feeding  Co. 
V.  People,  156  111.  448  (1895),  (41  N.  E. 
Eep.  188). 

1  The  term  "monopoly"  has,  like- 
wise, been  defined  as  "  the  control  of 
a  given  product  in  a  given  market." 
While,  for  reasons  already  indicated, 
the  use  of  the  term  *'  monopoly "  is 
undesirable  in  stating  a  rule  of  public 
policy,  the  decisions  of  the  courts  which 
use  the  term  in  the  sense  stated,  may 
properly  be  referred  to  as  illustrating 
the  rule. 

2  De  Witt  Wire  Cloth  Co.  v.  New 

506 


Jersey  Wire  Cloth  Co.,  16  Daly  (N.  Y.), 
529  (1891),  (14  N.  Y.  Snpp.  277): 
"  Neither  need  the  agreement  nor  com- 
bination, in  order  to  expose  it  to  the 
denunciation  of  the  law,  constitute  a 
complete  monopoly  or  effect  a  total 
suppression  of  competition ;  but  the 
language  of  courts  and  of  writers  is 
that,  if  the  agreement  tends  to  a  mo- 
nopoly or  to  reduce  or  lessen  competi- 
tion, it  is  contrary  to  public  policy  and 
unlawful,  because  oper.-iting  pro  tanto  an 
artificial  enhancement  of  price." 

In  the  Sugar  Trust  Case  (People  u. 
North  River  Sugar  Kef'g  Co.,  54  Hun 
(N.  Y.),  354  no^e  (1889)),  Judge  Barrett 
said  :  "  This  rule  is  applicable  to  every 
monopoly,  whether  the  supply  is  re- 
stricted by  nature  or  susceptible  of  in- 
definite production.  The  difficulty  of 
effecting  the  unlawful  purpose  may  be 
greater  in  one  case  than  in  the  other, 
but  it  is  never  impossible.  Nor  need  it 
be  permanent  or  complete.  It  is  enough 
that  it  may  be  even  temporarily  and 
partially  successful." 

See  also  Texas  Standard  Oil  Co.  v. 
Adoue,  83  Tex.  650  (1892),  (19  S.  W. 
Rep.  274,  29  Am.  St.  Rep.  690).  Also 
Addyston  Pipe,  etc.  Co.  v  United  States, 
175  tr.  S.  211  (1899),  (20  Sup.  Ct.  Rep. 
108). 


CHAP.   XXXV.]  RULES    OF   PUBLIC    POLICY. 


§356 


On  the  other  hand  a  mere  restriction  of  competition  does 
not  o;ive  control  of  the  market  and  is  not  unlawful.^     The 


1  Public  policy  regarding  competi- 
tion, as  manifested  by  divergent  judicial 
decisions,  is  indicated  by  the  following 
extracts  from  opinions  of  courts  in  dif- 
ferent States  and  in  England  : 

California.  Herriman  v.  Meiizies,  115 
Cal.  22  (1896),  (44  Pac.  Kep.  660)  : 
"Combinations  between  individuals  or 
firms  for  the  regulation  of  prices,  and 
of  competition  in  business,  are  not  mo- 
nopolies, and  are  not  unlawful  as  in 
restraint  of  trade,  so  long  as  they  are 
reasonable,  and  do  not  include  all  of  a 
commodity  or  trade,  or  create  such  re- 
strictions as  to  materially  affect  the 
freedom  of  commerce." 

Compare  Santa  Clara  Valley  Mill,  etc. 
Co.  V.  Hayes,  76  Cal.  392  (1888),  (18 
Pac.  Rep.  391):  "When  agreements 
are  resorted  to  for  the  purpose  of  taking 
trade  out  of  the  realm  of  competition, 
and  thereby  enhancing  or  depressing 
prices  of  commodities,  the  courts  cannot 
be  successfully  invoked,  and  their  exe- 
cution will  be  left  to  the  volition  of  the 
parties  thereto." 

Illinois.  Harding  v.  American  Glu- 
cose Co.,  182  111.  615  (1899),  (55  N.  E. 
Rep.  577,  74  Am.  St.  Rep.  235) :  "  Any 
combination  of  competing  corporations 
for  the  purpose  of  controlling  prices,  or 
limiting  production,  or  suppressing  com- 
petition, is  contrary  to  public  policy  and 
is  void.  .  .  .  The  public  policy  of  the 
State  of  Illinois  has  always  been  against 
trusts  and  combinations  organized  for 
the  purpose  of  suppressing  competition 
and  creating  monopoly." 

See  also  ante,  §  344 :  "  Basis  of  Rule 
—  (  C)  Whiskei/  Trust  Cases ; "  ante, 
§  345  :  "  Basis  of  Rule— (D)  Case  of  the 
Preservers  Trust ;  "  ante,  §  346  :  Basis 
of  Rule  —  (E)  Case  of  the  Chicago  Gas 
Trust." 

Indiana.  State  v.  Portland  National 
Gas,  etc.  Co.,  153  Ind.  483  (1899),  (53  N. 
E.  Rep.  1089) :  "  It  is  an  old  and  familiar 
maxim  that  '  competition  is  the  life  of 
trade,'  and  whatever  act  destroys  com- 
petition, or  even  relaxes  it,  upon  the 


part  of  those  who  sustain  relations  to 
the  public,  is  regarded  by  the  law  as 
injurious  to  public  interests,  and  is, 
therefore,  deemed  to  be  unlawful,  on 
the  grounds  of  public  policy." 

Kentucky.  Anderson  v.  Jett,  89  Ky. 
375  (1889),  (12  S.  VV.  Kep.  670):  "Ri- 
valry is  the  life  of  trade.  The  thrift 
and  welfare  of  the  people  depend  upon 
it.  Monopoly  is  o])posed  to  it  all  along 
the  line.  The  accumulation  of  wealth 
out  of  the  brow  sweat  of  honest  toilers 
by  means  of  combinations  is  opposed  to 
competing  trade  and  enterprise.  That 
public  policy  that  encourages  fair  deal- 
ing, honest  thrift,  and  enterprise  among 
all  the  citizens  of  the  commonwealth, 
and  is  opposed  to  mono])olies  and  com- 
binations because  unfriendly  to  such 
fair  dealing,  thrift,  and  enterprise, 
declares  all  combinations  whose  object 
is  to  destroy  or  impede  free  conip(  tition 
between  the  several  lines  of  business 
engaged  in  utterly  void." 

Michigan.  See  ante,  §  347  :  "  Basis  of 
Rule  —  (F)  Case  of  the  Diamond  Match 
Companif." 

New  Hampshire.  Manchester,  etc.  R. 
Co.  I'.  Concord  R.  Co.,  66  N.  H.  127 
(1889),  (20  Atl.  Rep.  383):  "While, 
without  doubt,  contracts  which  have  a 
direct  tendency  to  prevent  a  healthy 
competition  are  detrimental  to  the  pub- 
lic, and,  consequently,  against  public 
policy,  it  is  equally  free  from  doubt 
that  when  such  contracts  prevent  an 
unhealthy  competition  .  .  .  they  are 
beneficial,  and  in  accord  with  sound 
principles  of  public  policy." 

New  Jersey.  Meredith  v.  Zinc  and 
Iron  Co.,  55  N.  J.  Eq.  221  (1897),  (37 
Atl.  Rep.  539) :  "  Now,  I  am  unable  to 
find  any  foundation,  either  in  law  or  in 
morals,  for  the  notion  that  the  pul)lic 
have  the  right  to  have  these  private 
owners  of  this  sort  of  property  continue 
to  do  business  in  competition  with  each 
other.  No  doubt  the  public  has  reason- 
able ground  to  entertain  its  hope  and 
expectation  that  its  individual  members 

SOT 


:56 


INTERCORPORATE  RELATIONS. 


[part  V. 


commercial  maxim,  "competition  is  the  life  of  trade,"  while 
not  adopted  as  a  maxim  of  jurisprudence,  finds  a  place  in 

will  generally,  in  their  several  struggles 
to  acquire  the  means  uf  comfortable 
existence,  compete  with  eacli  other. 
But  such  expectation  is  based  entirely 
upon  the  exercise  of  the  free  will  and 
choice  of  the  individual,  and  not  upon 
any  legal  or  moral  duty  t<*  compete, 
and  cau  never,  from  the  nature  of  tilings, 
become  a  matter  of  riglit  on  the  part 
of  the  public  against  the  individual." 
See  also  Trenton  Potteries  Co.  v.  Oly- 
phant,  58  N.  J.  Eq.  507  (1899),  (43  Atl. 
Rep.  723). 

New  York.  Vinegar  Co.  v.  Foehren- 
bach,  148  N.  Y.  64  (1895),  (42  N.  E. 
Rep.  403) :  "  But  not  all  combinations 
are  condemned,  and  self-preservation 
may  justify  the  prevention  of  undue  and 
ruinous  competition,  when  the  pre- 
vention  is  sought   by  fair    and    legal 

methods." 

Judd  V.  Harrington,  139  N.  Y.  105 

(1893).  (.34  N.  E.  Kep.  790) :  "  The  real 

purpose  and  intent  of  the  agreement 

was  to  suppress  competition  in  an  ar- 
ticle of  food,  and  as  such  agreements 

tend   to   ailvance   the    j)rice,    they  are 

regarded  as  detrimental  to  the  public 

interest,  and  contrary  to  public  policy." 
Diamond  Match  Co.  v.  Roeber,  106 

N.  Y.  483  (1887),  (13  N.  E.  Rep.  419) : 

"  We  suppose  a  party  may  legally  pur- 
chase the  trade  and  business  of  another 

for    the    very   purpose   of    preventing 

competition." 

Cohen  v.  Berlin  and  Jones  Envelope 

Co.,  38   App.   Div.  (N.  Y.)  499    (1899), 

(56  N.  Y.  Supp.  588) :    "  It  cannot  be 

doubted  but  that  the  defendant  had  the 

right  to  buy  out  all  the  envelope  man- 
ufacturing business,  and  even  though 

they   thereby  obtained    power  to   end 

competition  and  arbitrarily  fix  prices." 
Rafferty  v.  Buffalo    City  Gas   Co., 

37    App.    Div.     (N.    Y.)     623     (1899), 

(56    N.  Y.    Supp.   288) :    "  A  contract 

made  to  prevent  or  avoid  destructive 

competition  is  not  necessarily  invalid." 
Chappell    V.  Brock  way,    21    Wend. 

157(1839):  "Competition   in  business, 

508 


though  greatly  beneficial  to  the  public, 
may  be  carried  to  such  an  extent  as  to 
become  an  evil." 

See  also  ante,  §  342 :  "  Basis  of  Rule 

—  (A)   Case  of  the  Suffar  Trust." 
Ohio.     Central    Ohio     Salt    Co.    v. 

Guthrie,  35  Ohio  St.  672  (1880)  :  "  Pub- 
lic policy,  unquestionably,  favors  com- 
petition in  trade,  to  the  end  that  its 
commodities  may  be  afforded  to  the 
consumer  as  cheaply  as  possible,  and  is 
opp(jsed  to  monopolies,  which  tend  to 
advance  market  prices,  to  the  injury  of 
the  general  public." 

See  also  ante,  §  343  :  "  Basis  of  Rule 

—  {B)  Case  of  the  Standard  Oil  Trust." 
Pennsiflvanin.     Morris  Run  Coal  Co. 

V.  Barclay  Coal  Co.,  68  Pa.  St.  186 
(1871)  :  "  When  competition  is  left  free, 
individual  error  or  folly  will  generally 
find  a  correction  in  the  conduct  of 
others.  But  here  is  a  comhinatiou 
of  all  the  companies  operating  in 
the  Blossburg  and  Barclay  mining 
regions,  and  controlling  their  entire 
productions.  .  .  .  The  public  interest 
must  succumb  to  it,  for  it  lias  left 
no  competition  free  to  correct  its 
baleful    influence." 

Rhode  Island.  Oakdale  Mfg.  Co.  v. 
Garst.,  18  R.  I.  484  (1894),  (28  Atl. 
Rep.  973):  "Undoubtedly,  there  may 
be  combinations  so  destructive  of  the 
right  of  the  people  to  buy  and  sell,  and 
to  pursue  their  business  freely,  that 
they  must  be  declared  to  be  void  upon 
the  ground  of  public  policy.  In  such 
ca.ses,  the  injury  to  the  public  is  the  con- 
trolling consideration.  But  it  does  not 
follow  that  every  combination  in  trade, 
even  though  such  combination  may 
have  the  effect  to  diminish  the  number 
of  competitors  in  business,  is  illegal.  .  .  . 
Combinations  for  mutual  advantage 
which  do  not  amount  to  a  monopoly, 
but  leave  the  field  of  competition  open 
to  others,  are  neither  within  the  reason 
nor  the  operation  of  the  rule." 

Texas.  Texas  Standard  Oil  Co.  v. 
Adoue,  83  Tex.  650  (1892),  (19  S.  W. 


CHAP.    XXXV.]  RULES   OF   PUBLIC   POLICY. 


§  35G 


many  decisions,  and  the  language  of  the  courts  is  often 
broad  enough  to  include,  as  opposed  to  public  policy,  every 
combination  in  restraint  of  competition,  regardless  of  degree. 
But  the  weight  of  autliority  —  as  well  as  sound  principle  — 
supports  the  view  that  every  combination  restricting  com- 
petition is  not  invalid  —  that  restriction,  to  be  unlawful, 
while  not  necessarily  amounting  to  total  suppression,  must 
give,  substantially,  the  control  of  the  market. 

Just  where  the  line  is  to  be  drawn  between  a  lawful  and 
unlawful  restriction  of  competition  —  just  what  restriction  is 
practical  suppression  —  must  depend  largely  upon  the  facts 
and  circumstances  of  each  case.  As  said  in  Hoffman  v. 
Brooks,'^  a  case  not  officially  reported:  "Those  engaged  in 
any  trade  or  business  may,  to  such  limited  extent  as  may  be 
fairly  necessary  to  protect  their  interests,  enter  into  agree- 
ments which  will  result  in  diminishing  competition  and 
increasing  prices.  Just  the  extent  to  which  this  may  be 
done  courts  have  been  careful  not  to  define,  just  as  they  have 
refused  to  set  monuments  along  the  line  between  fairness 
and  fraud." 


Rep.  274,  29  Am.  St.  Rep.  690).  See 
extract  from  this  decision  in  note  to 
last  section. 

Wisconsin.  Kellogg  v.  Larkin,  3  Pin. 
150  (1851),  (56  Am.  Dec.  180)  :  "I  ap- 
prehend it  is  not  true  that  competition 
is  the  life  of  trade.  On  the  contrary, 
that  maxim  is  one  of  the  least  reliable 
of  the  host  that  may  be  picked  up  in 
every  market-place.  It  is,  in  fact,  the 
shibboleth  of  mere  gambling  specula- 
tion, and  is  hardly  entitled  to  take  rank 
as  an  axiom  in  the  jurisprudence  of 
this  country.  .  .  .  Indeed,  by  reducing 
prices  below,  or  raising  tliem  above 
values  (as  the  nature  of  the  trade 
prompted),  competition  has  done  more 
to  monopolize  trade,  or  to  secure  exclu- 
sive advantages  in  it,  than  lias  been 
done  by  contract.  Rivalry  in  trade 
will  destroy  itself,  and  rival  tradesmen 
seeking  to  remove  each  other,  rarely 
resort  to  contract,  unless  they  find  it 
the  cheapest  mode  of  putting  an  end  to 
the  strife." 


England.  Mogul  Steamship  Co.  v. 
McGregor,  L.  R.  App.  Cas.  25  (1892), 
(61  L.  J.  R.  295),  (Lord  Bramwell)  : 
"  In  these  days  of  instant  communica- 
tion with  almost  all  parts  of  the  world, 
competition  is  the  life  of  trade,  and  I 
am  not  aware  of  any  stage  of  competi- 
tion called  "  fair,"  intermediate  between 
lawful  and  unlawful.  The  question  of 
fairness  would  be  relejjated  to  the  idio- 
syncrasies of  individual  judges.  I  can 
see  no  limit  to  competition,  except  that 
you  shall  not  invade  the  rights  of 
another." 

Canada.  Ontario  Salt  Co.  v.  Mer- 
chants Salt  Co.,  18  Grant's  Ch.  540 
(1871):  "I  know  of  no  rule  of  law  ever 
existing  which  prohibited  a  certain  num- 
ber (not  all)  of  the  producers  of  a  staple 
commodity  agreeing  not  to  sell  below  a 
certain  price." 

^  Hoffman  v.  Brooks,  11  Cincinnati 
Week.  Law  Bull.  259  (1884),  23  Am. 
Law.  Reg.  648. 

509 


§357 


INTERCORPORATE   RELATIONS. 


[part  y. 


§  357.  Analysis  of  Rule  —  Extent  of  Territory.  —  A  com- 
bination to  control  the  markets  of  the  world  for  a  useful 
commodity  would  contravene  the  rule  of  public  policy.  A 
combination  for  the  purpose  of  controlling  the  market  in 
a  particular  locality  would  be  equally  unlawful.  The  ]>hra8e 
"  control  of  the  market "  means  the  control  of  any  market. 

No  limit  of  territory  can  or  should  be  prescribed.  The 
dealers  in  a  village  might  combine  to  control  the  market  for 
a  necessary  of  life.  In  order  to  accom])li8h  their  object,  they 
must  control  the  ordinary  sources  of  supply  of  the  village. 
Manufacturers  throughout  the  United  States  might  combine  to 
control  the  markets  of  the  country  for  their  product.  Their 
purpose  could  only  be  attained  by  having  under  their  power 
the  sources  of  supj)ly  of  the  country.  The  result  to  the 
public  from  each  combination  would  be  the  same.  Compe- 
tition, in  each  case,  would  be  suppressed,  and,  consequently, 
prices  raised  and  production  limited.  The  difference  would 
be  only  in  degree,  and  each  combination  would  be  against 
public  policy  and  invalid.^ 


1  Texas  Standard  Oil  Co.  v.  Adoiie, 
83  Tex.  6.50  (1892),  (19  S.  W.  Kcp.  274, 
29  Am.  St.  Kep.  690):  "We  can 
scarcely  conceive  how  mere  territorial 
limits  can  he  tlie  controlling  test,  in  all 
instances,  of  the  h'gality  of  the  restraints 
imposed  upon  the  ordinary  course  of 
trade.  This  criterion  may  do  very  well 
when  applied  to  the  occupation  or  ])ro- 
fession  of  one  man,  orveven  a  few 
individuals ;  for  neither  their  labor, 
industry,  business,  nor  services,  may 
be  so  necessary  to  the  public  as  not  to 
be  dispensed  with  without  inconven- 
ience or  injury.  It  appears  to  us,  how- 
ever, that  tlie  case  is  very  different  in 
regard  to  trade  or  commerce  in  those 
articles  of  prime  necessity,  or  even  of 
very  frequent  use  among  a  large  num- 
ber of  people  in  any  given  locality. 
Does  any  one  doubt  that  a  combination 
of  a  number  of  the  most  extensive  deal- 
ers in  flour,  meat  or  oils,  etc.,  in  one 
great  city,  to  sell  those  commodities  at 
onlv    one  price   or   not  at  all,   within 

510 


the  limits  of  that  city,  would  affect  the 
interests  of  tlie  public,  and,  perhaps, 
also  some  of  tlie  indivirlual  dealers, 
much  more  extensively  and  disastrously 
than  a  similar  a>.'rcemeut  extended  to 
a  much  greater  area  of  country,  but  in 
which  only  a  few  people  reside,  or  re- 
quire such  articles  1  It  would  seem  that 
the  injurious  effects  upon  tlie  public 
interests  would  be  in  proportion  to  the 
number  of  ])eo])le  affected  by  the  re- 
strictions, though  we  are  uot  unaware 
that  this  position  has  not  been  deemed 
tenable  by  some  of  the  authorities  in 
cases  where  the  right  to  exercise  a 
trade  or  profession  within  a  particular 
district  or  locality  has  been  restricted 
by  the  contract.  We  think  that  terri- 
tory cannot  be  the  sole  test,  though  in 
the  present  instance  the  contract  em- 
braces such  extensive  territory,  and 
such  a  number  of  localities  as  to  bring 
it  even  within  that  rule." 

Hoffman   r.  Brooks,    11    Cincinnati 
Weekly  Law  Bull.  (Ohio)  259  (1884), 


CHAP.    XXXV.]  RULES   OF   PUBLIC   POLICY. 


§358 


§  358.  Analysis  of  Rule  —  Useful  Commodities.  —  The  old 
English  offences  of  regrating,  forestalling  and  engrossing,  — 
crimes  in  the  days  of  Edward  VI.  and  approved  methods  of 
doing  business  at  the  present  time,  —  related  exclusively  Lo 
certain  forms  of  traffic  in  the  necessaries  oflife.^ 

The  influence  of  the  early  statutes  and  decisions  against 
those  offences  has  not  yet  entirely  died  out.  The  term 
"engross"   is    not    infrequently   used    in    connection   with 


23  Am.  Law  Reg.  648  :  "  The  presump- 
tion is  always  against  the  validity  of 
such  agreements  [in  restraint  of  com- 
petition], and,  certainly,  where  they  in- 
clude all  those  engaged  in  any  business 
in  a  large  city  or  district,  are  unlimited 
in  duration,  and  are  manifestly  intended, 
by  the  surrender  of  individual  discre- 
tion, by  the  arbitrary  fixing  of  prices, 
or  by  any  of  the  methods  to  wliich  the 
hope  of  gain  makes  human  ingenuity  so 
faithful,  to  strangle  competition  out- 
right, and  breed  monopolies,  the  law, 
while  it  may  not  punish,  will  not 
enforce  them." 

Chapin  v.  Brown,  8.3  Iowa,  156 
(1891),  (48  N.  W.  Rep.  1074):  "The 
agreement  is  against  public  policy.  It 
plainly  tends  to  monopolize  the  butter 
trade  at  Storm  Lake,  and  destroy  com- 
petition in  that  business.  It  is  not 
necessary  that  the  enforcement  of  the 
agreement  should  actually  create  a 
monopoly  in  order  to  render  it  invalid, 
and,  surely,  where  all  the  dealers  in  a 
commodity  in  a  certain  locality  agree  to 
quit  the  business,  and  the  plaintiffs  are 
installed  as  the  only  dealers  in  that 
line,  the  tendency  is,  for  a  time,  at  least, 
to  destroy  competition,  and  leave  the 
plaintiffs  as  the  only  dealers  in  that 
species  of  property  in  that  locality. 
Such  contracts  cannot  be  enforced." 

Santa  Clara  Valley  Mill,  etc.  Co.  v. 
Hayes,  76  Cal.  387  (1888),  (18  Pac. 
Rep.  391):  "Here  it  [the  plaintiff] 
entered  into  a  contract  with  the  object 
and  view  to  suppress  the  supply  and 
enhance  the  price  of  lumber  in  four 
counties  of  the,  State.  The  contract  was 
void  as  being  against  public  policy." 


1  "  Regrating :  In  old  English  law, 
the  offence  of  buying  or  getting  into 
one's  hands  at  a  fair  or  market,  any 
provisions,  corn,  or  other  dead  victual, 
with  the  intention  of  selling  the  same 
again  in  the  same  fair  or  market,  or  in 
some  other  within  four  miles  thereof, 
at  a  higher  price.  The  offender  was 
termed  a '  regrator.' "  Black's  Law  Diet. 

"  Forestalling  the  Market :  The  act 
of  buying  or  contracting  for  any  mer- 
chandise or  provision  on  its  way  to  the 
market,  with  the  intention  of  selling  it 
again  at  a  higher  price ;  or  dissuad- 
ing persons  from  bringing  their  goods 
or  provisions  there ;  or  persuading  them 
to  enhance  the  price  when  there." 
Black's  Law  Diet,  citing  4  Black  Com. 
158. 

Engrossing :  "  Whatsoever  person  or 
persons  that  after  said  first  day  of  May 
shall  engross  or  get  into  his  or  their 
hands,  by  buying,  contracting  or  prom- 
ise-taking, other  than  by  demise,  grant 
or  lease  of  land  or  tithe,  any  corn  grow- 
ing in  the  fields,  or  any  corn  or  grain, 
butter,  cheese,  fish  or  other  dead  vict- 
uals whatsoever,  within  the  realm  of 
England,  to  the  intent  to  sell  the  same 
again,  shall  be  accepted,  reputed  and 
taken  as  unlawful  engrosser  or  engross- 
ers." Statute  5th  and  6th  Edward 
VI.,  entitled,  "  An  Act  against  Regrat- 
ers,  Forestallers,  and  Engrossers " 
(ch.  14,  §  3). 

The  acts  thus  denominated  offences 
are  now  recognized  and  approved  as 
necessary  methods  of  transacting  busi- 
ness, and  the  change  of  public  policy, 
with  reference  to  them,  furnishes  an 
apt  illustration  of  its  fluctuating  nature. 

511 


INTERCORPORATE   RELATIONS. 


[part  v. 


modern  combinations,  and  the  character  of  an  article  as  one 
of  "the  necessaries  of  life,"  as  an  "article  of  necessity"  or 
"an  article  of  prime  necessity  "  —  according  to  the  particular 
phrase  —  is  generally  stated  as  a  controlling  reason  why  the 
suppression  of  competition  therein  is  inimical  to  public 
policy.^  A  combination  for  the  purpose  of  controlling  the 
market  for  an  article  of  necessity  is  against  public  policy. 
But  the  rule  of  public  policy  is  of  broader  application.'-'  The 
essential  question  is  whether  the  article  is  a  useful  com- 
modity,^ as  distinguished  from  those  "articles  of  commerce, 
which  are,  in  no  proper  sense,  necessaries  or  even  conven- 
iences, but  mere  luxuries  or  ap{)cndages  of  vanity."* 


1  Queen     Ins.    Co. 
Civ.   App.  189.-?),  22  S. 


V.  State  (Tex. 
W.  Rep.  1048, 
22  L.  K.  A.  192:  "As  we  have  said, 
these  statutes  (against  engrossing,  re- 
grating  and  forestalling)  have  been 
repealed  in  England.  They  were  ap- 
plicable to  a  condition  of  society  which 
uo  longer  exists.  But  it  is  to  be  pre- 
sumed that  the  common-law  principle 
•which  underlies  them  is  the  origin  of 
the  modern  doctrine  on  the  subject. 
We  find  that  most  of  the  cases  in  which 
agreements  among  manufacturers  and 
dealers  to  increase  the  price  of  their 
wares  and  commodities  were  declared 
illegal,  related  to  some  merchai:table 
article  of  necessity,  or  of  great  utility." 

2  In  United  States  r.  E.  C.  Knight 
Co.,  156  U.  S.  12  (1895),  (15  Sup.  Ct. 
Eep.  248),  Mr.  Chief  Justice  Fuller 
said :  "  The  argument  is,  that  the 
power  to  control  the  manufacture  of  re- 
fined sugar  is  a  monopoly  over  a  neces- 
sary of  life,  to  the  enjoyment  of  which, 
by  a  large  part  of  the  population  of  the 
United  States,  interstate  commerce  is 
indispensable,  and  that,  therefore,  the 
general  government,  in  the  exercise 
of  the  power  to  regulate  commerce, 
may  repress  such  monopoly  directly, 
and  set  aside  the  instruments  which 
have  created  it.  But  this  argument 
cannot  be  confined  to  necessaries  of 
life,  merely,  but  must  include  all  articles 
of  general  consumption." 

See  also  DeWitt  Wire  Cloth  Co.  v. 

512 


New  Jersey  Wire  Cloth  Co.,  16  Paly 
(N.  Y.),  529  (1891),  (14  N.  Y.  Supp. 
279),  where  the  Court  .said  :  "  Nor  is  the 
operation  of  the  rule  forbidding  con- 
tracts restricting  competition  and  en- 
hancing price,  limited  to  trade  in  tlie 
necessaries  of  life,  but,  as  ajipears  from 
the  citations  above,  extends  ccjually 
and  alike  to  all  commodities  of  com- 
merce." 

2  Queen  Ins.  Co.  v.  State  (Tex.  Civ. 
App.  1893),  22  S.  W.  Kep.  1048,  22  L. 
R.  A.  491:  "The  word  'commodity' 
has  two  significations.  In  its  most 
comprehensive  sense,  it  means  '  con- 
venience, accommodation,  profit,  benefit, 
advantage,  interest,  commodiousness ; ' 
but,  according  to  Webster's  Interna- 
tional Dictionary,  the  use  of  the  word 
in  this  sense  is  obsolete.  Page  286. 
The  word  is  ordinarily  used  in  the  com- 
mercial sense  of  any  movable  or  tangible 
thing  that  is  ordinarily  produced  or 
used  as  the  subject  of  barter  or  sale." 

*  Cummings  v.  Union  Blue  Stone 
Co.,   164  N.  Y.  405  (1900). 

In  Herriman  v.  Menzies,  115  Cal.  16 
(1896),  (44  Pac.  Rep.  660),  the  Court 
said:  "An  agreement,  the  purpose  or 
effect  of  which  is  to  create  a  monopoly, 
is  unlawful  if  it  relate  to  some  staple 
commodity,  or  thing,  of  general  re- 
quirement and  u.se,  or  of  necessity,  and 
not  something  of  mere  luxury  or  con- 
venience." 


CHAP.    XXXV.]  RULES    OF   PUBLIC   POLICY. 


§  358 


No  precise  rule  can  be  stated  for  determining  what  are 
articles  of  necessity.^     The  luxuries  of  the  period  of  Edward 

^  I.  Combinations  Jbr  the  suppression 
of  competition  in  the  sale  or  production  oj 
the  following  articles  have  been  held  to  be 
inijjiical  to  public  policy,  generally  upon 
the  ground  that  they  are  necessaries  of 
life. 

Alcohol.  State  v.  Nebraska  Distill- 
ing Co.,  29  Neb.  718  (1890),  (46  N.  \V. 
Eep.  155):  "Alcohol  is  an  article  of 
commerce.  It  is  applied  to  a  thousand 
uses  in  arts  and  manufactures.  The 
amount  which  is  rectified  and  used  aa 
intoxicating  drinks  forms  but  a  very 
small  part  of  the  quantity  actually 
distilled,  and  being  an  article  of  com- 
merce, any  contract  creating  a  monop- 
oly therein,  is  against  public  policy 
and  void." 

Beer.  Held :  An  article  of  daily 
consumption  and  a  combination  therein 
unlawful.  Nester  v.  Continental  Brew. 
Co.  (Pa.),  2  Dist.  R.  177  (1894);  on 
appeal,  161  Pa.  St.  473  (1894),  (29  Atl. 
Rep.  102). 

Contra,  however,  Anheuser-Busch 
Brewing  Ass'n  v.  Houck  (Tex.  1894), 
(27  S.  W.  Rep.  692).     See  note  1,  next 


page. 

Brick.  Jackson  v.  Brick  Ass'n,  53 
Ohio  St.  303  (1895),  (41  N.  E.  Rep.  257, 
53  Am.  St.  Rep.  637). 

Blue  Stone.  Cummings  v.  Union 
Blue  Stone  Co.,  164  N.  Y.  405  (1900), 

Biscuits  and  Confectionery.  Ameri- 
can Biscuit,  etc.  Co,  i;,  Klotz,  44  Fed. 
721  (1891). 

Butter.  Chapin  v.  Brown,  83  Iowa, 
156  (1891),  (48  N.  W.  Rep.  1074). 

Candles.  Emery  v.  Ohio  Candle 
Co.,  47  Ohio  St.  320  (1890),  (24  N.  E. 
Rep.  660,  32  Am.  &  Eng.  Corp.  Cas. 
165). 

Coal.  Morris  Run  Coal  Co.  v. 
Barclay  Coal  Co.,  68  Pa,  St.  173 
(1871);  People  v.  Sheldon,  139  N.  Y. 
251  (1893),  (34  N.  E.  Rep.  785);  Amot 
V.  Pittston,  etc.  Coal  Co.,  68  N.  Y.  558 
(1877),  (23  Am.  Rep.  190);  Drake  v. 
Siebold.  81  Hun  (N.  Y.),  178  (1894), 
(30  N.  Y.  Supp,  697). 
33 


Cotton  Bagging.  India  Bagging 
Ass'n  V.  Kock,  14  La.  Ann.  169  (1859) : 
"  The  agreement  between  the  parties 
was  palpably,  and  unequivocally,  a 
combination  in  restraint  of  trade,  and 
to  enhance  the  price  in  the  market  of 
an  article  of  prime  necessity  to  cotton 
planters.  Such  combinations  are  con- 
trary to  public  order,  and  cannot  be 
enforced  in  a  court  of  justice." 

Cotton  Seed.  Texas  Standard  Oil 
Co.  V.  Adoue,  83  Tex.  650  (1892),  (19 
S.  W.  Rep.  274,  29  Am.  St.  Rep.  690). 

Glucose  and  its  Products.  Harding 
V.  American  Glucose  Co.,  182  111.  551 
(1899),  (55  N.  E.  Rep.  577,  74  Am.  St. 
Rep.  235.) 

Grain.  Craft  v.  McConoughby,  79 
111.  346  (1875),  (22  Am.  Rep.  171). 

Grain  Bags  and  Burlap.  Pacific  Fac- 
tor Co.  V.  Adler,  90  Cal.  110  (1891), 
(127  Pac.  Rep.  361). 

Ice.  GriiBn  v.  Piper,  55  111.  App. 
213  (1894). 

Lumber.  Santa  Clara  Valley  Mill, 
etc.  Co.  V.  Hayes,  76  Cal.  387  (1888), 
(18  Pac.  Rep.  391,  9  Am.  St.  Rep. 
211). 

Matches.  Richardson  ik  puhl,  77 
Mich.  632  (1889),  (43  N.  W.  Rep.  1102), 

Milk.  People  v.  Milk  Exchange, 
145  N.  Y.  267  (1895),  (39  N.  E.  Rep. 
1062) ;  Ford  i'.  Chicago  Milk  Shippers 
Ass'n,  155  IlL  166  (1895),  (.39  N.  E, 
Rep.  651). 

Petroleum  and  its  Products.  State  v. 
Standard  Oil  Co.,  49  Ohio  St.  137 
(1892),  (30  N.  E.  Rep.  279). 

Preserves.  American  Preservera 
Trust  V.  Taylor  Mfg.  Co.,  46  Fed.  152 
(1891);  Bishop  y.  American  Preservera 
Trust,  157  111,  284  (1895),  (41  N.  E, 
Rep.  765), 

Salt.  Central  Ohio  Salt  Co.  v. 
Guthrie,.  35  Ohio  St.  666  (1880). 

Sheep  and  Lambs.  Judd  i'.  Harring- 
ton, 139  N.  Y,  105  (1893),  (34  N.  E. 
Rep.  790). 

Spring  Tooth  Harrows.  National  Har- 
row Co,  V.  Bement,  21  App.  Div.  (N.  Y.) 

513 


358 


INTERCORPORATE  RELATIONS. 


[part  V. 


VI.  have  become  the  commonest  of  necessities,  or  have  passed 
out  of  use  altogether.  In  the  present  stage  of  civilization, 
the  line  between  necessities  and  luxuries  cannot  be  sharply 
drawn. 

A  fortiori  is  it  impossible  to  lay  down  an  exact  rule  for 
determining  what  is  a  useful  commodity.  There  are  few 
articles  which  are  bought  and  sold  which  are  not,  in  a  sense, 
useful,  and,  consequently,  few  articles  which  are  not  within 
the  rule  of  public  policy  ;  except,  perhaps,  articles  the  use 
of  which  public  policy  requires  should  be  restricted. ^ 


296  (1897),  (47  N.  Y.  Supp.  462)  :  "A 
harrow  is  an  implement  as  important 
and  as  generally  used  by  farmers  as  a 
plow,  and  is  quite  as  necessary  for  the 
proper  cultivation  of  land  as  any  other 
agricultural  implement,  and  is  in  use 
in  every  properly  cultivated  farm.  .  .  . 
I  think  it  needs  no  argument  to  show 
that  a  combination  formed  for  the  pur- 
pose of  c  mtrolling  their  prices,  limiting 
their  production,  preventing  competi- 
tion among  manufacturers,  and  also 
preventing  further  improvement  in 
them,  is  contrary  to  public  policy." 

Sugar.  People  i'.  North  River  Sugar 
Ref'g  Co.,  54  Hun  (N.  Y.),  3.54  (1889), 
(3  N.  Y.  Supp.  401 ) ;  affirmed  upon  prin- 
ciples of  corporation  law,  121  N.  Y. 
582  (1890),  (24  N.  E.  Rep.  83i,  18  Am. 
St.  Rep.  843). 

Tobacco.  Hoffman  v.  Brooks,  23 
Am.  Law  Reg.  648  (1884),  (11  Week. 
Law  Bull.  (Ohio)  258). 

Wire  Cloth.  De  Witt  Wire  Cloth 
Co.  V.  New  Jersey  Wire  Cloth  Co., 
16  Daly  (N.  Y.),  529  (1891),  (14  N.  Y. 
Supp.  277). 

II.  The  foUoiving  articles  have  been 
held  not  to  be  articles  of  necessity : 

Curtain  Fixtures.  Central  Shade 
Roller  Co.  v.  Cushman,  143  Mass. 
364  (1887),  (9  N.  E.  Rep.  629):  "The 
agreement  does  not  refer  to  an  article 
of  prime  necessity  nor  to  a  staple  of 
commerce,  nor  to  merchandise  to  be 
bought  and  sold  in  the  market,  but  to 
a  particular  curtain  fixture  of  the 
parties'  own  manufacture." 

514 


Glue  made  from  Fish  Skins.  Glouces- 
ter Isinglass,  etc.,  Co.  v.  Russia  Cement 
Co.,  154  Mass.  92  (1891),  (27  N.  E. 
Rep.  1005). 

Laundry  Machines.  Dolph  i'.  Troy 
Laundry  Mach.  Co.,  28  Fed.  553  (1886). 

Zinc.  Meredith  v.  Zinc,  etc.  Co.,  55 
N.  J.  Eq.  211  (1897),  (37  Atl.  Rep.  539). 

All  these  articles  are,  however,  use- 
ful commodities  within  the  rule  of 
public  policy. 

1  Anheuser-Busch  Brewing  Ass'n 
V.  Houck  (Tex.  1894),  (27  S.  W.  Rep. 
695) :  "  We  think  there  can  be  no  doubt 
that  the  rule  that  is  to  be  derived  from 
all  the  authorities  condemns,  as  being 
against  public  policy,  an  agreement  be- 
tween two  or  more  dealers,  in  an  article 
of  prime  necessity  or  in  general  use 
among  the  people,  whereby  they  agree 
to  jointly  control  the  supply  of  such 
article,  to  cease  competition  between 
themselves  in  respect  to  it,  and  to  regu- 
late the  price  thereof  in  a  given  com- 
munity or  market.  .  .  .  There  may  be 
a  question  as  to  whether  beer  is  an  arti- 
cle of  necessity,  but  it  admits  of  no  ques- 
tion that  it  is  an  article  of  usual  and 
general  consumption  and  of  use  among 
the  people.  ...  Is  beer  one  of  those 
articles  of  consumption,  though  one  in 
frequent  use  among  the  people,  the  sale 
of  which  is  not  permitted  by  public 
policy  to  be  limited  by  a  contract  in 
restraint  of  trade?  We  have  concluded 
that  it  is  not.  The  policy  of  the  laws 
of  the  State  is  not  towards  the  unre- 
stricted or  general  sale  of  such  article. 


CHAP.    XXXV.]  RULES   OF   PUBLIC   POLICY. 


§359 


§  359.  Analysis  of  Rule  of  Public  Policy  applicable  to  Quasi- 
public  Corporations.  —  While  combinatior.s  of  private  corpo- 
rations merely  for  the  purpose  of  restricting  competition  are 
not  invalid,^  similar  combinations  of  quasi-puhUc  corpora- 
tions are,  presumptively,  against  public  policy. ^  The  rule 
provides  that  every  such  combination  is  invalid  if  either 
of  these  consequences  may  follow  its  operation: 

(1)  The  increase  of  charges  beyond  reasonable  rates. 

(2)  The  curtailment  of  facilities  afforded  the  public. 

The  substance  of  the  rule  is  that  every  combination  of 
^Masi'-public  corporations,  which,  without  statutory  authority, 
does  or  may  deprive  the  public  of  the  benefits  accruing  from 
separate  control  and  management,  is  against  public  policy. ^ 


The  liquor  traffic  has  always  been'  kept 
in  restraint  by  statutes  imposing  oner- 
ous conditions  and  regulations  in  refer- 
ence to  its  pursuits,  clearly  evidencing 
a  policy  of  not  allowing  every  one  to 
engage  in  the  business  at  will." 

Compare,  however,  Nester  v.  Conti- 
nental Brewing  Co.,  161  Pa.  St.  473 
(1894),  (20  Atl.  Rep.  102,  41  Am.  St. 
Rep.  894),  where  the  Court  said  :  "The 
appellants  insist  that  restraint  of  trade 
in  the  necessaries  of  life  only,  is  within 
the  prohibition  of  public  policy.  No 
standard  has  been  furnished  by  which 
to  ascertain  what  constitutes  these 
with  reference  to  the  general  public. 
But  assuming  that  beer  is  not  among 
them,  it  is  equally  within  the  reach  of 
the  rule.  The  law  recognizes  it  as  a 
commodity,  regulates  its  sales,  it  is 
'  an  article  of  daily  consumption,'  and 
the  court  should  refuse  to  aid  in  any 
attempted  imposition  upon  the  public 
by  means  of  illegal  combinations." 

1  United  States  v.  Trans-Missouri 
Freight  Ass'n,  58  Fed.  84  (1893): 
"  Anotlier  distinction  which  is  now 
firmly  establislied  and  enforced  grows 
out  of  the  nature  of  tlie  business  con- 
tracted about,  and  the  relation  the 
contracting  parties  bear  thereto.  An 
individual  or  a  private  corporation  en- 
gaged in  a  purely  private  enterprise  may 
lawfullv  enter  into  contracts  or  combi- 


nation in  regard  thereto  which  would 
be  invalid  and  illegal  if  the  business 
was  of  a  public  nature,  and  the  corpo- 
ration was  created  for  the  purpose  of 
engaging  therein." 

2  In  Cleveland,  etc.  R.  Co.  v.  Closser, 
126  Ind.  360  (1890),  (26  N.  E.  Rep.  159), 
the  Supreme  Court  of  Indiana  said : 
"  It  is,  however,  both  appropriate  and 
necessary  to  adjudge  that  a  combina- 
tion between  common  carriers  to  pre- 
vent competition  is,  at  \ea.st,  prima  facie 
illegal.  The  doubt  is  as  to  whether 
any  ultimate  purpose  can  save  it  from 
the  condemnation  of  the  law ;  there 
can  be  no  doubt  that,  unexplained,  such 
a  combination,  for  such  a  purpose,  is 
condemned  by  public  policy.  If  such  a 
combination  can,  in  any  event,  be  ad- 
mitted to  be  legal,  it  can  only  be  so  when 
it  is  affirmatively  shown  that  its  ob- 
ject was  to  prevent  ruinous  competition, 
and  that  it  does  not  establish  unreason- 
able rates,  unjust  discriminations,  or 
oppressive  regulations.  If  such  a  con- 
tract can  stand,  it  must  be  upon  an 
affirmative  showing,  and  one  so  full, 
complete,  and  clear  as  to  remove  the 
presumption  (to  which  its  existence,  in 
itself,  gives  rise)  that  it  was  formed  to 
do  mischief  to  the  public  by  repressing 
fair  competition." 

3  United   States :   Gibbs  v.  Consoli- 
dated Gas  Co.,  130   U.  S.  408  (1889), 

515 


§  360  INTERCOUPORATE   RELATIONS.  [PART   7. 


CHAPTER  XXXVI. 

APPLICATION   OP   RULES   OF   PUBLIC    POLICY   TO    PARTICULAR 
CLASSES   OF   COMBINATIONS. 

§  360.     Associations  of  Manufacturers  and  Producers. 

§361.     Associations   of  Manufacturers  owning  Patents. 

§  362.     Associations  of  Dealers. 

§  363.     Associations  of  Iluilruad  Companies.     Traffic  Contracts  of   Connecting 

Lines. 
§  364.     Associations  of  Railroad  Companies.     Traffic  Contracts  of  Competing 

Lines.     Pools. 
§  365.     Associations  of  Gaa  Companies  and  other  Qu<u(-public  Corporations. 

§  300.  Associations  of  Manufacturers  and  Producers.  —  The 
application  of  the  rule  of  public  policy  to  trusts  and  corpo- 
rate combinations  formed  by  manufacturing  and  producing 
companies  has  been  illustrated  in  the  leading  cases  of 
combinations  of  that  description  which  have  already  been 
reviewed.^ 

Associations  of  competing  manufacturers  or  producers, 
for  the  purpose  of  obtaining  control  of  the  market  for 
their  products,  or  for  the  restriction  of  competition,  have 
been  repeatedly  entered  into,  and  their  validity  has,  in  many 
cases,  been  passed  upon  by  the  courts.' 

(9  Sup.  Ct.  Rep.  553) ;  Chicago,  etc.  R.  the  Standard  Oil  Trust ;  "  ante,  §  344 : 

Co.   V.   Wabash,  etc.  R.   Co.,  61    Fed.  "Basis  of  Rules  — (C)   Whiskey   Trust 

996  (1894).  Cases  ;  "  ante,  §  345  :  "  Basis  of  Rules-' 

Illinois:     People    v.    Chicago    Gas  (D)  Case  of  the  Preservers  Trust ;"  ante, 

Trust  Co.,  130  111.  268  (1889),  (22  N.  §  347:  "  Basis  of  Rules— (F)  Case  of 

E.   Rep.  798,   17    Am.   St.   Rep.   319);  the  Diamond  Match    Company;"   ante, 

Chicago  Gas  Light,  etc.  Co.  v.  Peoples  §  348  :  "  Basis  of  Rules  —  ( G)   Case  of 

Gas  Light,  etc  Co.,  121  111.  530  (1887),  the  Glucose  Combination  ;  "  ante,  §  349  : 

(13   N.  E.   Rep.  169,  2   Am.  St.  Rep.  "Basis   of  Rules  — (H)    Miscellaneous 

124).  Cases." 

New    Yoiic :    Compare    Rafferty    v.  ^  I.     Cases    holdinrj    associations    of 

Buffalo   City   Gas   Co.,  37    App.   Div.  competing    manufacturers    or    producers 

618  (1899),  (56  N.  Y.  Supp.  288).  legal: 

West      Virginia :      West     Virginia  United  States :  Dolph  v.  Troy  Laun- 

Transp.  Co.  v.  Ohio  River   Pipe   Line  dry  Mach.  Co.,  28  Fed.  553  (1886). 

Co.,  22  W.  Va.  625  (1883).  Massachusetts:  Gloucester  Isinglass, 

1  See  anfe,  §  342  :  "  Basis  of  Rules —  etc.    Co.    v.   Russia    Cement    Co.,    154 

(A)    Case  of  the   Sugar   Trust;"   ante,  Mass.  92  (1891),  (27  N.  E.  Rep.  1005); 

§  343:   "Basis  of  Rules — (B)  Case  of  Central  Shade  Roller  Co.  v.  Cashman, 

'  516 


CHAP.   XXXVI.]  APPLICATION   OF  RULES. 


§  360 


As  shown  in  a  preceding  section,  these  associations  have 
taken  various  forms.  ^  Agreements  regulating  prices,  restrict- 
ing production  and  creating  selling  agencies,  have  been, 
perhaps,  the  most  common.  Occasionally,  novel  devices 
have  been  adopted,  in  an  attempt  to  avoid  the  effect  of  the 
decisions  against  combinations.  Thus,  an  agreement  was 
entered  into  by  manufacturers  fixing  a  price  for  their  prod- 
ucts far  in  excess  of  the  market  price,  and  stipulating  that 
it  might  be  reduced  but  not  increased.  It  was  contended 
that  the  contract,  having  fixed  a  maximum  price,  was  not  an 
agreement  to  raise  prices,  and,  consequently,  was  not  invalid. 
But  it  was  held  that  the  agreement,  for  all  practical  pur- 
poses, controlled  prices  and  was  illegal.^ 


143  Mass.  353  (1887),  (9  N.  E.  Rep. 
629). 

Missouri:  Skrainka  v.  Scharrington, 
8  Mo.  App.  522  (1880). 

New  Jersey:  Meredith  f.  Zinc  & 
Iron  Co.,  55  N.  J.  Eq.  212  (1897),  (37 
Atl.  Rep.  539);  Trenton  Potteries  Co. 
V.  Olyphant,  58  N.J.  Eq.  507  (1899), 
(43  Atl.  Rep.  723). 

New  York :  Cohen  v.  Berlin  &  Jones, 
Env.  Co.,  38  App.  Div.  499  (1899),  (56 
N.  Y.  Supp.  588). 

Rhode  Island:  Oakdale  Mfg.  Co.  v. 
Garst,  18  R.  L  484  (1894),  (28  Atl. 
Rep.  973.) 

Canada:  Ontario  Salt  Co.  v.  Mer- 
chants Salt  Co.,  18  Grant's  Ch.  540 
(1871). 

II.  Cases  holding  associations  of  com- 
peting manufacturers  or  producers  illegal: 

Alabama :  Tuscaloosa  Ice  Mfg.  Co. 
V.  Williams,  28  So.  Rep.  669  (1900). 

California :  Santa  Clara  Valley  Mill, 
etc.  Co.  V.  Hayes,  76  Cal.  387  (1888), 
(18  Pac.  Rep.  391) ;  Vulcan  Powder  Co. 
V.  Hercules  Powder  Co.,  96  Cal.  510 
(1892),  (31  Pac.  Rep.  581,31  Am.  St. 
Rep.  242). 

Michigan :  Western  Woodenware 
Ass'n  V.  Starkie,  84  Mich.  76  (1890). 
(47  N.  W.  Rep.  604). 

New  York  :  De  Witt  Wire  Cloth  Co. 
V.  New  Jersey  Wire  Cloth  Co.,  16  Daly, 
529  (1891),  (14  N.  Y.  Supp.  277) ;  Cum- 


mings   V.    Union   Blue  Stone   Co.,  164 
N.  Y.  405  (1900). 

Ohio:  Emery  v.  Ohio  Candle  Co., 
47  Ohio  St.  320  (1890),  (24  N.  E.  Rep. 
660 ;  Central  Ohio  Salt  Co.  v.  Guthrie, 
35  Ohio  St.  666  (1880)  ;  JacLson  v. 
Brick  Ass'n,  53  Ohio  St.  303  (1895), 
(41  N.  E.  Rep.  257,  53  Am.  St.  Rep. 
637). 

Pennsylvania  :  Nester  v.  Continental 
Brew  Co.,  164  Pa.  St.  473  (1894),  (29 
Atl.  Rep.  102) ;  Morris  Run  Coal  Co. 
V.  Barclay  Coal  Co.,  68  Pa.  St.  173 
(1871). 

Texas :  Texas  Standard  Oil  Co.  v. 
Adoue,  83  Tex.  650  (1892),  (19  S.  W. 
Rep.  274). 

1  See  ante,  §  308 :  "  Formation  of  As- 
sociations." 

2  National  Harrow  Co.  v.  Bement, 
21  App.  Div.  N.  Y.  290  (1897),  (47 
N.  Y.  Supp.  462).  The  Court  said: 
"  A  contract  fixing  the  prices  of  har- 
rows at  more  than  forty  per  cent  above 
their  value  or  selling  prices,  and  autho- 
rizing the  licensor  to  reduce,  but  not  to 
increase,  the  prices,  as  effectually  con- 
trols the  prices  for  all  practical  pur- 
poses as  though  the  power  to  increase 
had  been  expressly  reserved  to  the 
plaintiff.  It  would  hardly  be  prac- 
ticable to  fix  the  prices  at  more  than 
forty-three  or  forty-five  per  cent  above 
the  selling  prices  of  the  harrows." 

517 


§  361  INTERCORPORATE  RELATIONS.  [PART   V. 

In  another  instance,  for  the  purpose  of  restricting  produc- 
tion, a  manufacturer  was  paid  a  bonus  in  the  form  of  rent  to 
keep  his  plant  idle.  The  arrangement  was  held  to  be  against 
public  policy.  1 

It  is,  undoubtedly,  the  better  view  that  a  business  corpo- 
ration may  in  good  faith  purchase  the  plant  of  a  competitor, 
although  the  effect  is  pro  tanto  to  restrict  competition ;  but 
it  cannot  do  so  as  a  part  of  a  scheme,  participated  in  by  the 
vendor,  to  form  a  combination  inimical  to  public  policy.^ 

In  applying  the  rule  of  public  policy  to  combinations  of 
manufacturers  or  producers  the  following  propositions  should 
be  observed: 

(1)  No  device  can  serve  as  a  shield  for  an  unlawful 
combination. 

(2)  An  association  for  the  restriction  of  competition 
through  the  regulation  of  prices  is  not  necessarily  unlawful. 

(3)  An  association  for  the  restriction  of  competition 
through  the  limitation  of  production  is  not  necessarily 
unlawful. 

(4)  An  association  for  the  restriction  of  competition, 
either  through  the  regulation  of  prices  or  limitation  of 
production,  becomes  an  association  for  the  control  of  the 
market  when  the  restriction  becomes  suppi-ession. 

(5)  An  association  for  the  control  of  the  market  is  an 
unlawful  combination. 

§  361.  Associations  of  Manufacturers  owning  Patents.  —  The 
grant  of  a  patent  confers  upon  the  patentee,  during  its  life, 
the  exclusive  control  of  the  invention.  He  is  governed  only  by 
economic  considerations  in  fixing  the  price  of  the  patented 
article,  and  may  attach  such  conditions  to  its  manufacture, 
sale,  and  use  by  others  as  he  may  deem  expedient.     The 

1  American,  etc.  Co.  v.  Peoria,  etc.  Fed.  439  (1898)  ;  Coqnard  v.  National, 
Co.,  65  111.  App.  502  (1895).  The  etc.  Co.,  171  111.  480  (1898),  (49  N.  E. 
scheme  was  held  invalid  under  an  anti-  Rep.  563)  ;  Trenton  Potteries  Co.  v. 
trust  statute,  but  was  undoubtedy  illegal  Olvphant,  58  N.  J.  Eq.  507  (1899),  (43 
without  it.  See  also  Fox,  etc.  Steel  Co.  Atl.  Rep.  723).  Compare,  however,  Luf- 
V.  Schoen,  77  Fed.  29  (1896).  Compare,  kin  Rule  Co.  v.  Fringeli,  57  Ohio  St. 
United  States  Chem.  Co.  v.  Provident  596  (1898),  (49  N.  E.  Rep.  1030,  63 
Chem.  Co.,  64  Fed.  964  (1894).  Am.    St.    Rep.    736)  ;     Wittenberg    v. 

2  Carter-Crume  Co.  v.  Peurrung,  86  MoUyneaux,  60  Neb.  583  (1900). 

518 


CHAP.    XXXVI.]  APPLICATION   OP   RULES.  §  361 

monopoly  is  not  created  by  his  act  but  by  the  grant  of  the 
patent. 

Upon  similar  principles,  it  is  probable  that  different  cor- 
porations, having  the  right  as  assignees  or  licensees  to 
manufacture  and  sell  under  the  same  patent,  may  combine 
for  the  regulation  of  prices  and  production.  Unless  such  a 
combination  amounts  to  a  conspiracy,  the  injury  to  the  public 
resulting  therefrom  would  seem  rather  to  arise  from  the 
exclusive  nature  of  the  patent  than  from  the  combination. 
This  question,  however,  is  not  definitely  settled  by  authority. ^ 

It  is  clear,  however,  that  owners  of  different  patents  cannot, 
by  cross  assignments  or  other  means,  enter  into  a  combination 
for  the  control  of  the  market  for  a  useful  article.  ^  The  fact 
that  the  combination  involves  patented  articles  in  no  way 
affects  the  application  of  the  rule  of  public  policy.  Com- 
petition in  the  sale  of  an  article,  covered  in  varying  forms 
by  different  patents,  is  as  essential  to  the  public  welfare  as 
competition  in  an  unpatented  article.  The  injury  to  the 
public,  in  such  a  case,  is  effected  by  the  combination  and 
not  by  the  patent. 

In  National  Harrow  Co.  v.  HencJi^^  Judge  Butler  said: 
"The  fact  that  the  property  involved  is  covered  by  letters 

^  But  see   the  very   recent  case  of  the  public  interest  is  promoted.     There- 

Bement  r.  National  Harrow  Co.,  22  Sup.  fore,  a  combination  between  such  manu- 

Ct.  Ilep.  747  (1902).  facturers,  which  imposes  a  widespread 

2  In  National  Harrow  Co.  v.  Hench,  restraint  upon  the  trade  and  destroys 
76  Fed.  667  (1896),  (affirmed  83  Fed.  competition,  is  as  injurious  to  the  com- 
38)  (1897),  Judge  Acheson  said:  "lam  munity  and  as  obnoxious  to  sound  public 
not  able  to  concur  in  the  view  that  the  policy  as  if  the  confederates  were  deal- 
principle  of  these  cases  is  applicable  iug  in  unpatented  articles." 
here,  because  the  agreement  in  question  See  also  National  Harrow  Co.  v. 
involves  patents.  It  is  true  that  a  Quick,  67  Fed.  1.30  (1895);  Strait  v. 
patentee  has  the  exclusive  control  of  National  Harrow  Co.,  18  N.  Y.  Supp. 
his  invention  during  the  life  of  the  224(1891);  Vulcan  Powder  Co.  u.  Her- 
patent.  He  may  practise  the  invention  cules  Powder  Co.,  96  Cal.  510  (1892), 
or  not,  as  he  sees  fit,  and  he  may  grant  (31  Pac.  Rep.  581,  31  Am.  St.  Rep. 
to  others  licenses  upon  his  own  terms.  242).  But  see  dicta  to  the  contrary 
But  where,  as  was  the  case  here,  a  large  in  Central  Shade  Roller  Co.  v.  Cush- 
number  of  independent  manufacturing  man,  143  Mass.  363  (1887),  (9  N.  E. 
concerns  are  engatred  in  making  and  Rep.  629).  For  review  of  the  case  of 
selling,  under  different  patents  and  in  the  Harrow  Trust,  see  ante,  §  349. 
various  forms,  an  extensively  used  arti-  '  National  Harrow  Co.  v.  Hench,  83 
cle,  competition  between  them  is  the  Fed.  38  (1897). 
natural  and  inevitable  result,  and  thereby 

619 


§  362  INTERCORPORATE   RELATIONS.  [PART    V. 

patent  is  urged  as  a  justification ;  but  we  do  not  see  how  any 
importance  can  be  attributed  to  tliis  fact.  Patents  confer  a 
monopoly  as  respects  the  property  covered  by  them,  but  they 
confer  no  right  upon  the  owners  of  several  distinct  patents 
to  combine  for  the  purpose  of  restraining  competition  and 
trade.  Patented  property  does  not  difl'er  in  this  resj)ect 
from  any  other.  The  fact  that  one  patentee  may  possess 
liimself  of  several  patents,  and  thus  increase  his  monopoly, 
affords  no  support  for  an  argument  in  favor  of  a  combina- 
tion by  several  distinct  owners  of  such  property  to  restrain 
manufacture,  control  sales,  and  enhance  prices.  Such  com- 
binations are  conspiracies  against  the  public  interests,  and 
abuses  of  patent  privileges.  The  object  of  these  privileges 
is  to  promote  the  public  benefit,  as  well  as  to  reward  in- 
ventors. The  suggestion  that  the  contract  is  justified  by  the 
situation  of  the  parties  —  their  cxjmsure  to  litigation  —  is 
entitled  to  no  greater  weight.  Patentees  may  compose  their 
differences,  as  the  owners  of  other  property  may,  but  they 
cannot  make  the  occasion  an  excuse  or  cloak  for  the  creation 
of  monopolies  to  the  public  disadvantage." 

§  362.  Associations  of  Dealers.  —  In  the  application  of  the 
rule  of  public  policy  to  associations  of  dealers  the  same 
principles  govern  as  in  the  case  of  similar  associations  of 
manufacturers  or  producers. 

Cases  in  which  the  courts  have  passed  ufmn  the  validity  of 
associations  of  dealers  are  collected  in  the  footnote. ^ 


1  I.   Cases  holding  associations  of  com-  Louisiana  :    India  Bagping   Associa- 

peting  dealers  legal:  tion  v.  Kock,  14  La.  Ann.  164  (1849). 

Fairbanks    v.   Leary,   40    Wis.   637  Xew   Yor/c:    People  v.  Sheldon,   139 

(1876) ;  Kellogg  v.  Larliiu,  3  Pin.  (Wis.)  N.  Y.  251  (1893),  (34  N.  E.  Rep.  785) ; 

123  (1851),  (56  Am.  Dec.  164).  People  v.   Milk  Exchange,    145  N.   Y. 

II.    Cases  holding  associations  of  com-  267  (1895),  (39  N.  E.  Rep.  1062) ;  Judd 

peting  dealersVlegal :  v.   Harrington,    139  N.   Y.    105    (1893), 

California :    Pacific    Factor    Co.    v.  (34  N.  E.  Hep.  790) ;  Arnot  v.  Pittston, 

Adlcr,   90   Cal.    110    (1891),    (27    Pac.  etc.  Coal  Co.,  68  N.  Y.  558  (1877),  (23 

Rep.  36).  Am.  Rep.  190). 

Illinois:   Craft  v.  McConoughby,  79  In    the   last   case    the   Court    said: 

HI.  346  (1875) ;  Griffin  v.  Piper,  55  111,  "Every  producer  or  vendor  of  coal  or 

App.  213  (1894).  other  commodity  has  the  right   to  use 

/oim;  Chapinr.  Brown,  83  Iowa,  156  all    legitimate    efforts    to    obtain    the 

(1891).  (48  N.  W.  Rep.  1074).  best  price  for  the  article  in  which  he 

620 


CHAP.   XXXVI.]  APPLICATION   OF  RULES. 


§363 


§  363.  Associations  of  Railroad  Companies.  TraflSc  Contracts 
of  Connecting  Lines.  —  A  railroad  company,  upon  principles 
of  the  common  law,  may  make  such  contracts  and  arrange- 
ments with  companies  owning  connecting  lines,  for  the  inter- 
change of  traffic,  through  rates,  and  through  bills  of  lading, 
as  it  may  deem  expedient.^  As  a  common  carrier,  it  is  only 
bound  to  carry  on  its  own  line,  and,  in  the  absence  of  stat- 
utory regulation  to  the  contrary,  may,  without  undue  dis- 
crimination, select  its  own  agencies  for  forwarding  upon, 
or  receiving  freight  from,  other  routes.^  Judge  Lacombe  in 
Prescott  V.  Atchison,  etc.  R.  Co.^  said:  "Now  I  know  of  no 


deals.  But  when  he  endeavors  to  arti- 
ficially enhance  prices  by  suppressing  or 
keeping  out  of  the  market  the  products 
of  others,  and  to  accomplish  that  pur- 
pose by  means  of  contracts  binding 
them  to  withhold  their  supply,  such 
arrangements  are  even  more  mischiev- 
ous than  combinations  not  to  sell  under 
an  agreed  price.  Combinations  of  that 
character  have  been  held  to  be  against 
public  policy  and  illegal." 

1  United  States  :  Columbus  R.  Co. 
V.  Indianapolis  R.  Co.,  5  McLean,  450 
(1853). 

Illinois:  Chicago,  etc.  R.  Co.  v. 
Ayres,  140  111.  644  (1892),  (30  N.  E. 
Rep.  687). 

Minnesota :  Stewart  v.  Erie,  etc. 
Transp.  Co.,  17  Minn.  372  (1871). 

New  York:  Hartford,  etc.  R.  Co.  v. 
New  York,  etc.  R.  Co.,  3  Rob.  411 
(1865). 

New  Jersey  :  Sussex  R.  Co.  »'.  Mor- 
ris, etc.  R.  Co.,  19  N.  J.  Eq.  13  (1868) ; 
reversed  on  other  grounds,  20  N.  J.  Eq. 
542  (1869). 

Pennsylvania :  Cumberland  Valley 
R.  Co.  V.  Gettysburgh,  etc.  R.  Co.,  177 
Pa.  St.  519  (1896),  (35  Atl.  Rep.  952). 

2  In  Atchison,  etc.  R.  Co.  v.  Denver, 
etc.  R.  Co.,  1 10  U.  S.  680  (1884),  (4  Sup. 
Ct.  Rep.  185),  Mr.  Chief  Justice  Waite 
said :  "  At  common  law,  a  carrier  is 
not  bound  to  carry  except  on  his  own 
line,  and  we  think  it  quite  clear  that 
if  he  contracts  to  go  beyond  he  may. 


in  the  absence  of  statutory  regulations 
to  the  contrary,  determine  for  himself 
what  agencies  he  will  employ.  His  con- 
tract is  equivalent  to  an  extension  of 
his  line  for  the  purpose  of  the  contract, 
and  if  he  holds  himself  out  as  a  carrier 
beyond  the  line,  so  that  he  may  be  re- 
quired to  carry  in  that  way  for  all  alike, 
he  may  nevertheless  confine  himself  in 
carrying  to  the  particular  route  he 
chooses  to  use.  He  puts  himself  in  no 
worse  position,  by  extending  his  route 
with  the  help  of  others,  than  he  would 
occupy  if  the  means  of  transportation 
employed  were  all  his  own.  He  cer- 
tainly may  select  his  own  agencies  and 
his  own  associates  for  doing  his  own 
work." 

See  also  St.  Louis  Drayage  Co.  v. 
Louisville,  etc.  R.  Co.,  65  Fed.  39 
(1894)  ;  Little  Rock,  etc.  R.  Co.  i;.  St. 
Louis,  etc.  R.  Co.,  41  Fed.  563  (1890). 

In  Eclipse  Towboat  Co.  v.  Pontchar- 
tain  R.  Co.,  24  La.  Ann.  1  (1872),  a 
railroad  and  steamboat  company,  form- 
ing a  through  line,  agreed  to  prorate 
freight  from  New  Orleans  to  Mobile, 
and  it  was  held  that,  as  common  car- 
riers, in  the  absence  of  statutory  pro- 
hibition, they  miglit  agree  or  refuse  to 
prorate  through  freight  with  anybody, 
and  that  another  steaml)oat  company 
had  no  ground  of  complaint. 

8  Prescott,  etc.  R.  Co.  v.  Atchison, 
etc.  R.  Co.,  73  Fed.  438  (1896). 

521 


§  3G3 


INTERCORPORATE   RELATIONS. 


[part 


principle  of  common  hiw  which  forbids  an  individual  rail- 
road corporation,  or  two  or  more  C(jrporations,  from  sclcctinj^ 
as  to  which  one  of  two  or  more  corporations  they  will 
employ,  as  auxiliary  to  their  own  lines,  as  the  agency  by 
which  they  will  send  freight  beyond  their  own  lines,  or  as 
their  agent  to  receive  freight  on  the  auxiliary  line  to  be 
transmitted  to  their  own  line  upon  through  bills  and  with- 
out breaking  bulk." 

The  Interstate  Commerce  Act  ^  and  other  statutes  requir- 
ing carriers  to  furnish  equal  facilities  for  the  interchange 
of  traflic  with  connecting  lines,  and  providing  that  there 
shall  be  no  discrimination  in  rates  and  charges,  do  not 
invalidate  traOic  contracts  for  the  interchange  of  business 
and  relating  to  matters  purely  of  mutual  accommodation ;  nor 
require  that  such  a  contract,  if  made  with  one  connecting 
carrier,  shall  be  made  with  all.-  If  a  railroad  company 
afford  equal  physical  facilities  for  the  reception  and  de- 
livery of  freight,  and  maintain  equal  rates,  it  may,  with- 
out contravening  such  statutes,  discriminate  in  forwarding 
through  freight,  and  in  paying,  or  waiving  prepayment  of, 
charges,  and  may  enter  into  traffic  contracts  for  such 
purposes.^ 


1  Par.  2  of  §  3  of  the  Interstate 
Commerce  Act  (24  U.  S.  Stat,  at  L. 
380),  provides  :  "  Every  common  car- 
rier subject  to  the  provisions  of  this  act 
shall,  according  to  their  respective 
powers,  afford  all  reasonable,  proper 
and  equal  facilities  for  the  interchange 
of  traffic  between  their  respective  lines, 
and  for  the  receiving,  forwarding,  and 
delivering  of  passengers  and  property 
to  and  from  their  several  lines,  and  those 
connecting  therewith,  and  shall  not  dis- 
criminate in  their  rates  and  charges 
between  such  connecting  lines ;  but 
this  shall  not  be  construed  as  requiring 
any  such  common  carrier  to  give  the 
use  of  its  tracks  or  terminal  facilities  to 
another  carrier  engaged  in  like  busi- 
ness." 

2  Gulf,  etc.  R.  Co.  i;.  Miami  Steam- 
ship Co.,  86  Fed.  407  (1898) ;  Prescott, 

622 


etc.  R.  Co.  V.  Atchison,  etc.  R.  Co.,  73 
Fed.  438  (1896),  (practically  overruling 
the  decision  of  the  same  court  in  New 
York,  etc.  R.  Co.  v.  New  York,  etc.  R. 
Co.,  50  Fed.  867  (1892));  Little  Rock, 
etc.  R.  Co.  I'.  St.  Louis,  etc.  R.  Co.,  63 
Fed.  775  (1894),  affirmin>i  59  Fed.  402 
(1894)  ;  Kentucky,  etc.  Bridge  Co.  v. 
Louisville,  etc.  R.  Co.,  37  Fed.  567 
(1889).  See  also  Atchison,  etc.  R.  Co. 
V.  Denver,  etc.  R.  Co.,  110  U.  S.  667 
(1884),  (4  Sup.  Ct.  Rep.  185),  where 
the  Supreme  Court  of  the  United 
States  construed  a  provision  of  the 
Colorado  Constitution  similar  to  that  of 
the  Interstate  Commerce  Act  above 
stated. 

*  Southern  Indiana  Express  Co.  v. 
United  States  Exp.  Co.,  88  Fed  659 
(1898),  (affirmed  92  Fed.  1022  (1899)) : 
"  The  furnishing    of    equal   facilities, 


CHAP.   XXXVI.]  APPLICATION   OP   RULES. 


§364 


The  question  whether  traffic  contracts  between  connecting 
railroads  are  of  such  a  character  as  to  operate  in  restraint  of 
interstate  commerce  in  violation  of  the  federal  anti-trust 
law  is  considered  in  another  chapter.  ^ 

§  304.  Associations  of  Railroad  Companies.  Traffic  Contracts 
of  Competing  Lines.  Pools.  —  Traffic  contracts  between  com- 
peting railroad  companies  for  the  establishment  and  mainte- 
nance of  rates,  and,  for  the  restriction  of  competition,  in 
the  absence  of  statutory  prohibitions,  are  not  necessarily^ 
although  presumptively, 2  against  public  policy.^     Such  con- 


without  discrimination,  does  not  require 
a  common  carrier  to  advance  money  to 
all  other  carriers  on  the  same  terms, 
nor  to  give  credit  for  the  carriage  of 
articles  of  trade  and  commerce  to  all 
carriers  because  it  extends  credit  for 
such  services  to  others."  Citing  Ore- 
gon Short  Line,  etc.  R.  Co.  v.  Northern 
Pacific  R.  Co.,  61  Fed.  158  (1894); 
Little  Rock,  etc.  R.  Co.  v.  St.  Louis 
Southwe.stern  R.  Co.,  63  Fed.  775 
(1894);  Little  Rock,  etc.  R.  Co.  v.  St. 
Louis,  etc.  R.  Co.,  41  Fed.  559  (1890). 
See  also  Gulf,  etc.  R.  Co.  v.  Miami 
Steamship  Co.,  86  Fed.  407  (1898). 

1  Post,  ch.  39  :  "Construction  and  Ap- 
plication of  Federal  Statute." 

^  Cleveland,  etc.  R.  Co.  v.  Closser, 
126  Ind.  348  (1890),  (26  N.  E.  Rep. 
159). 

*  The  argument  in  favor  of  permit- 
ting competing  railroad  companies  to 
enter  into  reasonable  traffic  contracts  is 
well  stated  by  Judge  Blodgett  in  ]Man- 
chester,  etc.  R.  Co.  v.  Concord  R.  Co., 
66  N.  H.  127  (1890),  (20  Atl.Rep.383)  : 
"  The  naked  question  presented  then 
is,  whether  all  contracts  between  rival 
railway  corporations  which  prevent 
competition  are  necessarily  contrary  to 
public  policy,  and  therefore  mala  pro- 
hibita  and  illegal  in  themselves.  To 
state  this  question  is  to  answer  it  in 
the  negative,  because  it  is  obvious  that 
the  answer  depends  on  circumstances. 
"While,  without  doubt,  contracts  which 
have  a  direct  tendency  to  prevent  a 
healthy  competition  are  detrimental  to 


the  public  and,  consequently,  against 
public  policy,  it  is  equally  free  from 
doubt  that  when  such  contracts  prevent 
an  unhealthy  competition,  and  yet  fur- 
nish the  public  with  adequate  facilities 
at  fixed  and  reasonable  rates,  they  are 
beneficial,  and  in  accord  with  sound 
principles  of  public  policy.  For  the 
lessons  of  experience,  as  well  as  the  de- 
ductions of  reason,  amply  demonstrate 
that  the  public  interest  is  not  subserved 
by  competition,  which  reduces  the  rate 
of  transportation  below  the  standard 
of  fair  compensation ;  and  the  theory 
which  formerly  obtained,  that  the  pub- 
lic is  benefited  by  unrestricted  compe- 
tition between  railroads,  has  been  so 
emphatically  disproved  by  the  results 
which  have  generally  followed  its  adop- 
tion in  practice,  that  the  hope  of  any 
permanent  relief  from  excessive  rates 
through  the  competition  of  a  parallel  or 
rival  road  may,  as  a  rule,  be  justly 
characterised  as  illusory  and  fallacious." 
See  also  Hare  v.  London,  etc.  R.  Co., 
2  Johns.  &  H.  103  (1861),  (30  L.  J.  Ch. 
817,  7  Jur.  (n.  s.)  1145),  where  Vice- 
Chancellor  Wood  said  :  "  With  regard 
to  the  argument  against  the  validity  of 
the  agreement  [a  railroad  traffic  con- 
tract], I  may  clear  the  ground  of  one 
objection  by  saying  that  I  see  nothing 
in  the  alleged  injury  to  the  public  aris- 
ing from  the  prevention  of  competition. 
...  It  is  a  mistaken  notion  that  the 
public  is  benefited  by  putting  two  rail- 
way companies  against  each  other  till 
one  is  ruined,  the  result  being  at  last  to 

623 


§364 


INTERCORPORATE  RELATIONS. 


[part 


tracts  have  often  resulted  beneficially  to  the  public  as  well 
as  to  the  companies.  The  public  interests,  in  the  past,  have 
not  always  been  promoted  by  ruinous  competition,  rate- 
cutting  and  railroad  bankruptcy. 

The  validity  of  a  traffic  contract,  in  the  absence  of  a  con- 
trolling statute,  depends  upon  whether  its  provisions  go 
further  than  is  necessary  to  prevent  unhealthy  competition 
—  whether  its  purpose  or  necessary  or  natural  effect  is  to 
increase  rates  or  diminish  facilities.  Traffic  contracts  affect- 
ing interstate  commerce  have,  however,  been  held  to  come 
within  the  prohibition  of  the  federal  anti-trust  act,  the 
application  of  which  is  fully  considered  elsewhere.^ 

The  particular  class  of  traffic  contracts  known  as  pooling 
contracts  2  —  for  the  pooling  of  earnings  or  of  traffic  —  have 
been  sustained  in  England.^     In  this  country,  however,  they 


raiee  the  fares  to  the  highest  possible 
standard." 

The  other  side  is  presented  in  the 
dissenting  opinion  of  Judge  Shiras  iu 
United  States  r.  Trans.  Missouri  Freight 
Ass'n,  58  Fed.  58  (1893),  (quoted  with 
approval  by  the  Supreme  Court  in  s.  c. 
166  U.  S.  290  (189G):  "I  fail  to  per- 
ceive the  force  of  the  argun\ent  that, 
because  railway  companies,  through 
their  own  action,  cause  evils  to  them- 
selves and  the  public  by  sudden  changes 
or  reductions  in  tariff  rates,  they  must 
be  permitted  to  deprive  the  community 
of  the  benefit  of  competition  in  secur- 
ing reasonable  rates  for  the  transporta- 
tion of  the  products  of  the  country. 
Competition,  free  and  unrestricted,  is 
the  general  rule  which  governs  all  the 
ordinary  business  pursuits  and  trans- 
actions of  life.  Evils,  as  well  as  bene- 
fits, result  therefrom.  In  the  fierce 
heat  of  competition  the  stronger  com- 
petitor may  crush  out  the  weaker,  fluc- 
tuations in  prices  may  be  caused  that 
result  in  wreck  and  disaster;  yet  bal- 
ancing the  benefits  as  against  the  evils, 
the  law  of  competition  remains  as  a 
controlling  element  in  the  business 
world.  That  free  and  unrestricted 
competition  in   the  matter  of  railroad 

524 


charges  may  be  productive  of  evils 
does  not  militate  against  the  fact  that 
such  is  the  law  now  governing  the  sub- 
ject. No  law  can  be  enacted  nor  system 
be  devised  for  the  control  of  human 
affairs  that,  in  its  enforcement,  does  not 
produce  some  evil  results,  no  matter 
how  beneficial  its  general  purpose  may 
be.  There  are  benefits  and  there  are 
evils  which  result  from  the  operation  of 
the  law  of  free  competition  between 
railway  companies.  The  time  may 
come  when  the  companies  will  be  re- 
lieved from  the  operation  of  tiiis  law, 
but  they  cannot,  by  combination  and 
agreements  among  themselves,  bring 
about  tiiis  change. 

1  Post,  §  392 :  "  Statute  applies  to 
Combinations  of  Railroads  and  other 
Carriers." 

2  For  description  of  "  pools "  see 
ante,  §  308 :  "  Formation  of  Associa- 
tions." 

*  Hare  v.  London,  etc.  R.  Co., 
2  Johns.  &  H.  80  (1861),  30  L.  J.  Ch. 
817,  7  Jur.  (N.  6.)  1145.  See  also 
Shrewsbury,  etc.  R.  Co.  v.  London,  etc. 
R.  Co.,  17  Q.  B.  652  (1857),  2  Macn.  & 
G.  324,  16  Beav.  411,  4  De  Gex,  M.  & 
G.  116,  6  H.  L.  Cas.  113. 

A  pooling  contract,  amounting,  sub- 


CHAP.   XXXVI.]  APPLICATION   OF   RULES. 


§364 


have,  as  a  rule,  been  discountenanced.  ^  As  the  effect  of 
such  contracts  is  to  restrict  competition  between  quasi-public 
corporations,  and  to  confer  a  power  to  increase  rates  and 
decrease  facilities,  they  are  clearly  opposed  to  the  rule  of 
public  policy.  They  are,  also,  when  affecting  interstate 
commerce,  expressly  prohibited  by  the  Interstate  Commerce 
Act,^  and  contravene  the  provisions  of  the  federal  anti-trust 
statute.^ 


stantially,  to  an  amalgamation  without 
legislative  authority,  was  held  invalid 
by  Vice-Chaucellor  Wood  in  Charlton 
V.  Newcastle,  etc.  R.  Co.,  7  Week.  R., 
731  (1859),  5  Jur.  (y.  s.)  1100. 

1  Where,  under  the  statutes  govern- 
ing a  railroad  company,  it  is  forbidden 
to  discriminate  against  any  connecting 
or  intersecting  road  or  to  enter  into  any 
combination,  in  the  nature  of  partner- 
ship, with  any  parallel  line,  a  pooling 
arrangement  made  by  its  receivers  with 
another  railroad  company  which  has 
two  hundred  miles  of  parallel  road  in 
the  State,  relating  to  business  inter- 
changed, and  giving  such  road  a  pref- 
erence in  rates,  is  illegal ;  and  will  be 
ordered  to  be  abrogated  upon  objection 
made  by  other  connecting  lines,  al- 
though the  receivers  are  willing  to 
make  the  same  arrangement  with  the 
objecting  companies.  Missouri  Pac. 
R.  Co.  V.  Te.\as,  etc.  R.  Co.,  30  Fed. 
2  (1887). 

When  a  "  pooling  contract "  has 
been  fully  executed,  and  the  profits 
derived  therefrom  are  collected  and 
held  by  a  receiver  of  one  of  the  com- 
panies, he  will  not  be  allowed  to  retain 
them,  but  will  be  decreed  to  make  pay- 
ment to  the  other  company  in  accord- 
ance with  the  terms  of  the  contract, 
without  regard  to  its  validity.  Central 
Trust  Co.  V.  Ohio  Cent.  R.  Co.,  23  Fed. 
306  (1885).  See  also  Nashua,  etc.  R. 
Co.  V.  Boston,  etc.  R.  Co.,  19  Fed.  804 
(1884).  But  see  Chicago,  etc.  R.  Co.  v. 
Wabash,  etc.  R.  Co.,  61  Fed.  998 
(1894),  where  the  Court  said  with  ref- 
erence to  a  pooling  contract :  "  Courts 
will  not  lend  their  aid  to  enforce  the 


performance  of  a  contract  ivhich  is 
contrary  to  public  policy  or  the  law  of 
the  land,  but  will  leave  the  parties  in 
the  plight  their  own  illegal  action  has 
placed  them."  Sec  also  case  last  cited 
for  general  consideration  of  the  legality 
of  pooling  contracts. 

2  The  Interstate  Commerce  Act  (24 
U.  S.  Stat,  at  L.  379)  provides  as  fol- 
lows: "§  5.  That  it  shall  be  unlaw- 
ful for  any  common  carrier,  subject  to 
the  provisions  of  this  act,  to  enter  into 
any  contract,  agreement  or  combination 
with  any  other  common  carrier  or  car- 
riers for  the  pooling  of  freiglits  of  differ- 
ent and  competing  railroads,  or  to  divide 
between  them  the  aggregate  or  net  pro- 
ceeds of  the  earnings  of  such  railroads, 
or  any  portion  thereof ;  and,  in  any  case 
of  an  agreement  for  tlie  pooling  of 
freights  as  aforesaid,  each  day  of  its 
continuance  sh.all  be  deemed  a  separate 
offence." 

The  provisions  of  this  section  do 
not  apply  to  a  pooling  contract  between 
a  railroad  company  and  a  pipe  line 
company  for  the  transportation  of  oil. 
Independent  Refiners  Ass'n  v.  Western 
New  York,  etc.  R.  Co.,  4  Int.  Com. 
Rep.  162  (1892).  Nor  do  they  invali- 
date a  contract  between  railroad  com- 
panies owning  parallel  lines  wherein 
it  is  agreed  that  neither  company  shall 
interfere  with  tlie  other  in  constructing 
new  liries ;  nor  do  they  invalidate  a  con- 
tract as  a  whole,  but  only  the  pooling 
provisions  in  it.  Ives  v.  Smith,  55  Hun 
(N.  Y.),  606  (1889),  (8  N.  Y.  Supp. 
46),  affirming  19  N.  Y.  St.  Rep.  556 
(1888)",  (3N."y.  Supp.  645). 

8  Post,   §  392  :    "  Statute  applies   to 

625 


§  365 


INTERCORPORATE   RELATIONS. 


[part 


§  365.  Associations  of  Gas  Companies  and  other  Quasi  public 
Corporations. — The  rulc  of  public  policy  applicable  to  quusi- 
public  corporations  necessarily  applies  to  all  corporations  of 
that  class.  An  examination  of  the  rule  in  reference  to  par- 
ticular corporations  or  kinds  of  corporations,  within  that 
class,   is  valuable  only  by  way  of  illustration. 

Gas  companies  which  have  acquired  the  right  to  lay  their 
pipes  in  the  public  streets  are  ^uasi'-public  corporations,  and 
any  combination  among  them,  the  necessary  or  natural  con- 
sequence of  the  operation  of  which  will  be  to  increase  charges 
beyond  reasonable  rates  or  to  restrict  facilities,  is  inimical 
to  public  policy.^ 


Combinations  of  Railroads  and  other 
Carriers." 

1  Gibbs  V.  Consolidated  Gas  Co., 
130  U.  S.  408  (1889),  (9  Sii]).  Ct.  Rep. 
553):  "The  supplying  of  illuminating 
gas  is  a  business  of  a  public  nature  to 
meet  a  public  necessity.  It  is  not  a 
business  like  that  of  an  ordinary  cor- 
poration engaged  iu  the  manufacture 
of  articles  that  may  be  furnished  by 
individual  effort.  .  .  .  Hence,  while  it  is 
justly  argue<l  that  tho.se  rules  which 
say  that  a  given  contract  is  against  pub- 
lic policy  should  not  be  arbitrarily  ex- 
tended so  as  to  interfere  with  the  free- 
dom of  contract,  yet,  in  the  instance  of 
business  of  such  character  that  it  pre- 
sumably cannot  be  restrained  to  any 
extent  whatever  without  prejudice  to 
the  public  interest,  courts  decline  to 
enforce  or  sustain  contracts,  imposing 
such  restraint,  however  partial,  because 
in  contravention  of  public  policy." 

People  V.  Chicago  Gas  Trust  Co., 
130  111.  293  (1889),  (22  N.  E.  Rep. 
798,  17  Am.  St.  Rep.  319) :  "  The  busi- 
ness of  manufacturing  and  distributing 
illuminating  gas  by  means  of  pipes  laid 
iu  the  streets  of  a  city  is  a  business  of  a 
public  character  ;  it  is  the  exercise  of  a 
franchise  belonging  to  the  State  ;  the  ser- 
vices rendered  and  to  be  rendered  for 
Buch  a  grant,  are  of  a  public  nature ; 
companies  engaged  in  such  business 
owe  a  duty  to  the  public  ;  any  unreason- 
able restraint  upon  the  performance  of 

626 


such  duty  is  prejudicial  to  the  public 
interest  and  in  contravention  of  public 
policy." 

See  also  Chicago  Gas  Light,  etc.  Co. 
V.  People's  Gas  Light,  etc.  Co.,  121  111. 
530  (1887),  (13  N.  E.  Rep.  169,  2  Am. 
St.  Rep.  124) ;  State  v.  Portland  Natu- 
ral Gas,  etc.  Co.,  153  Ind.  483  (1899). 
(53  N.  E.  Rep.  1089,  74  Am.  St.  Rep. 
314) ;  San  Antonio  Gas  Co.  v.  State,  22 
Tex.  Civ.  App.  118  (1899),  (.54  S.  W. 
Rep.  289). 

Compare  these  decisions  with  that  in 
the  ca.se  of  Rafferty  v.  Buffalo  City  Gaa 
Co.,  37  App.  Div.  (N.  Y.)  622  (1899'),  (56 
N.  Y.  Supp.  288),  where  the  Court,  in 
holding  that  one  gas  company  had  power 
to  make  a  contract  to  purchase  stocks 
and  bonds  of  a  competing  company, 
said  :  "  It  is  further  said  that  the  con- 
templated purchase  operates  to  effect  a 
combination  with  another  company  for 
the  creation  of  a  monopoly,  or  the  un- 
lawful restraint  of  trade,  or  the  preven- 
tion of  competition  in  a  necessary  of 
life,  contrary  to  the  provisions  of  sec- 
tion 7  of  the  Stock  Corporation  Law. 
A  monopoly  is  not  constituted.  No  ex- 
clusive privilege  or  right  as  against  in- 
dividuals or  corporations  to  manufacture 
or  sell  gas  is  acquired.  Nor,  in  a  more 
restricted  use  of  the  word  "  monopoly," 
is  that  condition  brought  about  by  force 
of  this  contract.  .  .  .  The  contract  of 
purchase  here  involved  does  not  appear 
on  its  face  to  be  in  unlawful  restraint  of 


CHAP.    XXXVI.]  APPLICATION    OF   RULES. 


§  365 


All  carrier  corporations  which  exercise  public  franchises 
are  governed,  in  respect  of  the  right  of  association,  by  the 
same  rule.  It  is  immaterial  whether  they  physically  carry 
merchandise,  convey  messages  by  means  of  the  electrical 
current,^  or  maintain  a  pipe  line  for  the  transportation  of 
petroleum.^ 


trade,  nor  to  prevent  lawful  competition. 
The  avowed  and  apparent  purpose 
of  it  is  to  prevent  ruinous  competi- 
tion. ...  A  contract  made  to  prevent 
or  avoid  destructive  competition  is  not 
necessarily  invalid." 

1  In  Benedict  v.  Western  Union  Tel. 
Co.,  9  Abb.  N.  C.  (N.  y.)  221  (1881), 
when  two  competing  telegraph  com- 
panies entered  into  an  agreement  for 
dividing  expenses  and  earnings,  the 
Court  said :  "  In  the  absence  of  any 
legislation,  it  might  be  urged  that  such 
arrangements  were  against  public  policy 
as  tending  to  prevent  competition  ;  but 
in  view  of  the  legislation  which  author- 
izes the  consolidation  of  these  corpora- 
tions, the  purchase  and  sale  of  their 
franchises,  the  joint  construction  and 
use  of  telegraph  lines,  all  of  which  tend 
to  prevent  competition,  it  cannot  be  said 
that  any  such  public  policy  is  coun- 
tenanced by  the  legislature  of  this 
State." 

Compare  this  language  with  that  of 
the  New  York  Court  of  Appeals  in  the 
Sugar  Trust  Case  (People  v.  North 
River  Sugar  Ref'g  Co.,  121  N.  Y.  582 
(1890),  (24  N.  E.  Rep.  834,  18  Am.  St. 
Rep.  843),  where  it  was  said,  in  sub- 
Btance,  that  a  grant  of  authority  to 
consolidate  only  countenanced  consoli- 
dation according  to  its  provisions,  and 
was  no  indication  of  public  policy  in 
favor  of  combinations. 

An  agreement  between  a  telegraph 


company  and  a  railroad  company, 
wherein  the  latter  grants  to  the  former 
the  exclusive  right  to  maintain  a  tele- 
graph line  upon  its  right  of  way,  is 
against  public  policy  and  void.  Balti- 
more, etc.  Tel.  Co.  v.  Western  Union 
Tel.  Co.,  24  Fed.  319  (1884) ;  Western 
Union  Tel.  Co.  v.  Burlington,  etc.  R. 
Co.,  1 1  Fed.  1  (1882) ;  Union  Trust  Co, 
V.  Atchison,  etc.  R.  Co.,  8  N.  Mex.  327 
(189.5),  (43  Pac.  Rep.  701);  Western 
Union  Tel.  Co.  v.  American  Union 
Tel.  Co.,  6.T  Ga.  160  (1880),  (38  Am. 
Rep.  781).  See  also  United  States  v. 
Union  Pacific  R.  Co.,  160  U.  S.  1  (189.5), 
(16  Sup.  Ct.  Rep.  190).  Compare  West- 
ern Union  Tel.  Co.  v.  Chicago,  etc. 
R.  Co.,  86  111.  246  (1877),  (29  Am.  Rep. 
28). 

2  West  Virginia  Transp.  Co.  v.  Ohio 
River  Pipe  Line  Co.,  22  W.  Va.  625 
(1883)  :  "If  there  be  any  sort  of  busi- 
ness, which  from  its  peculiar  character 
can  be  restrained  to  no  extent  whate^'er 
without  prejudice  to  the  public  interest, 
then  the  courts  would  be  compelled  to 
hold  void  any  contract  imposing  any 
restraint,  however  partial,  on  this  pecu- 
liar business ;  provided,  of  course,  it  be 
clearly  shown  that  the  peculiar  business 
thus  attempted  to  be  restrained  is  of  such 
a  character,  that  any  restraint  upon  it, 
however  partial,  must  be  regarded  by 
the  court  as  prejudicial  to  the  public 
interest." 


627 


§  366  INTERCOUPORATE   RELATIONS.  [PART   V. 


CHAPTER  XXXVIL 

RIGHTS   AND   REMEDIES. 

§  366.  Rights  and  Remedies  of  Members  of  Illegal  Combinations.     In  General. 

§  367.  Rights  and  Remedies  between  Combination  and  its  Members. 

§  368.  Rights  of  Receivers  and  As.siguees. 

§  369.  Collateral    Attack    upon    Combioation.     Remedies    upon   Independent 

Contracts. 

§  370.  Rights  of  Creditors. 

§  371.  Rights  and  Remedies  of  Stockholders  of  Combining  Corporations. 

§372.  Remedies  of  State.     Quo  Warranto  aga'ynsi  Corporate  Combination. 

§  373.  Remedies  of  State.     Quo  Warranto  against  Combining  Corporations. 

§  374.  Remedies  of  State.     Injunction. 

§  37.5.  Evidence. 

§  366.  Rights  and  Remedies  of  Members  of  Illegal  Combina- 
tiona.  In  General.  —  The  parties  to  a  combination,  formed  in 
contravention  of  a  rule  of  public  policy,  stand  in  pari  delicto, 
and  the  law  will  not  aid  them  in  enforcing  any  rights  based 
upon  the  unlawful  contract.^  A  court  of  law  or  equity  will 
take  them  as  it  finds  them,  and  as  it  finds  them  will  leave 
them,  without  assistance  in  any  matter  growing  out  of  the 
illegal  combination. 

1  United  States:    National  Harrow         New  York:  Jndd  v.  Harrington,  139 

Co.  V.  Hench,  84  Fed.  226  (1898).  N.  Y.  105  (1893),  (34  N.  E.  Rep.  790) ; 

California :   Vulcan  Powder  Co.  v.  Pittsburgh    Carbon    Co.   v.    McMillan, 

Hercules  Powder  Co.,  96  Cal.  510  (1892),  119  N.  Y.  46  (1890),  (23  N.  E.   Rep. 

(31  Pac.  Rep.  581,  31   Am.  St.  Rep,  530);  Leonard  v.  Poole,  114  N.  Y.  379 

242).  (1889),  (21  N.  E.  Rep.  707);  Gray  v. 

Illinois:    Craft  i'.  McConoughj,  79  Oxnard  Bros.  Co.,  39  Hun,  387  (1891), 

I1L346  (1875),  (22  Am.  Rep.  171);  Foss  (13  N.  Y.  Supp.  86);  Clancy  v.  Onon- 

V.  Curamings,   149  111.  353  (1894),  (36  daga  Fine  Salt  Mfg.  Co.,  62  Barb.  395 

N.  E.  Rep.  553).    See  also  American  (1862);  De  Witt  Wire  Cloth  Co.  f.  New 

Strawboard  Co.  v.  Peoria  Strawboard  Jersey  Wire  Cloth   Co.,   16  Daly,  529 

Co.,  65  111.  App.  502  (1895).  (1891),  (14  N.  Y.  Supp.  277). 

Iowa  :    Chapin  v.  Brown,  83  Iowa,  Ohio :  Emery  v.  Ohio  Candle  Co.,  47 

156  (1891),  (48  N.  W.  Rep.  1074).  Ohio  St.  320  (1890),  (24  N.  E.  Rep.  660, 

Kansas:  Greer i'.  Payne, 4 Kan. App.  21  Am.  St.  Rep.  819). 
153  (1896),  (46  Pac.  Rep.  190).  Pennsylvania  :  Nester  v.  Continental 

Louisiana:    Texas,    etc.    R.    Co.   ?•.  Brewing  Co.,  161  Pa.  St.  473  (1894),  (29 

Southern  Pac.  R.  Co.,  41  La.  Ann.  970  Atl.  Rep.  102,  41  Am.  St.  Rep.  894); 

(1889),  (6  So.  Rep.  888) ;   India  Bag-  Morris  Run  Coal  Co.  v.  Barclay  Coal 

ging  Ass'n  v.  Kock,  14  La.  Ann.  168  Co.,  68  Pa.  St.  173  (1871). 
(1859). 

528 


CHAP.    XXXVII.]  RIGHTS   AND   REMEDIES. 


§3G6 


In  the  application  of  the  maxim  ex  turpi  causa  non  oritur 
actio,  the  test  is  whether  the  plaintiff  is  obliged  to  rely  upon 
the  illegal  contract  in  order  to  establish  his  right  to  relief. ^ 
If  he  claims  through  the  medium  of  an  unlawful  transaction, 
he  is  without  standing,  for  the  courts  will  not  assist  in 
adjusting  differences  growing  out  of,  or  requiring  the  investi- 
gation of,  illegal  transactions,  however  much  they  may  be 
disguised. 

Upon  these  principles,  a  member  of  an  illegal  combina- 
tion cannot  maintain  an  action  to  recover  his  share  of  the 
profits  of  the  enterprise, "'*  or  for  an  accounting;-''  nor  can  he 
obtain  redress  for  a  fraud  committed  by  another  member  in 
carrying  out  the  combination  agreement.*  He  is  not  only 
without  remedy  upon  the  agreement  respecting  the  combi- 
nation, but  he  cannot  recover  for  the  breach  of  any  contract 
made  in  furtherance  of  its  objects.^     It  follows,  also,  that  a 


1  Greer  v.  Payne,  4  Kan.  A  pp.  162 
(1896),  (46  Pac.  Rep.  190):  "The  con- 
tract of  membership  is,  therefore,  illegal 
and  void,  and  no  right  can  grow  out  of 
it.  Hence,  it  comes  to  this  :  A  court  of 
equity  is  asked  to  assist  the  plaintiffs  in 
carrying  out  an  illegal  contract,  so  that 
they  may  enjoy  its  fruits,  and  to  aid  them 
in  maintaining  a  position  as  members  of 
an  organization,  which  can  be  done  only 
by  a  continual  violation  of  the  law.  This 
will  not  be  done.  The  law  will  not 
allow  any  effect  to  an  illegal  contract 
either  by  enforcing  it  or  by  aiding  one 
to  secure  benefits  accruing  from  it. 
Whenever  it  is  necessary  for  a  plaintiff 
to  establish  or  rely  upon  an  illegal  contract 
as  a  basis  of  his  right  to  relief',  the  courts 
will  not  stop  to  inquire  into  the  merits  of 
the  controversy,  but  will  at  once  refuse  to 
exercise  their  jurisdiction  in  his  behalf." 

See  also  Nester  r.  Continental  Brew- 
ing Co.,  161  Pa.  St,  473  (1894),  (29  Atl. 
Eep.  102,  41  Am.  St.  Rep.  894).  The 
Charles  E.  Wiswall,  86  Fed.  671  (1898). 

2  Emery  v.  Ohio  CandleCo.,  47  Ohio 
St.  320  (1890),  (24  N.  E.  Rey.  660,  21 
Am.  St.  Rep.  849) ;  Foss  v.  Cummings, 
149  111.  353  (1894),  (36  N.  E.  Rep.  553)  ; 
Gray  v.  Oxnard  Bros.  Co.  59  nun(N  Y.), 

34 


387  (1891),  (13  N.  Y.  Supp.  86).  See 
also  Meyers  i'.  Merillion,  118  Cal.  352 
(1897),  (50  Pac.  Rep.  662). 

3  Nester  u.  Continental  Brewing  Co., 
161  Pa.  St.473(1894),(29  Atl.  Rep.  102, 
41  Am.  St.  Rep.  894);  Leonard  v.  Poole, 
114  N.  Y.  379  (1889),  (21  N.  E.  Rep. 
707). 

*  Leonard  v.  Poole,  114  N.  Y.  379 
(1889),  (21  N.  E.  Rep.  707):  "The  re- 
lief sought  would  require  the  court  to 
investigate  all  of  the  various  transac- 
tions of  these  parties,  from  the  begin- 
ning to  the  end  of  their  unlawful 
enterprise,  and  adjust  the  differences 
between  them.  This  is  precisely  what 
courts  have  always  refused  to  do.  The 
fraud  which  tlie  trial  court  found  was 
practised  by  these  defendants  upon  their 
associate  cannot  be  too  strongly  con- 
demned, but  courts  are  not  organized 
to  enforce  the  saying  that  there  is 
honor  among  law-breakers,  and  the  de- 
sire to  punish  must  not  lead  to  a  deci- 
sion establishing  the  doctrine  that 
law-breakers  are  entitled  to  the  aid  of 
courts  to  adju.st  differences  arising  out 
of,  and  requiring  an  investigation  of, 
their  illegal  transactions." 

*  Where  a  contract  for  the  sale  of 

529 


§  3G7 


INTERCORPORATE   RELATIONS. 


[PART    V. 


court  of  equity  will  afford  liim  no  relief,  by  injunction  or 
otherwise,  for  the  enforcement  or  protection  of  his  rights  as 
a  member  of  an  unlawful  combination.^ 

§  367.  Rights  and  Remedies  between  Combination  and  its 
Members.  —  An  agreement  for  a  combination  contrary  to 
public  policy  is  invalid;  the  resultant  organization  —  asso- 
ciation, trust  or  corporate  combination  —  is  unlawful.  Courts 
of  law  or  equity  will  not  lend  such  a  combination  aid  in  the 
enforcement  of  the  invalid  agreement  or  in  any  matter  ad- 
hering thereto.  If  the  contracts  between  the  combination 
and  its  members  are  executory,  a  court  will  not  enforce  them 
in  favor  of  or  against  the  combination;  if  fully  executed,  a 
court  will  not  attempt  to  rescind  them  at  the  suit  of  either 
party,  or  grant  other  relief.^  IJoth  the  combination  and  its 
members  will  be  left  where  they  have  placed  themselves. 
Thus,  a  corporate  combination  cannot  maintain  an  action  of 
replevin  for  property  purchased  in  the  formation  of  the  com- 
bination but  which  has  remained  in  the  jjosscssion  of  the 
vendor;^  nor  sue  for  a  receiver  and  an  accounting  when  a 


grain  bags  provided  that  tlie  purcliasor 
Bhoiild  have  the  exclusive  right  to  sell 
Buch  haf^s  up  to  a  proscribeil  number  and 
for  the  sale  of  a  lesser  number  pro  rata, 
and  such  contract  was  a  part  of  a  scheme 
to  gain  a  monopoly,  it  was  held  that  the 
contract  was  void  and  that  there  could 
be  no  recovery  for  a  breach  thereof. 

Pacific  P'actor  Co.  v.  Adler,  90  Cal. 
110  (1891),  (27  Pac.  Rep.  36).  See  also 
Morris  Run  Coal  Co.  v.  Barclay  Coal 
Co.,  68  Pa.  St.  173  (1871)  ;  Beechley  v. 
Mulville,  102  Iowa,  602  (1897),  (70  N. 
W.  Rep.  107,  63  Am.  St.  Rep.  479). 

1  Greer  v.  Payne,  4  Kan.  App.  153 
(1896),  (46  Pac.  Rep.  190).  See  also 
next  section. 

'^  Queen  Ins.  Co.  v.  State,  86  Tex. 
250  (1893),  (24  S.  W.  Rep.  397). 

See  also  Richardson  r.  Buhl,  77  Mich. 
661  (1889),  (43  N.  W.  Rep.  1102), 
■where  the  Court  (per  Champlin,  J.) 
said :  "  It  is  also  well  settled  that,  if 
a  contract  be  void  as  against  public 
policy,  the  court  will  neither  enforce  it 
while  executory,  nor  relieve  a  party  from 

630 


loss  by  having  performed  it  in  p-art." 
Citing  Foote  v.  Emerson,  10  Vt.  344 
(1838)  ;  Hanson  v.  Power.  8  Dana  (Ky.) 
91  (1839);  Pratt  v.  Adams,  7  Paige 
(N.  Y.)  616  (1839);  Piatt  v.  Oliver, 
I  McLean  (U.  S.)  294  (1837);  2  Mc- 
Lean (U.  S.)  277  (1840);  Stanton  v. 
Allen,  5  Denio  (N.  Y.)  434  (1848),  (49 
Am.  Dec.  282).  In  Ilutchins  v.  Wel- 
don,  114  Ind.  89  (1887),  (15  N.  E.  Rep. 
804),  the  Supreme  Court  of  Indiana 
said  :  "  The  law  in  such  case  will  leave 
the  parties  just  whore  it  finds  them.  If 
the  contract  has  not  been  executed,  the 
law  will  not  extend  relief.  When  a  con- 
tract, void  as  against  sound  morals  or 
public  policy,  has  been  fully  executed 
by  both  parties  and  suit  brought  under, 
upon  or  against  such  contract,  potior  est 
conditio  clefendentis." 

8  Bishop  V.  American  Preservers  Co., 
157  111.  316  (1895),  (41  N.  E.  Rep.  765) : 
"In  the  case  at  bar,  the  appellant  never 
parted  with  the  possession  of  the  prop- 
erty. After  he  executed  the  bill  of 
sale,  he  still  continued  his  business  the 


CHAP.    XXXVII,]  RIGHTS   AND   REMEDIES. 


§  367 


member  withdraws. ^  Nor  will  a  bill  for  an  injunction  lie 
to  prevent  a  member  from  doing  business  contrary  to  the 
provisions  of  the  combination  agreement,  even  though  it 
retain  the  consideration  paid.^ 

It  has,  however,  been  held  that  a  member,  seeking  to 
withdraw  from  an  illegal  combination  and  returning  the 
consideration  paid,  is  entitled  to  an  injunction  restraining 
the  combination  from  taking  possession  of  its  property,  and 
to  a  decree  declaring  the  combination  agreement  void.^ 

An  agreement  contrary  to  a  rule  of  public  policy,  in  its 


same  as  before,  though  subject  to  the  or- 
ders and  direction  of  the  trust.  The 
beginning  of  the  action  of  replevin  ad- 
mits his  possession,  as  replevin  does  not 
lie  against  one  not  in  possession.  Wells 
on  Replevin,  77;  Hall  v.  White,  106 
Mass.  599  (1871).  We  see  no  reason 
why  the  doctrine  of  the  Kirkpatrick 
Case  does  not  apply  here,  although  the 
action  is  replevin  and  not  ejectment, 
and  although  the  property  involved  is 
personalty  and  not  real  estate.  The 
bill  of  sale  rests  under  the  ban  of  the 
law,  as  well  when  executed  to  carry  out 
the  illegal  agreement  hereinbefore  set 
forth,  as  if  it  had  been  made  for  the 
purpose  of  defrauding  creditors.  The 
law  will  not  aid  the  appellee  to  recover 
the  property,  but  will  leave  both  it  and 
appellant  where  they  were  when  the  suit 
was  begun." 

1  American  Biscuit,  etc.  Co.  v.  Klotz, 
44  Fed.  721  (1891). 

2  American  Preservers  Trust  v.  Tay- 
lor Mfg.  Co.,  46  Fed.  1.52  (1891)  :  "The 
ultimate  question  is  whether  the  cove- 
nant to  discontinue  one  branch  of  its 
business,  made  under  the  circumstances 
and  for  the  considerations  disclosed  by 
the  bill,  can  be  enforced  in  equity 
against  the  defendant  corporation.  An 
injunction  as  prayed  for,  if  granted, 
will  operate,  of  course,  as  a  specific  en- 
forcement oj  the  covenant ;  and  the 
general  rule  is  that  agreements  will  not 
be  specifically  enforced  that  are  inequit- 
able, or  tainted  with  illegality,  or  that 
are  in  excess  of  corporate  powers.  .  .  . 


In  view  of  the  unlawful  character  of 
the  transaction  out  of  which  the  cove- 
nant arises,  I  conclude  that  a  court  of 
equity  would  not  be  warranted  in  en- 
forcing it  by  injunction,  even  though 
the  defendant  company  has  received, 
and  still  retains,  a  portion  of  the  con- 
sideration which  induced  it  to  execute 
the  covenant." 

3  Merz  Capsule  Co.  v.  United  States 
Capsule  Co.,  67  Fed.  414  (1895):  "It 
remains  to  be  considered  what  relief 
should  be  administered  upon  this  state 
of  things.  The  proof  sufficiently  shows 
—  and,  indeed,  the  nature  of  the  trans- 
action sufficiently  demonstrated  this  — 
that  the  complainant  on  its  own  ac- 
count is  not  entitled  to  claim  any  relief 
founded  upon  the  contract ;  but  the  con- 
tract itself  being  contrary  to  law,  fur- 
nishes no  support  for  the  aggressive 
attitude  and  conduct  of  the  defendants. 
The  complainant's  conduct  has  been 
disingenuous,  but  I  think  it  has  the  law 
of  the  case.  The  result  is,  as  it  seems 
to  me,  that  the  parties  stand,  in  respect 
of  their  property  rights,  upon  the  same 
footing  as  if  the  contraci  had  never  been 
made  ;  and,  upon  the  restoration  by  the 
complainant  of  what  it  has  received 
upon  the  footing  of  the  contract,  it 
would  seem  that  the  complainant  is 
entitled  to  preventive  relief,  and  that 
the  defendants,  or  such  of  them  as 
threaten  to  invade  the  pnjperty  of  the 
complainant,  should  be  restrained  from 
interfering  therewith." 

531 


§  368  INTERCORPORATE  RELATIONS.  [PART   V. 

effect  upon  the  rights  of  the  parties,  must  be  distinguished 
from  an  ultra  vires  agreement.  Property  delivered  to  a 
combination  which  is,  in  its  formation,  merely  beyond  the 
powers  of  the  corporations  composing  it,  may  be  recovered 
back;  ^  while  no  relief  will  be  granted  to  a  party  to  an  agree- 
ment inimical  to  public  policy.  The  distinction  is  between 
invalidity  and  unlawfulness. 

§  3G8.  Rights  of  Receivers  and  Assignees. — As  a  general 
rule,  a  receiver  takes  the  title  of  the  corporation  which  he 
represents,  and  any  defences  which  would  have  been  good 
against  it  are  good  against  him.  Thus,  a  receiver  appointed 
in  proceedings  to  forfeit  the  charter  of  a  corporation  on 
account  of  its  {)articipation  in  an  illegal  combination,  cannot 
maintain  an  action  against  another  member  of  the  combina- 
tion to  recover  a  share  of  the  profits  accruing  from  the 
unlawful  enterprise.'  Upon  similar  principles,  an  assignee 
of  a  party  to  an  illegal  combination  stands  in  the  shoes  of 
his  assignor  and  takes  the  assigned  claim  subject  to  all 
disabilities  attaching  to  it.^ 

An  exception  to  the  general  rule  that  defences  good  against 
a  corporation  are  available  against  its  receiver  exists  where 
the  corporation  is  insolvent.  Thus,  the  receiver  of  an  in- 
solvent corporate  combination  may  collect  debts  due  it,  and 
apply  them  in  satisfaction  of  the  claims  of  creditors,  even 
though  the  defence  of  illegality  might  have  been  available 
if  the  action  had  been  brought  by  the  combination.^     It  is 


1  Mallorv  v.  Hanaur  Oil  "Works,  86  to  the  legality  of  the  combination  upon 
Tenn.  598  (1888),  (8  S.  W.  Rep.  396).  considerations  of  public  policy. 
In  this  case  five  companies  engaged  ^  Gray  v.  Oxnard  Bros.  Co.,  59  Hun 
in  the  manufacture  of  cotton  seed  oil,  (N.  Y.),387  (1891),  (13  N.  Y.  Supp.  86). 
formed  a  trust  and  turned  over  their  ^  Nester  v.  Continental  Brewing  Co., 
mills  to  an  executive  committee,  and  161  Pa.  St.  473  (1894),  (29  Atl.  Rep. 
they  were  operated  by  such  committee.  102,  41  Am.  St.  Rep.  894). 
One  of  the  corponitions  voted  to  with-  *  Pittsburgh  Carbon  Co.  r.  McMil- 
draw,  and  brought  an  action  of  unlaw-  Ian,  119  N.  Y.  46  (1890),  (23  N.  E.  Rep. 
ful  detainer  for  the  recovery  of  its  530)  :  "  The  general  rule  is  well  estab- 
property.  The  trust  agreement  was  lished  that  a  receiver  takes  the  title  of 
held  invalid  as  involving  an  ultra  vires  the  corporation  or  individual  whose  re- 
partnership  of  corporations  and  the  ceiver  he  is,  and  that  any  defence  which 
plaintiff  was  allowed  a  recovery.  No  would  have  been  good  against  tlie  for- 
question  appears  to  have  been  raised  as  mer  may  be  asserted  against  the  latter. 

632 


CHAP.    XXXVII.]  RIGHTS    AND    REMEDIES. 


§  369 


manifest,  however,  that  this  exception  applies  only  to 
collateral  agreements.  A  receiver,  even  of  an  insolvent  cor- 
poration, could  not  maintain  an  action  based  upon  an  unlawful 
contract. 

§  369.  Collateral  Attack  upon  Combination.  Remedies  upon 
Independent  Contracts. — The  due  and  regular  administration 
of  justice  requires  that  the  validity  of  combinations,  —  trusts, 
corporate  combinations  or  associations, — according  to  the 
rules  of  public  policy,  should  be  determined  in  direct  pro- 
ceedings instituted  for  the  purpose ;  or  in  actions  based  upon, 
or  growing  out  of,  the  alleged  illegal  contract.  The  mere 
fact  that  the  general  object  of  a  corporation  is  opposed 
to  public  policy  —  that  it  constitutes  an  unlawful  combina- 
tion—  does  not  serve  ipso  facto  to  create  a  default  upon  its 
obligations  nor  to  deprive  it  of  standing  to  protect  its 
rights  ;  and  such  fact  cannot  be  invoked  collaterally  to  affect 
in  any  manner  its  independent  rights  or  obligations.  ^ 


But  there  is  a  recognized  exception 
which  permits  a  receiver  of  an  insolvent 
individual  or  corporation,  in  the  interest 
of  creditors,  to  disaffirm  dealings  of  the 
dehtor  in  fraud  of  their  rights.  Assum- 
ing that  the  trustee  could  not  have  re- 
covered of  the  debtor  for  the  reason 
suggested,  it  would  be  a  very  strange 
application  of  the  doctrine  that  no  right 
of  action  can  spring  from  an  illegal 
transaction,  which  should  deny  to  inno- 
cent creditors  of  the  combination,  or  to 
the  receiver  who  represents  them,  the 
right  to  have  the  debt  collected  and  ap- 
plied in  satisfaction  of  their  claim.  The 
just  rule  of  the  common  law,  that  courts 
will  not  lend  their  aid  to  enforce  illegal 
transactions  at  the  instance  of  a  party 
to  the  illegality,  would  be  misapplied 
if  permitted  to  lie  used  to  prevent 
the  application  of  the  fund  in  (|ues- 
tion  to  the  payment  of  creditors  of  the 
combination." 

See  also  American  Handle  Co.  v. 
Standard  Handle  Co.  (Tenn.  1900),  .^9 
S.  \V.  Rep.  709  (1900). 

1  Dennehy  v.  McNulta,  86  Fed.  825 
(1898) ;  Lafayette  Bridge  Co.  v.  City  of 


Streator,  105  Fed.  731  (1900) ;  Olmstead 
V.  Distilling,  etc.  Co.,  73  Fed.  49 
(1895). 

In  Liverpool,  etc.  Ins.  Co.  v.  Clunie, 
88  Fed.  169  (1898),  the  Conrtsaid  :  "It 
is  further  objected  by  the  defendant 
that  the  complainants  should  not  be 
allowed  to  come  into  a  court  of  equity 
for  relief  ;  and,  in  support  of  this  objec- 
tion, he  invokes  the  maxim  that  he  who 
comes  into  a  court  of  equity  must  do 
so  with  clean  hands.  The  inequitable 
conduct  charged  against  the  complain- 
ants is  that  they  are  members  of 
an  illegal  combination  and  compact 
known  and  designated  by  the  name  of 
the  "  Board  of  Fire  Underwriters  of 
the  Pacific ;  "  that  the  main  purpose 
of  this  association  is  to  prevent  and 
suppress  competition  in  the  insurance 
business  of  this  State,  to  control  the 
fixing  of  premium  rates  to  be  charged 
on  insurance,  to  regulate  and  prevent 
rebates,  to  fix  compensation  for  insur- 
ance, to  regulate  premium  collections, 
and  to  appoint  agencies ;  that  seven- 
eighths  of  the  insurance  companies 
authorized  to  transact  business  in  the 

533 


§369 


INTERCORPORATE   RELATIONS. 


[part  V. 


The  rule  for  determiniEg  the  independent  character  of  a 
demand  is  the  converse  of  that  already  considered,  and  is 
clearly  stated  by  Judge  Lacombe  in  the  case  of  Tlie  Charles 
E.  Wisioall :  ^  "  The  test,  whether  a  demand  connected  with 
an  illegal  transaction  is  capable  of  being  enforced  at  law,  is 
whether  the  plaintiff  requires  the  aid  of  the  illegal  transac- 
tion to  establish  his  case.  If  he  cannot  open  his  case,  with- 
out showing  that  he  has  broken  the  law,  a  court  will  not 
assist  him.  But  if  he  docs  not  claim  through  the  medium 
of  the  illegal  transaction,  but  upon  a  new  contract  bottomed 
on  an  independent  consideration,  he  may  recover."  ^ 

The  sale  of  goods  by  a  combination  to  a  purchaser,  in  the 
course  of  its  business,  is  not  connected  with  the  illegal  char- 
acter of  the  combination,  but  is  based  upon  an  essentially 
different  consideration.  It  is  an  independent  contract,  and 
the  purchaser  cannot  avoid  his  contract  obligation  by  setting 
up  the  invalidity  of  the  plaintiff  combination.'     Upon  simi- 


State  are  members  of  this  confederation. 
..  .  It  will  not  be  necessary  to  enter  into 
a  discussion  of  tiie  facts  thus  presented 
for  the  purpose  of  determining  the  legal- 
ity of  tlie  Board  of  Underwriters  in 
this  action,  or  to  ascertain  how  far  its 
acts  are  opened  to  just  criticism.  It  is 
manifest  that,  if  such  a  controversy  is 
disclosed,  it  is  foreign  to  the  one  now 
before  the  court.  The  maxim  that  he 
who  comes  into  equity  must  come  with 
clean  hands  has  its  limitations.  It 
does  not  apply  to  every  unconscientious 
or  inequitable  conduct  on  the  part  of 
the  complainants.  The  inequity  which 
deprives  a  suitor  of  a  right  to  justice 
in  a  court  of  equity  is  not  general  iniq- 
uitous conduct  unconnected  with  the 
act  of  the  defendant  which  the  com- 
plaining party  states  as  his  ground  or 
cause  of  action,  but  it  must  be  evil 
practice  or  wrong  conduct  in  the  par- 
ticular matter  or  transaction  in  respect 
to  which  judicial  protection  or  redress 
is  sought." 

See  also  National  Distilling  Co.  v. 
Cream  City  Importing  Co.,  86  Wis.  356 
(1893),  (56  N.  W.  Rep.  864) ;  Anheuser- 
Busch  Brewing  Ass'n  v.  Houck  (Tex. 

534 


1894),  27  R.  W.  Rep.  692;  Arnot  v. 
Pitt-ston,  etc.  Coal  Co.,  68  N.  Y.  558 
(1877). 

1  The  Charles  E.  Wiswall,  86  Fed. 
674  (1898). 

2  Citing  Swan  v.  Scott,  1 1  Scrg, 
&  R.  155  (1824)  ;  Armstrong  i;.  Tulcr, 
II  Wheat.  (U.  S.)  258  (1826);  McBlair 
V.  Gil)bes,  17  How.  (U.  S.)  236(1854). 

'  In  the  very  recent  case  of  Connolly 
V.  Union  Sewer  Pipe  Co.,  184  U.  S.  545 
(1902),  the  Supreme  Court  of  the  United 
States  said  :  "  Assuming,  as  defendants 
contend,  that  the  alleged  combination 
was  illegal  if  tested  by  the  principles  of 
the  common  law,  still  it  would  not 
follow  that  they  could,  at  common  law, 
refuse  to  pay  for  pipe  bought  by  them 
under  special  contracts  with  the  plain- 
tiff. The  illegality  of  such  combination 
did  not  prevent  the  plaintiff  corporation 
from  selling  pipe  that  it  obtained  from 
its  constituent  companies,  or  either  of 
them.  It  could  pass  title  by  a  sale  to 
any  one  desiring  to  buy,  and  the  buyer 
could  not  justify  a  refusal  to  pay  for 
what  he  bought  and  received  by  prov- 
ing that  the  seller  had  previously,  in 
the  prosecution  of  its  business,  entered 


CHAP.    XXXVII.]  RIGHTS   AND    REMEDIES. 


369 


lar  principles,  an  insurance  company  cannot  escape  responsi- 
bility upon  its  contract  of  insurance  by  alleging  that  the 
plaintiff  has  joined  an  unlawful  combination  ;  ^  and  infringers 
of  patents  cannot  evade  liability  for  their  own  wrongs  by 
pleading  that  the  plaintiff  has  entered  into  a  combination  to 
control  the  market  for  the  patented  article. ^ 


into  an  illegal  combination  with  others 
in  reference  generally  to  the  sale  of 
Akron  pipe.  ...  (p.  549).  This  is 
not  an  action  to  enforce,  or  which  in- 
volves the  enforcement  of  the  alleged 
arrangement  or  combination  between 
the  plaintiff  corporation  and  other 
corporations,  firms  and  companies  in 
relation  to  the  sale  of  Akron  pipe.  As 
already  suggested,  the  plaintiff,  even  if 
part  of  a  combination  illegal  at  common 
law,  was  not,  for  that  reason,  forbidden 
to  sell  property  it  acquired  or  held  for 
sale.  The  purchases  by  the  defendants 
had  no  necessary  or  direct  connection 
with  the  alleged  illegal  combination ; 
for  the  contracts  between  the  defend- 
ants and  the  plaintiff  could  have  been 
proven  without  any  reference  to  the 
arrangement  whereb}'  the  latter  became 
an  illegal  combination.  If,  according 
to  the  principles  of  common  law,  the 
Union  Sewer  Pipe  Company  could  not 
have  sold  or  passed  title  to  any  pipe  it 
received  and  held  for  sale,  because  of 
an  illegal  arrangement  previously  made 
■with  other  corporations,  firms  or  com- 
panies, a  different  question  would  be 
presented.  But  we  are  aware  of  no 
decision  to  the  effect  that  a  sale  similar 
to  that  made  by  the  present  plaintiff  to 
the  defendants  respectively  would,  in 
itself,  be  illegal  and  void  under  the 
principles   of  the  common  law." 

And  in  National  Distilling  Co.  v. 
Cream  City  Importing  Co.,  86  Wis. 
3.56  (1893),"  (56  N.  W.  Rep.  864),  the 
Supreme  Court  of  Wisconsin  said : 
"  The  argument,  if  any  the  case  admits 
of,  is  that,  as  the  plaintiff  was  a 
member  or  the  so-called  '  trust '  or 
'combination,'  the  defendant  might 
voluntarily  purchase  the  goods  in  ques- 
tion of  it  at  an  agreed  price,  and  con- 


vert them  to  its  own  use,  and  be 
justified  in  a  court  of  justice  in  its 
refusal  to  pay  the  plaintiff  for  them, 
because  of  the  connection  of  the  vendor 
with  such  trust  or  combination.  The 
plaintiff's  cause  of  action  is,  in  no  legal 
sense,  dependent  upon  or  affected  by 
the  alleged  illegality  of  the  trust  or 
combination,  because  the  illegality,  if 
any,  is  entirely  collateral  to  the  trans- 
action in  question,  and  the  court  is  not 
called  upon,  in  this  action,  to  enforce  any 
contract  tainted  with  illegality,  or  con- 
trary to  put)lic  policy.  The  mere  fact 
that  the  plaintiff  is  a  member  of  a  trust 
or  coml)ination,  created  with  the  intent 
and  for  the  purposes  set  forth  in  the 
answer,  will  not  disable  or  prevent  it  at 
law  from  selling  goods,  and  recovering 
■their  price  or  value." 

See  also  Wiley  v.  National  Wall 
Paper  Co.,  70  111.   App.  543   (1896). 

1  Springfield  Fire,  etc.  Ins.  Co.  v. 
Cannon  (Tex.  Civ.  App.  1898),  46 
S.  W.  Rep.  376  :  "The  evidence  in  the 
case  hardly  raises  the  question,  but  we 
are  of  the  opinion  that,  even  if  it  did, 
it  would  not  prevent  the  owner  of  the 
bagging  from  insuring  it,  although  he 
may  have  been  a  member  of  a  trust 
with  respect  to  controlling  the  prices 
of  bagging  in  the  State  of  Texas." 

2  National  Folding  Box,  etc.  Co.  v. 
Robertson,  99  Fed.  985  (1900) ;  Bonsack 
Mach.  Co.  V.  Smith,  70  P>d.  383  (1895)  ; 
American  Soda  Fountain  Co.  v.  Green, 
69  Fed.  333  (1895)  ;  Edison  Electric 
Light  Co.  y.  Sawyer-Man  Electric  Co., 
53  Fed.  592  (1892)  ;  Strait  i;.  National 
Harrow  Co.,  51  Fed.  819  (1892)  ;  Colum- 
bia Wire  Co.  v.  Freeman  Wire  Co.,  71 
Fed.  306  (1895) ;  Contra,.  National  Har- 
row Co.  V.  Quick,  67  Fed.  130  (1895). 

535 


§  370  INTERCORPORATE   RELATIONS.  [PART    V. 

The  principles  stated  in  this  section  are,  however,  mate- 
rially modified  in  the  anti-trust  statutes  of  many  States, 
which  expressly  provide  that  the  illegality  of -a  combination 
may  be  pleaded  as  a  defence  to  suits  upon  its  independent 
contracts.^ 

§  370.  Rights  of  Creditors.  —  The  legality  of  a  combination 
cannot  be  made  the  subject  of  collateral  attack  in  enforcing 
its  independent  demands.  A  fortiori^  the  combination  cannot, 
itself,  set  up  its  illegality  as  a  defence  to  demands  against  it. 
It  cannot  take  advantage  of  its  own  wrong-doing. 

That  a  combination  is  unlawful,  tested  by  the  rule  of 
public  policy,  is  no  defence  to  actions  by  its  creditors.^ 

The  fact  that  the  creditor  knew  the  character  of  the  com- 
bination when  the  debt  was  incurred,  does  not  affect  his 
right  to  recover,  unless  he  in  some  way  participated  in  the 
illegal  project.  In  Arnot  v.  Pittston,  etc.  Coal  Co.,^  the 
Court  of  Appeals  of  New  York  said :  "  He  had  a  right  to 
dispose  of  his  own  goods,  and  (under  certain  limitations)  a 
vendor  of  goods  may  recover  for  their  j)rice,  notwithstanding 
that  he  knows  that  the  vendee  intends  an  imjjropcr  use  of 
them,  so  long  as  he  does  nothing  to  aid  in  such  impro})er 
use,  or  in  the  illegal  place  of  the  purchaser.  This  doctrine 
is  established  by  authority,  and  is  sufficiently  liberal  to 
vendors.  But  —  and  this  is  a  very  important  distinction  — 
if  the  vendor  does  anything  beyond  making  the  sale,  to  aid 
the  illegal  scheme  of  the  vendee,  he  renders  himseU  particeps 
criminis,  and  cannot  recover  for  the  price." 

An  agreement  for  the  sale  of  all  its  products,  entered  into 
by  a  manufacturing  company,  in  good  faith,  and  in  ignorance 
of  any  ulterior  purpose  on  the  part  of  the  purchaser,  is  not 
rendered  unenforceable  by  the  fact  that  the  latter  has  made 
similar  contracts  with  other  manufacturers  —  each  in  igno- 


1  See  post,  ch.  43  :  "Rights,  Remedies,  (23  N.  E.  Rep.  520) ;  Arnot  v.  Pittston, 
and  Procedure  under  State  Anti-trust  etc.  Coal  Co..  68  N.  Y.  558  (1877),  (23 
Statutes"  Am.  Rep.  190) :  Catskill  Bank  i'.  Gray, 

2  Globe  Tobacco  TVarebonse  Co.  v.  14  Barl).  (N.  Y.)  479  (1851). 

Leach,  19  Ky.  L.  Rep.  1287  (1897),  (43  »  Arnot  v.  Pittston-,  etc.  Coal  Co.,  68 

S.  W.  Rep.   423) ;  Pittsburgh    Carbon  N.  Y.  558  (1877),  (23  Am.  Rep.  190). 
Co.  V.  McMillan,  119  N.  Y.  46  (1890), 

536 


CHAP.   XXXVII.]  RIGHTS   AND   REMEDIES. 


§371 


ranee   of   the    other  —  for   the   purpose    of    controlling   the 
market  for  the  commodity.^ 

§  371.  Rights  and  Remedies  of  Stockholders  of  Combining 
Corporations.  —  An  unlawful  act  is  an  ultra  vires  act.  A  cor- 
poration has  no  legal  power  to  enter  a  combination  against 
public  policy.  Equity  will  enjoin  the  formation  or  continued 
operation  of  an  illegal  combination,  at  the  instance  of  any 
stockholder  of  a  constituent  corporation  ^  who  has  not  par- 
ticipated in  the  illegal  scheme  and  who  acts  with  diligence.^ 


1  In  Carter-Crume  Co.  v.  Peurrung, 
86  Fed.  439  (1898),  Judge  Lurtou  said  : 
"  Another  question  might  arise  if  all  or 
a  large  proportion  of  all  the  producers 
of  a  particular  article  should  agree  to 
sell  their  entire  product  to  one  buyer, 
who  would  thereby  be  enabled  to  mo- 
nopolize the  market.  But  if  each  inde- 
pendent producer  contract  to  sell  his 
product  or  to  sell  or  lease  his  plant, 
without  concert  with  others,  or  knowl- 
edge of  or  purpose  to  participate  in 
the  plans  of  the  buyer,  he  cannot  be 
said  to  have  conspired  against  freedom 
of  commerce,  or  to  have  made  a  contract 
in  illegal  restraint  of  trade.  .  .  .  The 
proof  must  show  that  the  illegal  purpose 
was  mutual." 

■■^  In  Stewart  v.  Erie,  etc.  Transp. 
Co.,  17  Minn.  395  (1871),  the  Supreme 
Court  of  Minnesota  said  :  "  We  agree 
with  the  plaintiff's  counsel,  and  with 
the  cases  by  him  cited,  that  it  is  against 
the  general  policy  of  the  law  to  destroy 
or  interfere  with  free  competition.  .  .  . 
An  unauthorized  monopoly  is,  therefore, 
against  public  policy  as  destroying  or 
interfering  witli  free  competition.  .  .  . 
(p.  398).  If  a  corporation  is  employing 
its  statutory  powers,  funds,  etc.  for  pur- 
poses not  within  the  scope  of  its  institu- 
tion, a  court  of  equity  will,  upon  the 
application  of  a  single  dissentient  stock- 
holder, interfere  by  injunction.  .  .  . 
The  right  of  a  stockholder  to  this  inter- 
ference seems  to  be  placed  upon  the 
ground  that,  from  the  fact  that  the  cor- 
poration was  created  for  certain  purposes 
there  is  an  implied  contract  that  it  shall 
not  divert  its  powers  or  funds  to  other 


purposes,  and  that  such  diversion  would 
be  a  species  of  breach  of  trnst  .  .  .  aa 
well  as  a  violation  of  law  which  might 
endanger  the  existence  of  its  charter. 
But  it  is  to  a  dissentient  stockholder  that 
the  relief  is  granted,  and  to  a  stock- 
holder who  comes  with  diligence  to 
assert  his  rights." 

See  also  Harding  v.  American  Glu- 
cose Co.,  182  111.  551  (1899),  (55  N.  E. 
Rep.  577,  74  Am.  St.  Rep.  189) ;  Leslie 
V.  Lorillard,  110  N.  Y.  519  (1888),  (18 
N.  E.  Rep.  363)  ;  Central  R.  Co.  y. 
Collins,  40  Ga.  582  (1869).  See  also 
ante,  §  46 :  "  Rights  and  Remedies  of 
Dissenting  Stockholders"  (consolidation); 
ante,  §  114:  "Remedies  of  Dissenting 
Stockholders  in  Case  of  Invalid  or  Unfair 
Sales  " ;  ante,  §  151  :  "  Rights  and  Reme- 
dies of  Dissenting  Stockholders  "  (sales  of 
railroads);  ante,  §  191  :  "Remedies  of 
Dissenting  Stockholders  "  (leases) ;  ante, 
§  293  :  "  Remedies  in  Case  of  Ultra  Vires 
Stockholding." 

2  Levin  i;.  Chicago  Gas  Light,  etc. 
Co.,  64  111.  App.  400  (1896):  "He 
alleges  that  he  acquired  the  certifi- 
cate without  knowledge  that  the  same 
was  tainted  with  any  conspiracy  or 
combination  ;  but  that  is  not  enough. 
.  .  .  Every  inference  deducible  from 
his  bill  is,  that  he  not  only  knew  of, 
but  participated  in,  all  that  he  com- 
plained of.  One  who  has  participated 
in  illegal  acts  and  conspiracies,  and 
partaken  of  the  fruits  thereof,  may  not 
tear  down  the  structure  he  has  helped 
to  rear  simply  because  he  did  not  know 
that  he  had  been  engaged  in  illegal- 
ity and  conspiracy.  ...  (p.  402).     To 

537 


§371 


INTERCORPORATE    RELATIONS. 


[part  v. 


It  has  been  contended  that  the  illegality  of  a  cor[)orate 
combination  is  the  illegality  of  that  corporation;  that  stock- 
holders of  a  vendor  corporation  can  maintain  a  bill  for  an 
injunction  only  when  their  i)ecuni:iry  interests  arc  affected, 
and  not  for  the  |)rotection  of  the  grnt-nil  public,  and,  conse- 
quently, that  they  arc  without  btaiuling  to  conij)lain  of  the 
unlawful  character  of  the  purchasing  corporation.  The 
defect  of  the  argument  is  in  its  assumptions.  The  pecu- 
niary interests  of  a  stockholder  of  a  vendor  corporation  are 
affected  by  a  transfer  of  its  property  to  an  illegal  combina- 
tion. The  combination,  if  carried  out,  may  lead  to  a  forfeit- 
ure of  the  charter  of  the  vendor  corjioration,  and  consequent 
loss  of  the  stockhfdder's  shares.  Mori-over,  the  pecuniary 
status  of  a  stockholder  is  changed  by  the  transfer  of  the  prop- 
erty and  business  of  his  corporation  to  another  corporation, 
although  he  may  receive  his  share  of  the  jtroceeds.  He  bus 
the  right  to  object  to  such  a  change  in  the  form  of  his  invest- 
ment, especially  where  the  proceeds  of  the  sale  are  tainted 
with  the  illegality  of  the  combination. * 


entitle  stocklmMors  to  the  gummarv 
interference  of  a  court,  tliey  must  apjily 
BO  recently  after  the  dniiifj  of  the  acta 
complained  of  that  the  court  may  stop 
or  untio  the  wroncf  to  tlicm  without 
doing  equal  or  greater  wrong  to  .some 
other  person  ;  or,  in  other  words",  if  a 
Btockholder  wants  protection  .ngainst 
the  conse(|uence3  of  an  ultra  vires  act, 
he  must  ask  for  it  with  sufficient 
promptness  to  enable  the  court  to  do 
justice  to  him  without  doing  injoatice 
to  others." 

See  alsoCoquard  c.  National  Linseed 
Oil  Co.,  171  111.480  (1898),  (49  N.  E. 
Rep.  56.3) ;  Stewart  v.  Erie,  etc.  Transp. 
Co.,  17  Minn.  395  (1871).  See  also an/e, 
§  49  :  "  Laches  of  Stock-holders  "  (con- 
solidation) ;  ante,  §  116:  "Defences  to 
Stockholders'  Arlions.  Estoppel"  (sales); 
§  192:  "Acquiescence  and  Laches  of 
Stockholders"  (leases). 

1  In  Harding  v.  American  Glncose 
Co.  182  111.  625  (1899),  (55  N.  E.  Rep. 
577.74  Am.  St.  Rep.  189),  the  Supreme 
Court  of  Illinois  said  :  "  The  position  of 

538 


couiiHcl  is  that  a  stockholder  can  only 
file  a  hill  to  j)revent  the  corporation 
from  disposing  of  its  properties,  uj)on 
the  ground  that  it  will  afTect  his  pecuni- 
ary interests  ami  because  of  the  ne(  e»- 
sity  of  protecting  his  property  right* 
and  because  of  tlie  ne<e.Hsity  of  protect- 
ing himself  from  pecuniary  loss  f>r  in- 
jury :  and  that  a  stoikhoMer  in  a  vendor 
corporation  has  no  right  to  enjoin  a  sale 
and  transfer  of  a  f.actory,  owne<l  by  such 
vendor,  upon  thegrouiul  that  the  vendee 
corporation  projtoses  to  create  a  mo- 
nopoly. ...  It  is  idle  to  say  that  a  stock- 
holder in  a  corfioration  would  suffer  no 
injury  from  a  forfeiture  of  its  charter 
rights  and  from  its  dissolution.  In  such 
a  case,  the  corporation  being  de.stroyed, 
his  .stock  therein  would  be  completely 
wiped  out  and  be  made  of  no  effect. 
The  stockholder  has  a  right  to  protest 
against  such  use  of  its  pro)ierty  by  the 
managing  officers  of  a  corporation  as 
will  lead  to  such  forfeiture  and 
di.s.solution.  ...  (p.  628).  What  was 
there  attempted  was  an  abandonment  of 


CHAP.    XXXVII.]  RIGHTS   AND   REMEDIES. 


371 


A  stockholder  may  maintain  a  bill  in  his  own  name  against 
the  corporation  and  its  officers,  whenever  it  is  reasonably 
certain  that  demand  upon  the  officers  to  bring  the  suit  in  the 
name  of  the  corporation  would  be  unavailing. ^ 

Foreign  corporations  are  subject  to  the  same  rules  of  public 
policy,  within  the  State,  as  domestic  companies.  A  court  of 
equity  will  grant  relief,  touching  property  within  the  State, 
to  a  stockholder  of  a  foreign  corporation  which  is  participat- 
ing in  an  unlawful  combination. ^ 


the  business  and  sale  of  the  assets  with- 
out legal  termination  or  dissolution  of 
the  company.  It  makes  no  difference 
that  the  stockholder  is  to  be  allowed  to 
receive  his  proportionate  share  of  the 
proceeds  of  the  sale  of  the  property. 
He  has  a  right  to  hold  his  investment 
in  the  form  of  stock,  and  a  change  of 
such  investment  against  his  consent  is  a 
change  which  affects  his  pecuniary  or 
financial  interests.  He  has  the  right  to 
be  the  judge  whether  such  change  in 
his  pecuniary  status  shall  be  made  or 
whether  lie  shall  continue  his  invest- 
ment in  the  form  of  stock." 

1  In  Harding  v.  American  Glucose 
Co.,  182  111.  628  (1899),  (55  N.  E. 
Rep.  577,  74  Am.  St.  Rep.  189),  the 
Court  further  said :  "  The  bill  in 
this  case  recites  that  the  complain- 
ants therein  filed  it,  not  only  in  their 
own  behalf,  but  in  behalf  of  all  other 
stockholders,  who  might  see  fit  to  come 
into  the  suit  and  join  therein.  Where 
the  officers  of  a  corporation  wrongfully 
deal  with  its  property  to  the  injury  of 
the  stockholders,  the  latter  may  main- 
tain a  bill  against  the  company  and  its 
officers  for  relief  against  such  misap- 
propriations. Originally,  the  rule  was 
that  such  a  suit  should  be  brought  by 
the  corporation  itself ;  but  equity  per- 
mits a  stockholder,  either  individually 
or  in  behalf  of  other  stockholders 
similarly  situated,  to  bring  such  a  suit, 
where  the  corporation  itself  either  re- 
fuses to  do  so,  or  where  the  facts  show 
that  the  wrong-doing  defendants  con- 
stitute a  majority  of  the  managing  body, 
or  where  it  is  reasonably  certain  that  a 


demand  made  upon  the  proper  officers 
of  the  corporation  to  bring  the  action 
would  be  unavailing." 

See  also  ante,  §  48 :  "  Procedure  in 
Stockholders'  Actions  "  (consolidation) ; 
ante,  §  115:  "Procedure  in  Stockhold- 
ers' Actions"  (sales). 

2  In  Harding  v.  American  Glucose 
Co.,  182  111.  635  (1899),  (55  N.  E.  Rep. 
577,  74  Am.  St.  Rep.  189),  the  Court 
also  said  :  "  It  is  the  settled  doctrine  of 
this  State,  established  by  many  de- 
cisions of  this  court,  that  foreign  cor- 
porations do  not  come  into  this  State 
as  a  matter  of  legal  right,  but  only  by 
comity,  and  that  said  corporations  are 
subject  to  the  same  restrictions  and 
duties  as  corporations  formed  in  this 
State,  and  have  no  other  or  greater 
powers.  .  .  .  Foreign  corporations  can- 
not be  permitted  to  come  into  this 
State  for  the  purpose  of  asserting 
rights  in  contravention  of  our  laws. 
.  .  .  Citizens  of  Illinois  cannot  evade 
the  laws  of  Illinois  passed  against  trusts 
and  combines  by  going  into  a  foreign 
State  and  chartering  a  corporation  to 
do  business  in  this  State  in  violation  of 
its  laws.  When  these  foreign  corpora- 
tions come  into  this  State  they  must 
conform  to  the  laws  and  policy  of  this 
State.  ...  If  real  estate  in  Illinois, 
owned  by  domestic  corporations,  can- 
not be  used  for  the  purpose  of  carrying 
out  the  business  of  an  illegal  trust  or 
combination,  real  estate  in  Illinois, 
owned  by  a  foreign  corporation,  cannot 
be  used  for  such  a  purpose." 

Compare  Small  v.  Minneapolis,  etc. 
Co.,  57  Hun  (N.  Y.),  587  (1890),  (10  N. 

639 


§372 


INTERCORPORATE  RELATIONS. 


[part  V. 


S  372.  Remedies  of  State.  Quo  "Waxranto  against  Corporate 
Combination.  —  The  scope  of  the  remedy  of  quo  warranto  — 
applied  to  corporations  —  is  the  forfeiture  of  the  franchises 
of  a  corporation  for  non-user  or  misuser.  The  object  of  the 
writ  is  the  protection  of  the  public  and  not  the  redress  of 
private  wrongs.  In  order  to  secure  a  judgment  of  ouster, 
misuser  must  be  shown  working  or  threatening  injury  to  the 
public,  or  violating  fundamental  conditions  attached  to  the 
grant  of  the  franchise.^ 

The  formation  of  a  combination  of  competing  corporations 
by  means  of  a  holding  or  purchasing  corporation,  in  violation 
of  a  rule  of  public  policy,  constitutes  a  misuser  of  the 
franchises  of  the  latter  corporation  —  the  corporate  combi- 
nation —  and  subjects  them  to  forfeiture  in  quo  warranto  pro- 
ceedings.^ The  combination  is  injurious  to  public  welfare 
because  it  is  inimical  to  public  policy.  If  involving  quasi- 
public  corporations  it  breaks  the  primary  contract  with  the 
State. 

The  fact  that  a  corporation,  under  its  charter,  has  power 


Y.  Snpp.  456),  where  an  injunction  was 
refused  in  a  stockholder's  suit  l)ecau8e 
both  corporations  —  vendor  and  pur- 
chaser —  were  foreign  corporations. 

^  State  V.  Minnesota  Thresher  Mfg. 
Co.,  40  Minn.  213  (1889),  (41  N.  W. 
Rep.  1020). 

In  People  v.  North  River  Sugar 
Ref'g  Co.,  121  N.  Y.  608  (1889),  (24  N. 
E.  Rep.  834,  18  Am.  St.  Rep.  843), 
Judge  Finch  said :  "  The  judgment 
sought  against  the  defendant  is  one  of 
corporate  death.  The  State  which  cre- 
ated asks  us  to  destroy,  and  the  penalty 
invoked  represents  the  extreme  rigor 
of  the  law.  Its  infliction  must  rest 
npon  just  cause  and  be  warranted  by 
material  misconduct.  The  life  of  a 
corporation  is,  indeed,  less  than  that  of 
the  humblest  citizen,  and  yet  it  envel- 
ops great  accumulations  of  property, 
moves  and  carries  in  large  volume  the 
business  and  enterprise  of  the  people, 
and  may  not  be  destroyed  without  clear 
and  abundant  reason.  ...  It  appears 
to  be  settled  that  the  State,  as  prosecu- 

540 


tor,  must  show  on  the  part  of  the  cor- 
poration accused  some  sin  against  the 
law  of  its  being  which  has  produced,  or 
tends  to  produce,  injury  to  the  public. 
The  transgression  must  not  be  merely 
formal  or  incidental  but  material  and 
serious,  and  such  a.s  to  harm  the  public 
welfare  ;  for  the  State  does  not  concern 
itself  with  the  quarrels  of  private  liti- 
gants." 

2  Distilling,  etc.  Co.  v.  People,  156 
HI.  448  (1895),  (41  N.  E.  Rep.  188.  47 
Am.  St.  Rep.  ,200)  ;  People  i'.  Chicago 
Gas  Trust  Co.,  130  111.  268  (1889),  (22 
N.  E.  Rep.  798,  17  Am.  St.  Rep.  319). 
Also  People  v.  Chicago  Live  Stock 
Exch.,  170  Rl.  556  (1897),  (48  N.  E. 
Rep.  1062,  62  Am.  St.  Rep.  404); 
Coquard  v.  National  Linseed  Oil  Co., 
171  111.  480  (1898),  (49  N.  E.  Rep.  563); 
People  V.  Milk  Exch.,  145  N.  Y.  267 
(1898),  (39  N.  E.  Rep.  1062,  45  Am. 
St.  Rep.  609) ;  Stockton  v.  American 
Tobacco  Co.,  55  N.  J.  Eq.  52  (1897), 
(36  Atl.  Rep.  971), 


CHAP.    XXXVII.]  RIGHTS   AND    REMEDIES.  §  -373 

to  purchase  and  hold  property  necessary  for  its  business, 
does  not  authorize  it  to  acquire  competing  plants  in  order  to 
obtain  control  of  the  market  for  a  commodity,  contrary  to  the 
rule  of  public  policy.  In  Distilling^  etc.  Co.  v.  People,''-  the 
Supreme  Court  of  Illinois  said:  "The  defendent  is  author- 
ized to  own  such  property  as  is  necessary  for  carrying  on 
its  distillery  business  and  no  more.  Its  power  to  acquire 
and  hold  property  is  limited  to  that  purpose,  and  it  has  no 
power  by  its  charter  to  enter  upon  a  scheme  of  getting  into 
its  hands,  and  under  its  control,  all,  or  substantially  all,  the 
distilling  plants  and  the  distillery  business  of  the  country, 
for  the  purpose  of  controlling  production  and  prices,  of 
crushing  out  competition  and  of  establishing  a  virtual  mo- 
nopoly in  that  business.  Such  purposes  are  foreign  to  the 
powers  granted  by  the  charter.  Acquisitions  of  property  to 
such  extent  and  for  such  purpose,  do  not  come  within  the 
authority  to  own  the  property  necessary  for  the  purpose  of 
carrying  on  a  general  distillery  business.  In  acquiring 
distillery  properties,  in  the  manner  and  for  the  purposes 
shown  by  the  information,  the  defendant  has  not  only  mis- 
used and  abused  the  powers  granted  by  its  charter,  but  has 
usurped  and  exercised  powers  not  conferred  by,  but  which 
are  wholly  foreign  to,  that  instrument.  It  has  thus  rendered 
itself  liable  to  prosecution  by  the  State  by  quo  warranto. ''* 

A  stockholder  is  without  authority  to  institute  proceedings 
to  forfeit  the  franchises  of  a  corporation,  upon  the  ground 
that  it  constitutes  an  unlawful  combination.  The  remedy  of 
quo  warranto  can  only  be  enforced  by  the  State.  ^ 

§  373.  Remedies  of  State.  Quo  Warranto  against  Combining 
Corporations.  —  Upon  the  principles  considered  in  the  last 
section,  a  corporation  which  becomes  a  member  of  an  illegal 

1  Distilling,  etc.  Co.  v.  People,  156  concerned  which  is  the  subject  of  so 
111.  448  (189.5),  (41  N.  E.  Rep.  188,  47  much  argument,  that  fact  would  not 
Am.  St.  Rep.  200).  authorize  the   filing  of  the  bill  by  the 

2  Coquard  v.  National  Linseed  Oil  complainant  for  the  forfeiture  of  the 
Co.,  171  111.  484  (1898),  (49  N.  E.  Rep.  charter.  Only  the  State  can  complain 
563)  :  "The  facts  pleaded  are  insuffi-  of  injury  to  the  public,  or  that  public 
cient  to  show  the  existence  of  a  trust,  rights  are  being  interfered  with,  and 
but  if  they  met  the  requirements  in  that  enforce  a  forfeiture  of  defendant's  fran- 
regard,  yet,  bo  far  as  the  public  right  is  chise  for  that  reason." 

541 


§373 


INTERCORPORATE  RELATIONS. 


[part  V. 


association,  or  participates  in  the  formation  of  an  unlawful 
trust  or  corporate  combination,  is  guilty  of  a  misuser  of  its 
franchises,  and  they  are  subject  to  forfeiture  in  proceedings 
in  quo  warranto  instituted  by  the  State.  ^ 

A  private  corporation  in  entering  such  a  combination 
exceeds  its  powers  in  a  manner  prejudicial  to  the  i»ublic 
interest;  a  quasi-^n\A\Q  corporation,  fails  in  the  discharge 
of  its  public  obligations  and  transgresses  the  law  of  its 
creation.'-^ 


1  California.  Havemeyer  v.  Supe- 
rior Court,  84  Cal.  378  (I's'JO).  (24  Pac. 
Rep.  121,  18  Am.  St.  Hep.  192,  10  L. 
R.  A.  641)  :  "  The  doctriue  is  that  cor- 
porate charters  are  granted  upon  the 
implied  condition  tliat  tlie  privile{,'es 
conferred  will  be  used  for  the  advan- 
tage, or  at  least  not  to  the  disadvan- 
tage, of  tlie  State.  If  this  condition  is 
broken,  tlie  charter  which  the  State  has 
given  is  taken  back  by  the  State." 

See  also  People  i'.  American  Sugar 
Ref'g  Co.  (Super.  Ct.  Sau  Francisco, 
1890).  7  Hy.  &  Corp.  L.  J.  83. 

Indiana.  State  i-.  Portland  Natural 
Gas,  etc.  Co.,  153  Ind.  483  (1899),  (53 
N.  E.  Rep.  1089,  74  Am.  St.  Rep.  314). 

Nebnislca.  State  v.  Nebraska  Dis- 
tilling Co.,  29  Neb.  719  (1890),  (46  N. 
W.  Rep.  155):  "The  findings  in  this 
case,  to  wliich  no  objections  are  made, 
clearly  show  that  the  object  of  the 
distilling  company,  in  entering  into  the 
illegal  combination,  was  to  destroy 
competition  and  create  a  monopoly  not 
only  by  limiting  the  production  of 
alcohol,  but,  by  dismantling  as  many 
distilleries  as  the  trust  saw  fit,  abso- 
lutely prevent  the  manufacture  of  the 
article  except  in  the  few  establish- 
ments controlled  by  the  trust,  and  thus 
it  would  be  enabled  to  control  prices, 
prevent  production  and  create  a  monop- 
oly of  the  most  offensive  character. 
Any  contract  entered  into  with  such  an 
object  in  view  is,  under  the  laws  of  this 
State,  null  and  void,  and  the  conveyance 
from  the  distilling  company  to  the  trust 
was  in  contravention  of  the  authority 
conferred  by  the  statute  on  that  com- 

542 


pany,  in  excess  of  the  powers  granted 
by  its  charter  and  against  public  policy 
and  voit],  and  no  title  j)assed  by  such 
conveyance.  .  .  .  As  there  has  been 
nn  abuse  of  the  corporate  franchise,  it 
will  be  dissolved  and  annulled." 

In  this  case  it  was  also  held  that  a 
transfer  of  property  pending  r/iio  ivar- 
ranto  proceedings  would  not  serve  to 
evade  the  effect  of  the  judgment. 

New  York.  People  v.  North  River 
Sugar  Ref'g  Co.,  121  N.  Y.  582  (1889), 
(24  N.  E.  Rep.  834,  18  Am.  St.  Rep. 
843). 

Ohio.  State  v.  Standard  Oil  Co.,  49 
Ohio  St.  137  (1892),  (30  N.  E.  Rep.  279, 
34  Am.  St.  Rep.  .541,  15  L.  R.  A.   145). 

Texas.  San  Antonio  Gas  Co.  i'. 
State,  22  Tex.  Civ.  App.  118  (1899),  (54 
S.  W.  Rep.  118),  (with  especial  reference 
to  the  Texas  anti-trust  statute). 

'^  In  State  v.  Portland  Natural  Gas, 
etc.  Co.,  1.53  Ind.  491  (1899),  (.53  N.  E. 
Rep.  1089,  74  Am.  St.  Rep.  314),  the 
Supreme  Court  of  Indiana  said : 
"  While  appellee,  by  the  agreement  in 
controversy,  cannot  be  said  to  have  fully 
renounced  autonomy,  still  it  did  so  to 
the  extent,  at  least,  that  it  thereby  dis- 
abled itself  from  supplying  persons 
with  gas  who  were  patrons  of  the  other 
company.  By  entering  into  this  agree- 
ment, and  carrying  it  into  execution, 
appellee  violated  the  principles  of 
public  policy,  and  clearly  abused  the 
rights  and  powers  conferred  upon  it  by 
the  State,  and  may  be  said  to  have  of- 
fended against  the  laws  of  its  creation. 
Such  an  illegal  act  or  agreement,  upon 
the  part  of  a  corporation  like  appellee. 


CHAP.    XXXVII.]  RIGHTS   AND   REMEDIES. 


§374 


Upon  proof  in  quo  warranto  proceedings  that  a  defendant 
corporation  has  entered  into  an  illegal  agreement  for  a  com- 
bination, the  courts  may  declare  a  forfeiture  of  its  corpo- 
rate franchise  ;  or,  it  is  held,  may  render  a  judgment  of 
ouster  from  the  right  to  make  or  carry  out  the  combination 
agreement.  1 

§  374.  Remedies  of  State.  Injunction.  —  The  State  may  file  a 
bill  for  an  injunction  to  restrain  any  ultra  vires  act  of  a  cor- 
poration of  a  nature  to  produce  public  injury.  It  may  enjoin 
the  formation  of  an  unlawful  combination  —  association, 
trust  or  corporate  combination.  It  is  not  obliged  to  wait 
until  the  organization  has  been  completed,  and  all  the  injury 
possible  is  in  process  of  infliction.^ 


cannot  be  permitted  to  override  the  law, 
and  it  was  the  manifest  duty  of  the 
State  to  interpose  as  it  has  done,  and 
call  it  to  account ;  and  if  the  charge 
made  is  established,  a  deserving  penalty 
ought  to  be  inflicted."  See  also,  People 
V.  Chicago  Gas  Trust  Co.,  130  111.  268 
(1889),  (22  N.  E.  Kep.  798,  17  Am.  St. 
Eep.  319). 

1  In  State  v.  Portland  Natural  Gas, 
etc.  Co.,  153  Ind.  491  (1899),  (53  N.  E, 
Eep.  1089,  74  Am.  St.  Rep.  314),  the 
Court  further  said  :  "  The  rule  is  well 
settled  that  a  court,  in  cases  in  quo  war- 
ranto proceedings  like  this,  if  the  facta 
justify,  may,  in  the  exercise  of  its  dis- 
cretion, render  a  judgment  against  the 
defendant  declaring  a  forfeiture  of  its 
corporate  franchises,  or  the  judgment 
may  be  a  forfeiture  or  ouster  only  of  the 
right  of  the  defendant  to  carry  out  or 
continue  the  illegal  act  or  acts  charged 
and  established."  See  also.  State  v. 
Standard  Oil  Co.,  49  Ohio  St.  137 
(1892),  (30  N.  E.  Kep.  279,  34  Am.  St. 
Rep.  541,  15  L.  R.  A.  14.5). 

-  In  Trust  Co.  v.  State,  109  Ga.  747 
(1900),  (35  S.  E.  Rep.  323),  the  Supreme 
Court  of  Georgia  said :  "  We  have 
reached  the  conclusion  that  the  sounder 
reasoning  is  in  favor  of  allowing  to  the 
State  relief  by  injunction  whenever  it  is 
proceeding  in  the  interest  of  the  public 
to  prevent   a   threatened    injury.    As 


harsh  as  tlie  remedy  by  injunction  is 
generally  considered,  it  is  certainly  not 
as  severe  as  would  be  a  proceeding  in 
the  nature  of  quo  wnrranio,  instituted  for 
the  purpose  of  forfeiting  the  charter  of 
a  corporation.  The  one  is  instituted, 
not  for  the  purpose  of  causing  a  de- 
struction of  the  corporation,  but  to  pre- 
vent it  from  entering  into  transactions 
violative  of  the  public  policy  of  the 
State,  and  to  protect  the  interest  of  the 
public  against  a  threatened  wrong. 
The  other  remedy,  if  enforced,  would 
cause  the  death  of  the  corporation,  thus 
forever  preventing  it  from  serving  the 
public  interests,  or  meeting  the  public 
demands  upon  its  business,  and  often 
result  in  a  wreckage  of  the  property  of 
its  owners.  We  can,  therefore,  see  no 
reason  why,  if  the  remedy  for  the 
wrongs  threatened  can  be  as  well  pre- 
vented by  injunction,  it  would  not  be 
the  more  readily  and  projicrly  applied 
than  the  harsher  one  of  forfeiture  or 
confiscation." 

See  also,  Stockton  v.  Central  R.  Co., 
50  N.  J.  Eq.  52  (1892),  (24  Atl.  Rep. 
964) ;  Queen  Ins.  Co.  v.  State  (Tex. 
Civ.  App.  1893),  22  S.  W.  Rep.  1048, 
22  L.  R.  A.  483  ;  Attorney-General  v. 
Great  Northern  R.  Co.,  1  Drew  &  S. 
154  (1800),  (6  Jur.  (n.  s.),  1009).  Asto 
injunction  against  unincorporated  com- 
bination, see  State  v.  American  Cotton 

543 


§375 


INTERCORPORATE   RELATIONS. 


[part  V. 


If  the  State  waits  until  the  combination  has  been  perfected, 
it  may  be  partially  deprived  of  its  equitable  remedy.  An 
injunction  will  undoubtedly  lie  to  restrain  the  continued 
operation  of  an  association  or  trust,  but  it  cannot  be  em- 
ployed, as  a  substitute  for  quo  warranto  proceedings,  to  attack 
the  corporate  existence  of  a  corporate  combination.  When 
a  corporate  combination  has  been  formed,  has  acquired  the 
plants  of  other  companies  and  is  transacting  business,  — all 
in  the  exercise  of  its  apparent  powers  —  an  injunction 
restraining  it  from  the  exercise  of  those  powers,  upon  the 
ground  that  it  was  formed  for  an  unlawful  purpose,  would 
be  equivalent  to  an  annulment  of  its  charter.  In  such  a  case, 
quo  ivarranto  is  the  only  remedy.  ^ 

§  375.    Evidence.  — The  existence  of  an  unlawful  combina- 


Oil  Trust,  40  La.  Ann.  8  (1888),  (3  So. 
Rep.  409,  19  Am.  &  Eug.  Corp.  Caa. 

448). 

1  Stockton  V.  American  Tobacco  Co., 
5.^  N.  J.  Eq.  368  (1897),  (36  Atl.  Rep. 
971):  "The  first  question  which  con- 
cerns us  is  whether  these  attacks  upon 
the  manner  of  creating  the  company  do 
not  directly  challenge  tlie  existence  of 
the  corporation  itself,  for  if  this  be  so, 
it  is  entirely  settled,  in  this  State,  that  a 
court  of  equity  has  no  jurisdiction  to 
consider  the  matter  at  all.  .  .  .  (p.  370.) 
Now,  in  the  case  at  bar  it  is  charged 
that  the  purpose  of  the  five  concerns, 
the  owners  of  which  projected  a  sclieme 
of  incorporation,  was  to  coalesce  their 
Beparate  competing  business  into  one 
organization,  for  the  purpose  of  destroy- 
ing competition  and  controlling  the 
trade  in  cigarettes.  Whether  the  con- 
tracts preceding  the  act  of  incorporation 
.  .  .  were  inimical  to  public  policy,  I 
Bhall  not  stop  to  consider.  If  so,  the 
agreement  or  agreements  would  have 
been  unenforceatile  in  any  court,  and  it 
may  be  that  upon  a  bill  filed  by  the 
attorney-general  such  contract  would 
have  been  annulled.  But  tliat  contract 
has  been  executed.  As  a  contract  it 
has  ceased  to  have  any  efficacy  what- 
ever.    All  that  can  be  said  of  it  in  this 

544 


case  is  that  its  provisions  exhibit  the 
purposes  for  which  the  corporation  was 
organized,  and  tiie  sole  question  here  ia 
wiietlier,  if  such  purpose  appears  to 
have  been  to  estaldish  a  monopoly 
through  the  instrumentality  of  this  cor- 
porate organization,  this  court  can,  upon 
that  ground,  restrain  any  act  done  by 
the  corporation  itself  within  its  corpo- 
rate power.  Now  that  such  an  exertion 
of  power  by  a  court  of  equity  would 
strike  at  the  authority  of  the  corpora- 
tion to  act  at  all  as  a  corporation  is  per- 
fectly clear.  The  corporation  must  be 
either  a  legal  or  an  illegal  entity.  If 
legal,  then,  as  I  have  already  observed, 
it  possesses  the  right  to  dispose  of  it3 
goods  in  its  adopted  manner.  If  illegal, 
it  has  no  right  to  transact  any  business 
at  all  as  a  corporation.  An  injunction 
which  would,  in  the  language  of  the 
prayer  of  the  bill,  restrain  the  company 
from  using  the  corporate  organization 
in  the  conduct  of  their  business  of  mak- 
ing and  selling  paper  cigarettes,  and 
from  carrying  on  any  portion  of  their 
business  in  the  name  of  the  American 
Tobacco  Company,  would  be  as  effi- 
cient an  annulment  of  their  franchise  aa 
would  be  a  judgment  against  them  upon 
quo  warranto." 


CHAP.    XXXVII.]  RIGHTS   AND   REMEDIES. 


§375 


tion  must  be  shown  by  evidence.  Proof  that  a  combination 
exists  is  not  proof  of  its  illegality.^ 

In  establishing  the  illegal  character  of  a  combination,  how- 
ever, direct  evidence  of  an  unlawful  object  is  not  necessary.^ 
The  purpose  of  a  combination  to  control  the  market  is  seldom 
evidenced  by  a  single  instrument,  or  expressly  stated  in  any 
instrument.  It  is  shown  by  a  series  of  acts  and  transactions. 
Similarly,  an  illegal  combination  of  ^'wasj-public  corporations 
may  be  of  the  most  innocent  character  in  its  stated  purpose. 

It  is  the  duty  of  the  court  to  view  the  agreement  of  the 
parties  in  the  light  of  all  the  surrounding  circumstances,  and 
to  receive  any  evidence  tending  to  show  the  true  situation 
and  real  purposes  of  the  parties  to  the  combination.  This 
course  has  been  followed  by  the  courts  in  the  leading  cases 
of  quo  warranto  which  have  already  been  adverted  to.^ 


^  Herriman  r.  Menzies,  115  Cal.  16 
(1896),  (44  Pac.  Rep.  660,  56  Am.  St. 
Rep.  81,  35  L.  R.  A.  319):  "We  are 
not  at  liberty  to  indulge  in  inferences 
which  would  restrict  the  parties  in  their 
right  to  combine  their  interests.  Par- 
ties are  to  be  given  the  widest  latitude 
to  make  contracts  with  reference  to 
their  private  interests,  and  the  invalidity 
of  such  contracts  is  never  to  be  inferred, 
but  must  be  clearly  made  to  appear." 

See  also  Leslie  v.  Lorillard,  110  N.  Y. 
533  (1888),  (18  N.  E.  Rep.  36.3)  ;  Cen- 
tral Shade  Roller  Co.  v.  Cushman,  143 
Mass.  353  (18S7),  (9  N.  E.  Rep.  629). 

^  Harding  v.  American  Glucose  Co., 
182111.  635  (1899),  (55  N.  E.  Rep.  577,  74 
Am.  St.  Rep.  189) :  "  It  makes  no  differ- 
ence that  the  agreement  for  tlie  illegal 
combination   is   not   a    formal   written 


agreement.  It  may  be  a  verbal  agree- 
ment or  understanding,  or  a  scheme 
not  embodied  in  writing,  but  evidenced 
by  the  action  of  the  parties."  See  also 
post,  §  421  :  "  Evidence  "  (under  "  State 
anti-trust  statutes  "). 

2  People  V.  North  River  Sugar  Ref'g 
Co.,  121  N.  Y.  582  (1889),  (24  N.  E. 
Rep.  834,  18  Am.  St.  Rep.  843) ;  State 
V.  Standard  Oil  Co.,  49  Ohio  St.  137 
(1892),  (30  N.  E.  Rep.  279,  34  Am.  St. 
Rep.  541,  15  L.  R.  A.  145) ;  Distilling, 
etc.  Co.  V.  People,  156  111.  448  (1895), 
(41  N.  E.  Rep.  188,  47  Am.  St.  Rep. 
200) ;  People  v.  Chicago  Ga.s  Trust  Co., 
130  111.  268  (1889),  (22  N.  E.  Rep.  798, 
17  Am.  St.  Rep.  319)  ;  State  v.  Nebraska 
Distilling  Co.,  29  Neb.  700  (1890),  (46 
N.  W.   Rep.   155). 


35 


545 


R  376  INTERCORPORATE   RELATIONS.  [PART    V. 

ARTICLE   III. 

LEGISLATION   AFFECTING  COMBINATIONS. 


I. 

FEDERAL  ANTI-TRUST  STATUTE. 


CHAPTER    XXXVIII. 

THE   STATUTE   AND   ITS   CONSTITUTIONALITY. 

§  376.     The  Statute. 

§  377.     Analysis  of  Statute. 

§  378.     Object  of  Statute. 

§379.     Coustitntionality  of    Act  —  (A)    Power   of   Congress   under    Commerce 

Clause  to  IcgisLite  concerning  Private  Contracts  affecting  Interstate 

Commerce. 
§380.     Constitutionality  of   Act  —  (B)   Power   of   Congress   under   Commerce 

Clause  to  prohibit  Combinations  of  Competing  Railroads. 
§  381.     Constitutionality  of  Statute  —  (C)  Statute  is  Constitutional. 

§  376.  The  Statute.  — The  federal  anti-trust  act,  generally 
called  the  "Sherman  Act,"  and  entitled  "An  Act  to  protect 
trade  and  commerce  against  unlawful  restraints  and  monopo- 
lies," was  approved  July  2,  1890.  It  is  printed  in  full  in 
the  foot-note.  ^ 

^  "§1.  Every  contract,  combination  both  said  punishments,  in  the  discre- 
in the  form  of  trust  or  otherwise,  or  tion  of  the  court, 
conspiracy,  in  restraint  of  trade  or  com-  "  §  2.  Every  person  who  shall  mo- 
merce  among  the  several  States,  or  with  nopolize,  or  attempt  to  monopolize,  or 
foreign  nations,  is  hereby  declared  to  combine  or  conspire  with  any  other 
be  illegal.  Every  person  who  shall  person  or  persons,  to  monopolize  any 
make  any  snch  contract,  or  engage  in  part  of  the  trade  or  commerce  among 
any  such  combination  or  conspiracy,  the  several  States,  or  with  foreign  na- 
shall  be  deemed  guilty  of  a  misde-  tions,  shall  be  deemed  guilty  of  a  mis- 
meanor,  and,  on  conviction  thereof,  demeanor,  and,  on  conviction  thereof, 
shall  be  punished  by  fine  not  exceed-  shall  be  punished  by  fine  not  exceeding 
ii  g  five  thousand  dollars,  or  by  impris-  five  thousand  dollars,  or  by  imprison- 
onment  not  exceeding  one  year,  or  by  ment  not   exceeding  one  year,  or  by 

546 


CHAP.  XXXVIII.]      STATUTE  AND  ITS  CONSTITUTIONALITY.  §  877 

§  377.    Analysis  of  Statute.  —  The  sections  of  the  act  may 
be  classified,  primarily,  into 

(1.)  Section  declaring  what  ''restraints  and  monopolies" 


both  said  punishments,  in  the  discre- 
tion of  the  court. 

"  §  3.  Every  contract,  combination 
in  form  of  trust  or  otherwise,  or  con- 
spiracy, in  restraint  of  trade  or  com- 
merce in  any  Territory  of  the  United 
States  or  of  the  District  of  Columbia, 
or  in  restraint  of  trade  or  commerce 
between  any  such  Territory  and  another, 
or  between  any  such  Territory  or  Ter- 
ritories and  any  State  or  States  or  the 
District  of  Columbia,  or  with  foreign 
nations,  or  between  the  District  of 
Columbia  and  any  State  or  States 
or  foreign  nations,  is  hereby  declared 
illegal.  Every  person  who  shall  make 
any  such  contract  or  engage  in  any 
combination  or  conspiracy,  shall  be 
deemed  guilty  of  a  misdemeanor,  and, 
on  conviction  tliereof,  shall  be  punished 
by  fine  not  exceeding  five  thousand 
dollars,  or  by  imprisonment  not  exceed- 
ing one  year,  or  by  both  said  punisli- 
ments,  in  the  discretion  of  the  court. 

"  §  4.  The  several  circuit  courts  of 
the  United  States  are  hereby  invested 
with  jurisdiction  to  prevent  and  re- 
strain violations  of  this  act ;  and  it 
shall  be  the  duty  of  tlie  several  district 
attorneys  of  the  United  States,  in  their 
respective  districts,  under  the  direction 
of  the  Attorney  General,  to  institute 
proceedings  in  equity  to  prevent  and 
restrain  such  violations.  Such  pro- 
ceedings may  be  by  way  of  ])etition 
setting  furth  the  case  and  praying  that 
Buch  violation  shall  be  enjoined  or 
otherwise  prohibited  When  the  par- 
ties complained  of  shall  have  been  duly 
notified  of  such  petition,  the  court  shall 
proceed,  as  soon  as  may  be,  to  the  hear- 
ing and  determination  of  the  case ;  and 
pending  such  petition  and  before  final 
decree,  the  court  may  at  any  time 
make  such  temporary  restraining  order 
or  prohibition  as  shall  be  deemed  just 
in  the  premises. 


"  §  5.  "Whenever  it  shall  appear  to 
the  court  before  which  any  proceeding 
under  section  four  of  this  act  may  be 
pending,  that  the  ends  of  justice  require 
that  other  parties  should  be  brought  be- 
fore the  court,  the  court  may  cause 
them  to  be  summoned,  whether  they 
reside  in  the  district  in  which  the  court 
is  held  or  not ;  and  subpoenas  to  that 
end  may  be  served  in  any  district  by  the 
marshal  thereof. 

"  §  6.  Any  property  owned  under 
any  contract  or  by  any  combination,  or 
pursuant  to  any  cons])iracy  (and  being 
the  subject  thereof)  mentioned  in  section 
one  of  this  act,  and  being  in  the  course 
of  transportation  from  one  State  to  an- 
other, or  to  a  foreign  country,  shall  bo 
forfeited  to  the  United  States,  and  may 
be  seized  and  condemned  by  like  pro- 
ceedings as  those  provided  by  law  for 
the  forfeiture,  seizure,  and  condemna- 
tion of  property  imported  into  the 
United  States  contrary  to  law. 

"  §  7.  Any  person  who  shall  be  in- 
jured in  his  business  or  property  by 
any  other  person  or  corporation  by 
reason  of  anything  forbidden  or  de- 
clared to  be  unlawful  by  this  act,  may 
sue  therefor  in  any  circuit  court  of 
the  United  States  in  the  district  in 
which  the  defendant  resides  or  is 
found,  without  respect  to  the  amount 
in  controversy,  and  shall  recover  three- 
fold the  damages  by  him  sustained,  and 
the  costs  of  suit,  including  ^  reasonable 
attorney's  fee. 

"  §  8.  That  the  word  '  person '  or 
'  persons,'  wherever  used  in  this  act, 
shall  be  deemed  to  include  corporations 
and  associations  existing  under  or  au- 
thorized by  the  laws  of  either  the 
United  States,  the  laws  of  any  of  the 
Territories,  the  laws  of  any  State,  or 
the  laws  of  any  foreign  country." 


547 


§  377  INTEIiCOUPORATE  RELATIONS.  [PAUT   V. 

the  act  is  directed  against,  and  prescribing  penalities  —  sec- 
tions 1,  2  and  3. 

(II.)  Sections  relating  to  remedies  and  procedure  —  sec- 
tions  4,  5,  6  and  7.^ 

(III.)  Section  declaring  rule  of  construction  —  section  8. 

The  last  section  —  forming  Class  111.  and  providing  that  the 
word  "person"  or  "persons"  shall  include  corporations  and 
associations  —  requires  no  analysis.  Class  II. —  the  sections 
relating  to  remedies  and  procedure  —  will  be  the  subject  of 
consideration  in  another  cha{)ter.  The  several  sections  in 
Class  I.  ma}'  be  subdivided  into 

(1)  Definitions  of  offences. 

(2)  Statements  of  penalties. 

The  penalties  prescribed  in  the  act  will  be  considered  in 
connection  with  remedies  and  procedure.  The  offences  de- 
scribed in  the  several  sections  of  Class  I.  are  as  follows: 

Under  section  1 :  Every  (a)  contract,  (i)  combination  in 
the  form  of  trust  or  otherwise,  or  (c)  conspiracy  nt  restraint 
of  trade  or  commerce  among  the  several  States  or  ivith  foreign 
nations^  is  illegal. 

Under  section  2 :  Every  person  who  shall  (a)  monopolize, 
or  (h)  attempt  to  monopolize,  or  (c)  combine  or  (cl)  conspire 
with  any  other  person  or  persons,  to  monopolize  any  part  of 
the  trade  or  commerce  among  the  several  States  or  with  foreign 
nations,  shall  be  deemed  guilty  of  a  misdemeanor. 

Under  section  3:  The  acts  and  agreements  described  in 
section  1,  if  in  restraint  of  trade  or  commerce  in  any  Terri- 
tory (including  the  District  of  Columbia),  or  between  Terri- 
tories and  other  Territories,  States  and  foreign  nations,  are 
illegal. 

From  this  analysis  the  following  conclusions  follow: 

1.  The  "restraints  and  monopolies"  referred  in  the  title 
to  the  act  are 

(A)  Contracts,  combinations  and  conspiracies  in  restraint 
of  interstate  (including  territorial  and  interterritorial)  and 
foreign  trade  or  commerce. 

^  Section  6  also  provides  an  additional  penalty  of  forfeiture,  and  section 
7  of  treble  damages. 

548 


CHAP.  XXXVIIL]      statute  AND  ITS  CONSTITUTIONALITY.         §  378 

(B)  Monopolizing,  or  attempting,  combining  or  conspiring 
to  monopolize  interstate  or  foreign  trade  or  commerce. 

2,   Such  restraints  and  monopolies  are  illegal. 

§  378.  Object  of  statute.  —  The  statute  is  aimed  at  all  re- 
strictions upon  interstate  commerce.  Its  purpose  is  to  per- 
mit trade  and  commerce,  between  the  States  and  with  foreign 
nations,  to  flow  irf  their  natural  channels,  "unrestricted  by 
any  combinations,  contracts,  conspiracies,  or  monopolies 
whatsoever."^  In  United  States  v.  Coal  Dealers  Association,^ 
Judge  Morrow  said:  "The  clear  and  positive  purpose  of  the 
statute  must  be  understood  to  be  that  trade  and  commerce, 
within  the  jurisdiction  of  the  federal  government,  shall  be 
absolutely  free,  and  no  contract  or  combination  will  be 
tolerated  that  impedes  or  restricts  their  natural  flow  and 
volume." 

The  purpose  of  a  statute  must  be  gathered,  primarily,  from 
its  language ;  and,  as  will  be  shown,  this  act  has  been  con- 
strued to  apply  to  combinations  of  competing  carriers,  as 
well  as  to  industrial  combinations.  An  examination  of  the 
"history  of  the  times,"  moreover, — using  a  phrase  of  the 
Supreme  Court  of  the  United  States,  —  will  show,  that  while 
the  principal  object  of  Congress,  in  enacting  the  statute,  may 
have  been  the  suppression  of  combinations  of  industrial  cor- 
porations in  restraint  of  interstate  commerce,  the  prevention 
of  combinations  between  competing  railroad  companies  was 
not  outside  its  purpose.^ 

1  United  States  v.  Hopkins,  82  Fed.  because  of  their  commercial  character, 
537  (1897).  and  of  their  business  extension  through 

2  United  States  v.  Coal  Dealers  the  different  States  of  the  Union. 
Ass'n,  85  Fed.  261  (1898).  Among  these  trusts  it  was  said  in  Con- 

3  United  States  r.  Trans-Missouri  gress,  were  the  Beef  Trust,  the  Stand- 
Freight  Ass'n,  16(5  U.  S.  319  (1897),  ard  Oil  Trust,  the  Steel  Trust,  the 
(17  Sup.  Ct.  Rep.  540) :  "  It  is  said  that  Barbed  Wire  Fence  Trust,  the  Sugar 
Congress  had  very  different  matters  in  Trust,  the  Cordage  Trust,  tlie  Cotton 
view,  and  very  different  objects  to  ac-  Seed  Oil  Trust,  the  Whiskey  Trust,  and 
complish  in  the  passage  of  the  act  in  many  others,  and  these  trusts,  it  was 
que.stion  ;  that  a  number  of  combina-  stated,  had  assumed  an  importance  and 
tions  in  the  form  of  trusts  and  conspi-  had  acquired  a  power  which  were  dan- 
racies  in  restraint  of  trade  were  to  be  gerous  to  the  whole  country,  and  that 
found  throughout  the  country,  and  that  their  existence  was  directly  autago- 
it  was  impossible  for  the  State  govern-  nistic  to  its  peace  and  j)rosperity.  To 
ments  to  successfully  cope  witii  them,  combinations  and  conspiracies  of  this 

649 


§379 


INTERCORPORATE  RELATIONS. 


[part 


§  379.  Constitutionality  of  Act —  (A)  Power  of  Congress  under 
Commerce  Clause  to  legislate  concerning  Private  Contracts  affect- 
ing Interstate  Commerce. — The  Constitution  of  the  United 
States  provides  that  Congress  shall  have  power  "to  rejj:ulate 
commerce  with  foreign  nations,  and  among  the  several  States 
and  with  the  Indian  Tribes."^  Under  this  grant  of  power, 
Congress  may  enact  laws  declaring  illegal  and  prohibiting 
the  performance  of  contracts  between  individuals  or  corpo- 
rations, the  natural  and  direct  —  as  distinguished  from  the 
incidental  and  collateral  —  effect  of  the  operation  of  which 
will  be  to  regulate,  to  any  extent,  interstate  or  foreign 
commerce.^  The  jirovision  in  the  Constitution  regarding 
the  liberty  of  the  citizen,^  although  including  liberty  of 
contract,  docs  not  limit  the  power  of  Congress,  under  the 
interstate  commerce  clause,  to  legislate  upon  the  sul)ject  of 


kind,  it  is  contended  that  the  act  in 
quostion  was  directed,  and  not  to  tlie 
combinations  of  coinpetiuf;  railroads 
to  keep  up  tlieir  prices  to  a  rcasoualjle 
sum  for  tlie  transportation  of  persons 
and  property.  It  is  true  that  many 
and  various  trusts  were  in  existence  at 
the  time  of  the  passa^^e  of  the  act,  and 
it  was  probalily  sought  to  cover  them 
by  the  provisions  of  the  act.  Many  of 
them  had  rendered  themselves  offensive 
by  the  manner  in  which  they  exercised 
the  great  power  that  combined  capital 
gave  them.  But  a  further  investiga- 
tion of  '  the  history  of  the  times '  shows 
also  that  those  trusts  were  not  the  only 
associations  controlling  a  great  combi- 
nation of  capital  which  had  caused  com- 
plaint at  the  manner  in  which  their 
business  was  conducted.  There  were 
many  and  loud  complaints  from  some 
portions  of  the  public  regarding  the 
railroads  and  the  prices  they  were 
charging  for  the  service  they  ren- 
dered, and  it  was  alleged  that  the 
prices  for  the  transportation  of  persons 
and  articles  of  commerce  were  unduly 
and  improperly  enhanced  by  combina- 
tions among  the  different  roads. 
Whether  these  complaints  were  well 
or  ill  founded  we  do  not  presume  at 
this  time  and  under  these  circumstances 

550 


to  determine  or  discuss.  It  is  simply 
for  tlie  purpose  of  answering  the  state- 
ment that  it  was  only  to  trusts  of  the 
nature  above  set  fortli  that  this  legisla- 
tion was  directed,  that  the  subject  of 
the  opinions  of  the  people  in  regard 
to  tlie  actions  of  the  railroad  companies 
in  this  particular  is  referred  to.  A 
reference  to  this  history  of  the  times 
does  not,  as  we  think,  furnish  us  with 
any  strong  reason  for  believing  that  it 
was  only  trusts  that  were  in  the  minds 
of  the  members  of  Congress,  and  that 
railroads  and  their  manner  of  doing 
business  were  wholly  excluded  there- 
from." 

^  Constitution  of  the  United  States, 
Art.  I.  §  8  :  "  The  Congress  shall  have 
Power  ...  to  regulate  commerce  with 
foreign  nations,  and  among  the  several 
States  and  with  the  Indian  Tribes." 

2  Addyston  Pipe,  etc.  Co.  v.  United 
States,  175  U.  S.  226  (1899),  (20  Sup. 
Ct.  Rep.  96) ;  United  States  v.  Joint 
Traffic  Ass'n,  171  U.  S.  571  (1898),  (19 
Sup.  Ct.  Rep.  25). 

3  The  Fifth  Amendment  of  the  Con- 
stitution provides  that  "  no  person  shall 
be  .  .  .  deprived  of  life,  liberty  or  prop- 
erty without  due  process  of  law ;  nor 
shall  private  property  be  taken  without 
just  compensation." 


CHAP.  XXXVIII.]       STATUTE  AND  ITS  CONSTITUTIONALITY.         §  379 

contracts   affecting,  in   any    degree,   commerce   among  the 
States. 

In  Addyston  Pipe,  etc.  Co.  v.  United  States,^  Mr.  Justice 
Peckham  said :  "  It  is  insisted  by  the  appellants,  at  the 
threshold  of  the  inquiry,  that,  by  the  true  construction  of  the 
Constitution,  the  power  of  Congress  to  regulate  interstate 
commerce  is  limited  to  its  protection  from  acts  of  interfer- 
ence by  State  legislation  or  by  means  of  regulations  made 
under  the  authority  of  the  State  by  some  political  sub- 
division thereof,  .  .  .  but  that  it  does  not  include  the 
general  power  to  interfere  with  or  prohibit  private  contracts 
between  citizens,  even  though  such  contracts  have  inter- 
state commerce  for  their  object,  and  result  in  a  direct  and 
substantial  obstruction  to  or  regulation  of  that  commerce. 
.  .  .  The  power  to  regulate  interstate  commerce  is,  as  stated 
by  Chief  Justice  Marshall,  full  and  complete  in  Congress, 
and  there  is  no  limitation  in  the  grant  of  the  power  which 
excludes  private  contracts  of  the  nature  in  question  from  the 
jurisdiction  of  that  body.  Nor  is  any  such  limitation  con- 
tained in  the  other  clause  of  the  Constitution,  which  provides 
that  no  person  shall  be  deprived  of  life,  liberty,  or  property 
without  due  process  of  law.  .  .  .  The  provision  in  the  Con- 
stitution does  not,  as  we  believe,  exclude  Congress  from 
legislating  with  regard  to  contracts  of  the  above  nature, 
while  in  the  exercise  of  its  constitutional  right  to  regulate 
commerce  among  the  States.  On  the  contrary,  we  think  the 
provision  regarding  the  liberty  of  the  citizen  is,  to  some 
extent,  limited  by  the  commerce  clause  of  the  Constitution, 
and  that  the  power  of  Congress  to  regulate  interstate  com- 
merce comprises  the  right  to  enact  a  law  prohibiting  the 
citizen  from  entering  into  those  private  contracts  which 
directly  and  substantially,  and  not  merely  indirectly,  re- 
motely, incidentally  and  collaterally,  regulate,  to  a  greater 
or  less  degree,  commerce  among  the  States. "  ^ 

1  Addystou  Pipe,  etc.  Co.  r.  United  the  constitutional  limitations  upon  the 
States,  175  U.  S.  226  (1899),  (20  Sup.  Ct.  power  of  Congress  are  also  considered, 
Kep.  96).  Judge  Jack.son  said  :  "  Congress   mav 

2  Conjpare  this  deci.-^ion  with  that  in  place  restrictions  and  limitations  npon 
In  re  Greene,  52  Fed.  112  (1892),  where  and  right  of  corporations  created  and 

551 


§  380  INTERCORPORATE   RELATIONS.  [PART   V. 

§  380.  Constitutionality  of  Act  —  (B)  Power  of  Congress  under 
Commerce  Clause  to  prohibit  Combinations  of  Competing  Rail- 
roads.—  In  the  exercise  of  the  j)Owcr  conferred  in  the  inter- 
state commerce  clause  of  the  Constitution,  Congress  may 
enact  legislation,  applicable  to  railroad  companies,  declaring 
illegal  all  contracts  and  combinations  which,  in  its  oj^inion, 
restrain  or  impede  interstate  or  foreign  commerce  by  restrict- 
ing or  extinguishing  competition.^  It  is  for  Congress  to 
determine  what  contracts  and  combinations  arc  prejudicial 
to  the  pul)lic  welfare,  and  the  courts  may  not  declare  an  act 
of  Congress  unconstitutional  on  account  of  such  determina- 
tion, except,  possibly,  in  a  case  of  gross  abuse  of  power. 

In  United  States  v.  Joint  Traffic  Association,"  the  Sujireme 
Court  of  the  United  States  said:  '"Has  not  Congress,  with  re- 
gard to  interstate  commerce  and  in  the  course  of  regulating 
it,  in  the  case  of  railroad  corporations,  the  power  to  say  that 
no  contract  or  combination  shall  be  legal  which  shall  re- 
strain trade  and  commerce  by  shutting  out  the  operation 
of  the  general  laws  of  competition?  We  think  it  has.  .  .  . 
The  business  of  a  railroad  carrier  is  of  a  puldic  nature, 
and,  in  performing  it,  the  carrier  is  also  performing,  to  a  cer- 
tain extent,  a  function  of  government  which,  as  counsel 
observed,  requires  them  to  perform  the  service  upon  equal 
terms  to  all.     This  public  service,  that  of  transportation  of 

organized  under  its  aiitliority  to  acquire,  gress  has  no  jurisdiction  over,  aud  cannot 

nse,  and  dispose  of  property.     It  may  make  criminal,  the  aims,  purposes,  and 

also  impose  such  restrictions  and  limi-  intentions  of  jtersons  in  the  acquisition 

tations  upou  the  citizen  in  respect  to  the  aud  control  of  property,  which  the  States 

exercise  of  a  public  privilege  or  fran-  in  their  residence  or  creation  sanction 

chise  conferred  by  the  United  States,  and   permit.     It   is   not   material   that 

But  Congress,  certainly,  has    not    the  such  property,  or  the  products  thereof, 

power  or  authority  under  the  commerce  may  become  tlie  subject  of  trade  and 

clause,  or  any  other  provision  of  the  Con-  commerce  among  the  several  States  or 

stitution,  to  limit  and  restrict  the  right  with  foreign  nations." 
of  corporations  created  by  the  States,  ^  United  States  u.  Joint  TraflScAss'n, 

or   the   citizens  of  the   States,  in   the  171  U.  S.  505  (1898),  (19  Sup.  Ct.  Rep. 

acquisition,  control,  and  disposition  of  25) ;  United    States   v.   Trans-Missouri 

property.     Neither  can  Congress  regu-  Freight  Ass'n,  166  U.  S.  290  (1897),  (17 

late  or  prescribe  the  price  or-prices  at  Sup.  Ct.  Rep.  540). 
which   such   property,  or  the  products  ^  Uuited     States    v.    Joint    Traffic 

thereof,  shall  be  soid  by  the  owner  or  Ass'n,   171   U.  S.  566  (1898),  (19  Sup. 

owners,  whether  corporations  or  indi-  Ct.  Rep.  25). 
viduals.     It  is  equally  clear  that  Cuu- 

552 


CHAP.  XXXYIII.]      STATUTE  AND  ITS  CONSTITUTIONALITY.  §  381 

passengers  and  freight,  is  a  part  of  trade  and  commerce,  and 
when  transported  between  States  such  commerce  becomes 
what  is  described  as  interstate,  and  comes,  to  a  certain 
extent,  under  the  jurisdiction  of  Congress,  by  virtue  of  its 
power  to  regulate  commerce  among  the  several  States. 
Where  the  grantees  of  this  public  franchise  are  competing 
railroad  companies  for  interstate  commerce,  we  think  Con- 
gress is  competent  to  forbid  any  agreement  or  combination 
among  them  by  means  of  which  competition  is  to  be  smoth- 
ered. Although  the  franchise,  when  granted  by  the  State, 
becomes  by  the  grant  the  property  of  the  grantee,  yet  there 
are  some  regulations  respecting  the  exercise  of  such  grants 
which  Congress  may  make  under  its  power  to  regulate  com- 
merce among  the  several  States.  This  will  be  conceded  by 
all,  the  only  question  being  as  to  the  extent  of  the  power. 
We  think  it  extends,  at  least,  to  the  prohibition  of  contracts 
relating  to  interstate  commerce,  which  would  extinguish  all 
competition  between  otherwise  competing  railroad  corpora- 
tions, and  which  would,  in  that  way,  restrain  interstate  trade 
or  commerce.  .  .  .  The  prohibition  of  such  contracts  may, 
in  the  judgment  of  Congress,  be  one  of  the  reasonable 
necessities  for  the  proper  regulation  of  commerce,  and 
Congress  is  the  judge  of  such  necessity  and  propriety,  un- 
less, in  case  of  a  possible  gross  perversion  of  the  principle, 
the  courts  might  be  applied  to  for  relief." 

§  381,  Constitutionality  of  Statute  —  (C)  Statute  is  Constitu- 
tional. — •  It  follows,  as  a  corollary  to  the  conclusions  reached 
in  the  preceding  sections,  that  the  federal  anti-trust  statute, 
having  been  enacted  by  Congress  in  the  exercise  of  the  power 
conferred  upon  it  by  the  commerce  clause  of  the  Constitution, 
and  having  for  its  object  the  elimination  of  all  contracts, 
combinations  and  conspiracies  for  restraining  or  monopoliz- 
ing interstate  or  foreign  commerce,  is  constitutional ;  and  it 
has  been  so  held  by  the  Supreme  Court  of  the  United  States.^ 

1  Addyston  Pipe,  etc.  Co.  v.  United  See    also   United    States   v.   Trans- 

States,  175  U.  S.  211  (1899),  (20  Snp.  Mi.>^souri  Freight  Ass'n,  16G  U.  S.  290 
Ct.  Rep.  96);  United  St.ites  v.  Joint  (1897),  (17  Sup.  Ct.  Kep.  540);  United 
Traffic  Ass'n,  171  U.  S.  505  (1898),  (19  States  v.  .lellico  Mountain  Coal,  etc. 
Sup.  Ct.  Rep.  25).  Co.,  46  Fed.  432  (1891). 

553 


§  382  INTERCORPOIIATE    RELATIONS.  [PART    V. 

CHAPTER   XXXIX. 

CONSTRUCTION    AND    APPLICATION    OF    FEDERAL   STATUTE. 

§  382.     Title  of  Statute. 

§  383.     Use  of  I'hraae  "  Contract  in  Restraint  of  Trade." 

§  384.     Meaning  of  Term  "  Monopolize." 

§  383.     Meaning  of  Phrase,  "  I'raile  or  Commerce  among  the  Several  States." 

§  386.     Statute   applies   only   to    Kcstraints    upon    Interstate   ur   Jutcruatiunal 

Trade  or  Commerce. 
§  387.     Previuu.s  Legality  or  Keaflonableness  of  Restraint  immaterial. 
§  388.     Combination  must  have  Direct  Kffect  upon  Interstate  Commerce —  (A) 

In  (loncral. 
§389.     Combination  must  have  Direct  Effect  upon  Interstate  Commerce  —  (B) 

Combinations   of  Mauufacturent.     Distinction  between  Manufacture 

and  (^ummerce. 
§  390.     Combination  must  have  Direct  Effect  npon  Interstate  Commerce —  (C) 

Kcstraints  upon  Facilities  for  Commerce. 
§391.     Combination  must  have  Direct  llffect  upon  Interstate  Commerce — (D) 

Exchanges  and  Similar  Associations. 
§  392.     Statute  applies  to  Combinations  of  Railroad  Companies  and  other  Carriers. 
§  393.     Form  of  Combination  immaterial.     Illegality  of  Corporate  Device. 
§  394.     Statute  inapplicable  to  State's  Monopoly  and  to  Monopoly  under  Patent. 
§  395.     Statute  not  retroactive  bat  applies  to  Continuing  Combinations. 

§  382.  Title  of  Statute.  —  The  title  of  the  federal  anti-trust 
statute  is  "An  Act  to  protect  trade  and  commerce  from  un- 
lawful restraints  and  monopolies." 

The  body  of  the  act  declares  illegal  ^^  every  contract  .  .  . 
in  restraint  of  trade  or  commerce, "  etc.,  but  does  not  use  the 
word  "unlawful." 

It  seems  manifest  that  the  word  "unlawful"  in  the  title 
applies  to  the  acts  declared  illegal  in  the  body  of  the  act, 
without  regard  to  their  previous  illegality  at  common  law  or 
under  State  statutes.  In  the  Trans-Missoiiri  Freight  Asso- 
ciation Case,  however,  it  was  contended  that  the  title  indi- 
cated an  intention  to  include  only  those  contracts  which  were 
unlawful  at  common  law,  but  which  would  require  a  federal 
statute  to  be  dealt  with  in  a  federal  court.  In  answer  to 
this   contention,    Mr.   Justice  Pcckham  said:^  "It  is  said 

1  United    States    v.  Trans-Missouri  See  also  United  States  v.  Coal  Deal- 

Freight  Ass'n,  166  U.  S.  327  (1897),  (17     ers  Ass'n,  85  Fed.  261  (1898). 
Sup.  Ct.  Rep.  540). 

554 


CHAP.    XXXIX,]       CONSTRUCTION   AND    APPLICATION.  §  383 

that  when  terms  which  are  known  to  the  common  law  are 
used  iu  a  federal  statute,  those  terms  are  to  he  given  the 
same  meaning  that  they  received  at  common  law,  and  that 
when  the  language  of  the  title  is  to  '  protect  trade  and  com- 
merce against  unlawful  restraints  and  monopolies,'  it  means 
those  restraints  and  monopolies  which  the  common  law 
regarded  as  unlawful,  and  which  were  to  be  prohibited  by 
the  federal  statute.  We  are  of  opinion  that  the  language 
used  in  the  title  refers  to  and  includes,  and  was  intended  to 
include,  those  restraints  and  monopolies  which  are  made 
unlawful  in  the  body  of  the  statute.  It  is  to  the  statute 
itself  that  resort  must  be  had  to  learn  the  meaning  thereof, 
though  a  resort  to  the  title  here  creates  no  doubt  about  the 
meaning  of,  and  does  not  alter,  the  plain  language  contained 
in  its  text." 

§  383.  Use  of  Phrase  "  Contract  in  Restraint  of  Trade.  '  —  As 
already  shown,  while  the  phrase,  "  contract  in  restraint  of 
trade,"  has  acquired  a  well-defined  meaning  as  applying  to 
contracts  whereby  a  person  is  incidentally  restrained  from 
following  some  particular  trade,  business  or  occupation,  in 
modern  use  it  has  been  given  —  most  unwisely — a  broader 
meaning,  corresponding  with  the  signification  of  the  words 
composing  it.^ 

In  the  federal  statute,  it  is  clear  that  the  phrase  is  used  in 
a  broad  sense.  The  purpose  of  the  act  is  to  protect  inter- 
state trade  and  commerce,  and  its  application  can  hardly  be 
confined  to  a  class  of  contracts  which,  except  in  the  possible 
instance  of  a  collateral  agreement  to  refrain  from  engaging 
in  the  transportation  business,  could  not  directly  affect 
interstate  commerce  at  all.  In  fact,  the  Supreme  Court  of 
the  United  States  has  expressed  a  doubt  whether  contracts 
in  restraint  of  trade,  in  the  primary  sense,  come  within  the 
provisions  of  the  act.  In  the  Trans-Missouri  Freight  Asso- 
ciation Case, 2  Mr.  Justice  Peckham  again  said:  "A  contract 

1  Ante,  §  336 :  "  Modern  Use  of  Phrase  etc.  Co.  v.  United  States,  175  U.  S.  244 
'  Contract  in  Restraint  of  Trade: "  (1899),  (20   Sup.  Ct.  Rep.  96),  the  Su- 

2  United  States  v.  Trans-Missouri  prerae  Court  said  :  "  We  have  no  doubt 
Freight  Ass'n,  166  U.  S.  329  (1897),  (17  but  that  where  the  direct  and  imme- 
Sup.  Ct.  Rep.  540).     In  Addvston  Pipe,  diate  effect  of  a  contract  or  combina- 

555 


§  38-4  INTERCORPORATE   RELATIONS.  [PART    V. 

which  is  the  mere  accompaniment  of  the  sale  of  property, 
and  thus  entered  into  for  the  purpose  of  enhancing  the  price 
at  which  the  vendor  sells  it,  which,  in  effect,  is  collateral  to 
such  sale,  and  where  the  main  purpose  of  the  whole  contract 
is  accomplished  by  such  sale,  might  not  be  included  within 
the  title  or  the  spirit  of  the  statute  in  question." 

With  this  possible  exception  of  the  very  class  of  contracts 
which  arc  primarily  contracts  in  restraint  of  trade,  the  jJiraso 
"contract  in  restraint  of  trade"  as  used  in  the  statute,  in- 
cludes, adopting  the  language  of  the  Supreme  Court,  in  the 
case  referred  to,  "  all  kinds  of  those  contracts  which  in  fact 
restrain,  or  may  restrain,  trade. ''^ 

§  384.  Meaning  of  Term  "  Monopolize."  —  The  verb  "  monop- 
olize,"  as  used  in  the  second  section  of  the  statute,  clearly 
has  no  reference  to  the  acquisition  of  a  monopoly  through 
legislative  grant,  and,  upon  principle,  should  have  a  meaning 
corresponding  to  that  attaching  to  the  noun  "moiU)poly,"  in 
modern  use.^  The  word  "monopolies"  in  the  title  of  the 
act  is  also  used  in  the  modern  and  commercial  sense. 

The  term  "monopolize  "  as  used  in  this  act,  moreover,  has 
been  specifically  defined: 

Monopolize:  *'To  secure  or  acquire  an  exclusive  right  in 
such  [interstate]  commerce  by  means  which  prevent  others 
from  engaging  therein.  "^ 

tion    among    particular    dealers    in   a  meaning  of  the  federal  anti-trust  stat- 

commodity   is  to   destroy   competition  ute.    United  States  f.  Greenhut,  51  Fed. 

between  them  and  others  so  that  the  21.3  (1892).     /n  re  Corning,  .51  Fed.  20.'> 

parties  to  the  contract  or  combination  (1892) ; /n  reTerrill,  51  Fed.213  (1892) ; 

may  obtain  increased  prices  for  them-  In  re  Greene,  52  Fed.  104  (1892). 
selves,   such   contract    or   combination  It  must  be  observed,  however,  that 

amounts  to  a  restraint  of  trade  in  tlie  the  earlier  decisions  of  the  circuit  and 

commodity,   even   though   contracts  to  district   courts  construing  the   federal 

bay  such   commodity  at  the  enhanced  statute    can    only   be    safely   followed 

price  are  continually  being  made.    Total  when   read   in   the   light  of  the   later 

suppression  of  the  trade  in  a  commodity  decisions  of  the  Supreme  Court  of  the 

is  not  necessary  in  order  to  render  the  United  States  definitely  construing  its 

combination  one  in  restraint  of  trade."  provisions. 

Agreements  by  dealers  to  purchase  ^  Ante,  §.332:  "Modern  Use  of  Term 

all  of  a  certain  product  used  by  them  '  Monopoly.'  " 

from  a  producer  controlling  tlie  greater  ^  j^  ^g  Greene,  52  Fed.  115  (1892) : 

part  of  such  product,  in  consideration  of  "  A  '  monopoly,'  in  the  prohibited  sense, 

rebates,  have  been  held  not  to  be  con-  involves  the  element   of   an   exclusive 

tracts  in  restraint  of  trade  within  the  privilege    or    grant    which    restrained 

556 


CHAP.    XXXIX.]      CONSTRUCTION   AND  APPLICATION. 


§384 


The  word,  as  so  used,  has  also  been  defined  in  more  general 
terms : 

3Ionopolize :  "To  'aggregate'  or  'concentrate'  in  the 
hands  of  a  few,  practically  and  as  a  matter  of  fact,  and 
according  to  the  known  results  of  human  action,  to  the 
exclusion  of  others."^ 


others  from  the  exercise  of  a  right 
or  liberty  which  they  had  before  the 
monopoly  was  secured.  In  commercial 
law,  it  is  the  abuse  of  free  commerce, 
by  which  one  or  more  individuals  have 
procured  the  advantage  of  selling  alone 
or  exclusively  all  of  a  particular  kind  of 
merchandise  or  commodity  to  the  detri- 
ment of  the  public.  As  defined  by 
Blackstone  (4  Bl.  Com.  159),  and  by 
Lord  Coke  (3  Co.  Inst.  181 ),  it  is  a  grant 
from  the  sovereign  power  of  the  State 
by  commission,  letters  patent,  or  other- 
wise, to  any  person  or  corporation,  by 
which  the  exclusive  right  of  buying. 
Belling,  making,  working,  or  using  any- 
thing is  given.  When  this  section  of 
the  act  was  under  consideration  in  the 
Senate,  distinguished  members  of  its  ju- 
dicial committee  and  lawyers  of  great 
ability  explained  what  they  understood 
the  term  '  monopoly '  to  mean  ;  one  of 
them  saying  :  '  It  is  the  sole  engrossing 
to  a  man's  self  by  means  wliich  prevent 
other  men  from  engaging  in  fair  com- 
petition with  him.'  Another  senator 
defined  the  term  in  the  language  of 
Webster's  Dictionary  :  '  To  engross  or 
obtain,  by  any  means,  the  exclusive 
right,  especially  of  the  right  of  trading, 
to  any  place  or  with  any  country  or  dis- 
trict ;  as  to  monopolize  tlie  India  or 
Levant  trade.'  It  will  be  noticed  that, 
in  the  foregoing  definitions  of  '  mo- 
nopoly,' there  is  embraced  two  leading 
elements,  viz.,  an  exclusive  right  or 
privilege,  on  the  one  side,  and  a  restric- 
tion or  restraint  on  the  other,  which  will 
operate  to  prevent  the  exercise  of  a  riglit 
or  liberty  open  to  the  public  before  the 
monopoly  was  secured.  This  being,  as 
we  think,  the  general  meaning  of  the 
term,  as  employed  in  the  second  section 
of  the  statute,  an  '  attempt  to  monopo- 


lize '  any  part  of  the  trade  or  commerce 
among  the  States  must  be  an  attempt 
to  secure  or  actjuire  an  exclusive  right 
in  such  trade  or  commerce  by  means 
which  prevent  or  restrain  others  from 
engaging  therein." 

1  In  American  Biscuit,  etc.  Co.  v. 
Klotz,  44  Fed.  724  (1891),  the  Court 
thus  discussed  the  meaning  of  the  word 
"  monopolize,"  as  used  in  the  federal 
anti-trust  law  and  in  the  Louisiana 
statute  {post,  §  40.5,  note)  :  "  In  constru- 
ing the  federal  and  State  statutes,  we 
exclude  from  consideration  all  monopo- 
lies which  exist  by  legislative  grant ;  for 
we  think  the  word  '  monopolize  '  cannot 
be  intended  to  be  used  with  reference 
to  the  acquisition  of  exclusive  rights 
under  government  concession,  but  that 
the  law-maker  has  used  the  word  to 
mean  '  to  aggregate  '  or  '  concentrate'  in 
the  hands  of  a  few,  practically,  and,  as 
a  matter  of  fact,  and  according  to  the 
known  results  of  human  action,  to  the 
exclusion  of  others  ;  to  accomplish  this 
end  by  what,  in  popular  language  is  ex- 
pressed in  tlie  word  '  pooling,'  which 
may  be  defined  to  be  an  aggregation  of 
property  or  capital  belonging  to  differ- 
ent persons,  with  a  view  to  common  lia- 
bilities and  profits.  .  .  .  One  just  and 
decisive  test  of  the  meaning  of  the  ex- 
pression '  to  mouopulize,'  is  obtained  by 
getting  at  the  evil  which  the  law-maker 
has  endeavored  to  abolisli  and  restrict. 
The  statutes  show  that  the  evil  was  the 
hindrance  and  oppression  in  trade  and 
commerce  wrought  by  its  .absorption  in 
the  bauds  of  the  few,  so  tiiat  the  prices 
would  be  in  danger  of  being  arbitrarily 
and  exorbitantly  fixed,  because  all  com- 
petition would  be  SAvallowed  up,  so  that 
the  man  of  small  means  would  find  him- 
self excluded  from  the   restrained   oi 

657 


§  385  INTERCORPORATE  RELATIONS.  [PART    V. 

The  second  section  of  the  statute,  in  so  far  as  it  provides 
a  penalty  for  the  act  of  a  particular  person  or  corporation  in 
monopolizing  trade  or  commerce,  has  no  relation  to  combina- 
tions; and,  in  so  far  as  it  relates  to  combinations  of  per- 
sons or  corporations  for  such  puri)ose,  only  includes  offences 
already  covered  by  the  provisions  of  the  first  section.  Every 
combination  or  conspiracy  to  monopolize  trade  is  a  combina- 
tion or  conspiracy  in  restraint  of  trade. 

In  order  to  brinn;  a  coml)inati()n  within  the  second  section 
of  the  act,  it  is  not  necessary  that  the  result  of  its  operation 
should  be  complete  monopoly,  nor  that  it  should  have  resulted 
in  actual  injury  to  the  public.  The  essential  question  is 
whether  the  contract  confers  power  to  monopolize.^ 

§  385.  Meaning  of  Phrase,  "  Trade  or  Commerce  among  the 
Several  States."  —  The  use  of  both  the  terms  "trade"  and 
"commerce"  in  the  statute  —  especially  disjunctively  —  in- 
dicates a  belief  on  the  part  of  the  framers  of  the  act  that  a 
wider  commercial  field  was  thereby  covered  than  by  the  use 
of  the  term  "commerce"  alone.  Such  is  not  the  case.  The 
word  "trade"  is  used  in  the  sense  of  trafiic  and,  broadly 
speaking,  all  trafiic  is  commerce,  although  all  commerce  is 
not  tradic^     In  the  often    quoted   words  of   Chief   Justice 

monopolized    trade    or    commerce    as  able  it  to  exercise  a  larpe  influence  in 

absolutely   as   if   kept   out    by   law  or  those  markets  in  regulating  the  supply 

force."  and  the  ])ricos  of  coal  and  coke.    These 

^  United  States  v.  E.  C  Knight  Co.,  provisions  are  in  restraint  of  trade,  and 

156  U.  S.  16  (1895),  (15  Sup.  Ct.  Rep.  tend  to  monopoly,  within  the  meaning 

249) :  "  Again,  all  authorities  agree  that  of  the  Act  of  Congress,  and  render  the 

in  order  to  vitiate  a  contract  or  combi-  contract  illegal,  in  so  far  as  it  relates  to 

nation  it  is  not  essential  that  its  result  interstate   commerce.      The  important 

should  be  a  complete  monopoly  ;  it  is  question  is  not  whether  the  perform- 

sufficient  if  it  really  tends  to  that  end  ance  of  the  contract  so  far  has  resulted 

and    to    deprive    the     public    of     the  in  actual  injury  to  trade,  but  whether 

advantages  which  flow  from  free  com-  thCy^contract  confers  power  to  regulate 

petition."  and  restrain  trade,  upon  those  charged 

United    States   i'.   Chesapeake,   etc.  with  its  performance." 

Fuel  Co.,  105  Fed.  104  (1900)  affirmed  As  indicated  by  the  language  of  the 

115    Fed.   610    (1902):    "All   competi-  last  decision  the  principles  there  stated 

tion  among  the  members  of  the  associa-  are  equally  applicable  to  combinations  in 

tion  in  the  production,  shipment,  and  restraint  of  trade  under  the  first  section 

sale  of  their  product  is  eliminated,  and  of  the  act. 

the   combination    enters   the  Western  -  In  United  States  i'.  Debs,  64  Fed. 

markets  clothed  with  powers  which  en-  751   (1894),  Judge  "Woods  said  in  ref- 

658 


CHAP.    XXXIX.]      CONSTRUCTION   AND    APPLICATION. 


§385 


Marshall  in  the  first  interstate  commerce  case:^  "Com- 
merce, undoubtedly,  is  traffic,  but  it  is  something  more:  it 
is  intercourse.  It  describes  the  conmiercial  intercourse 
between  nations,  and  parts  of  nations,  in  all  its  branches, 
and  is  regulated  by  prescribing  rules  for  carrying  on  that 
intercourse. " 

The  word  "trade"  in  the  act,  in  legal  effect,  is  super- 
fluous, although  it  is  so  woven  into  the  decisions  construing 
the  act  that  it  may  not  be  disregarded.  It  covers  nothing 
not  embraced  by  the  word  "commerce;"  and  if  it  did,  the 
act  would  be  unconstitutional.  Congress  has  power  to 
regulate  commerce.  It  may  regulate  trade  only  if  trade 
is  commerce.     The  phrase  "trade  or  commerce  among  the 


erence  to  the  federal  statute  :  "  I  am 
unable  to  regard  the  word  '  commerce,' 
in  this  statute,  as  synonymous  with 
'  trade,'  as  used  in  the  common  law 
phrase  '  restraint  of  trade.'  In  its  gen- 
eral sense,  trade  comprehends  every 
species  of  exchange  or  dealing,  but  its 
chief  use  is  '  to  denote  the  barter  or 
purchase  and  sale  of  goods,  wares,  and 
merchandise,  either  by  wholesale  or  re- 
tail,' and  so  it  is  used  in  the  phrase  men- 
tioned. But  '  commerce  '  is  a  broader 
term.  It  is  the  word  in  that  clause  of 
the  constitution  by  which  power  is  con- 
ferred on  Congress  '  to  regulate  com- 
merce with  foreign  nations,  and  among 
the  several  States,  and  with  the  Indian 
Tribes.'  Const.  U.  S.  Art.  I.  §  8.  In  a 
broader  and  more  distinct  exercise  of 
that  power  than  ever  before  asserted 
Congress  passed  the  enactments  of  1887 
and  1888  known  as  the  'Interstate  Com- 
merce Law.'  The  present  statute  is 
another  exercise  of  that  constitutional 
power,  and  the  word  '  commerce,'  as 
used  in  that  statute,  as  it  seems  to  me, 
need  not  and  should  not  be  given  a 
meaning  more  restricted  than  it  has  in 
the  Constitution.  .  .  .  These  definitions 
and  expositions  of  the  scope  and  law  of 
interstate  commerce,  except  the  last, 
preceded  the  enactment  b}*  Congress 
on  the  subject.  It  was  therefore  of 
commerce    so   defined,   embracing    all 


instrumentalities  and  subjects  of  trans- 
portation among  the  States,  that  Con- 
gress, by  that  legislation,  assumed  the 
control ;  and  I  see  no  reason  for  think- 
ing that,  as  employed  in  the  act  of  1890, 
which  is  essentially  supplemental  of  the 
other  acts,  the  word  was  intended  to  be 
less  comprehensive." 

In  In  re  Debs,  158  U.  S.  564  (1895), 
(15  Sup.  Ct.  Rep.  900),  the  Supreme 
Court  of  the  United  States  did  not  pass 
upon  the  question  considered  by  Judge 
Woods  in  reference  to  the  anti-trust 
act. 

With  reference  to  the  provision  in 
the  Texas  anti-trust  statute  making  un- 
lawful, comliinations  to  "  create  or  carrv 
out  restrictions  in  trade,"  the  Court 
in  Queen  Ins.  Co.  v.  State  (Tex.  1893), 
22  S.  W.  Kep.  1048,  22  L.  K.  A.  490, 
said  :  "  In  ordinary  language  the  word 
'  trade,'  is  employed  in  three  different 
senses  :  First,  in  that  of  the  business  of 
buying  and  selling ;  second,  in  that  of 
an  occupation  generally ;  and,  third, 
in  that  of  a  mechanical  employment  in 
contradistinction  to  agriculture  and  the 
liberal  arts.  Ordinarilv,  when  we  speak 
of  '  trade.'  we  mean  commerce,  or  some- 
thing of  that  nature  ;  when  we  s])eak  of 
'  a  trade,'  we  mean  an  occupation  in  the 
more  general  or  the  limited  sense." 

1  Gibbons  V.  Og.leu,  9  Wheat.  (U.  S.) 
189  (1824). 

559 


§  386 


INTERCORPORATE   RELATIONS. 


[I'AUT    V. 


several  States"  means  interstate  commerce  —  nothing  more 
or  less. 

Interstate  commerce  consists  of  intercourse  and  traflTic 
between  citizens  or  inhabitants  of  dilTcrcnt  States,  and 
includes  the  purchase,  sale  and  exchange  of  commodities, 
and  the  transportation  of  persons  and  property.* 

§  38G.  Statute  applies  only  to  Restraints  upon  Interstate  or 
International  Trade  or  Commerce.  — The  statute  dcchires  all 
contracts,  combinations  and  conspiracies  "in  restraint  of 
trade  or  commerce  anionic  the  several  States,  or  with  foreign 
nations,"  illegal.  It  deals  only  with  restraints  upon  those 
forms  of  commerce  which  Congress  has  power  to  regulate 
and,  in  law,  as  upon  its  face,  is  apjdicablc  only  to  contracts, 
combinations  or  conspiracies,  in  restraint  of,  or  for  the  pur- 
pose of  monopolizing,  interstate  or  international  commerce.'^ 


*  Addyston  Pipe,  etc.  Co.  v.  United 
States,  175  U.  S.  241  (1809),  (20  Sup. 
Ct.  Hep.  96)  {per  reckham,  J.):  "As 
has  frequently  been  said,  interstate 
commerce  consists  of  intercourse  and 
traffic  between  the  citizens  or  inhabi- 
tants of  different  States,  and  includes 
not  only  tlie  transportation  of  persons 
and  property  and  the  navigation  of 
public  waters  for  tliat  purpose,  but  also 
the  purchase,  sale  and  excliauge  of 
commodities." 

Hopkins  v.  United  States,  171  U.  S. 
597  (189S),  (19  Sup.  Ct.  Hop.  40),  (also 
per  Peckham,  J.) :  "  Definitions  as  to 
what  constitutes  interstate  commerce 
are  not  easily  given  so  that  they  shall 
clearly  define  the  full  meaning  of  the 
term.  We  know  from  the  cases  decided 
in  this  court  that  it  is  a  term  of  very 
large  significance.  It  comprehends,  as 
it  is  said,  intercourse  for  the  purposes 
of  trade  in  any  and  all  its  forms,  includ- 
ing transportation,  purchase,  sale  and 
exchange  of  commodities  between  the, 
citizens  of  different  State's,  and  the 
power  to  regulate  it  embraces  all  the  in- 
struments by  which  such  commerce  may 
be  conducted." 

See  also  United  States  v.  E.  C.  Knight 
Co.,  156  U.  S.  1  (1805).  (15  Sup.  Ct.  Hep. 

5G0 


249)  ;  Hooper  r.  California,  155  U.  R. 
633  (1895),  (15  Snp.  Ct.  Hep.  207); 
Gloucester  Ferry  ('o.  v.  Pennsylvania, 
114  U.  S.  196  (1885).  (5  Sup.  Ct.  Hi-p. 
826)  ;  County  of  Mobile  i'.  Kimball,  102 
U.  S.  691  (1880). 

In  In  re  Greene,  52  Fed.  113  (1802), 
Judge  Jackson  said  :  "Commerce  among 
the  States,  within  the  exclusive  regulat- 
ing power  of  Congress,  consists  of  inter- 
course and  traffic  between  their  citizens, 
and  includes  the  transportation  of 
persons  and  j)ropcrty,  as  well  as  the 
purchase,  sale,  and  exchange  of  com- 
modities. ...  In  the  apjdication  of  this 
comprehensive  definition,  it  is  settled 
by  the  decisions  of  the  Supreme  Court 
that  such  commerce  includes,  not  only 
the  actual  transportation  of  commodi- 
ties and  persons  between  tlie  States,  but 
also  the  instrumentalities  and  processes 
of  such  transportation.  That  it  includes 
all  the  negotiations  and  contracts  which 
have  for  their  object,  or  involve,  as  an 
element  thereof,  such  transmission  or 
passage  from  one  State  to  another." 

2  Addyston  Pipe,  etc.  Co.  v.  United 
States,  175  U.  S.  211  (1899),  (20  Snp. 
Ct.  Rep.  96) ;  United  States  v.  Joint 
Traffic  Ass'n,  171  U.  S.  558  (1898,  (19 
Sup.  Ct.  Rep.  25) ;  Hopkins  v.  United 


CUAP.    XXXIX.]      CONSTRUCTION    AND    APPLICATION.  §  387 

In  Hopkins  v.  United  States'^  the  Supreme  Court  of  the 
United  States  said :  "  The  act  has  reference  only  to  that 
trade  or  commerce  which  exists,  or  may  exist,  anion<^  the 
several  States  or  with  foreign  nations,  and  has  no  applica- 
tion whatever  to  any  other  trade  or  commerce." 

§  387.  Previous  Legality  or  Reasonableness  of  Restraint 
immaterial.  — The  statute  declares  every  contract  in  restraint 
of  interstate  trade  or  commerce,  without  exception  or  limi- 
tation, illegal.  The  extent  of  the  restraint  imposed  is  not 
material.  The  essential  question,  in  any  case,  is  whether  the 
contract  under  consideration  directly  imj)oses  any  restraint 
whatever.  If  it  does,  no  matter  how  slight  or  how  reason- 
able, it  is  within  the  prohibition  of  the  statute. 

Contracts  and  combinations  in  unreasonable  restraint  of 
trade  were  illegal  before  the  enactment  of  this  statute,  and 
a  construction  limiting  its  application  to  that  class  of  con- 
tracts would  deprive  it  of  any  efficacy  in  "protecting  trade 
and  commerce,"  except  as  imposing  additional  penalties  for 
existing  offences,  and  would  constitute  judicial  legislation 
by  reading  into  the  statute  that  which  Congress  did  not 
choose  to  place  there.  As  said  by  the  Suj)reme  Court  of 
the  United  States i^  "By  the  simple  use  of  the  term  'con- 
States,  171  U.  S.  558(1898),  (19  Sup.  otherwise,  or  conspiracy  in  restraint  of 
Ct.  Rep.  40)  ;  United  States  v.  Trans-  trade  or  commerce,  does  not  mean  what 
Missouri  Freight  Ass'n,  166  U.  S.  290  the  language  used  therein  plainly 
(1897),  (17  Sup.  Ct.  Hep.  540)  ;  United  imports,  but  that  it  only  means  to 
States  V.  E.  C.  Knight  Co.,  156  U.  S.  1  declare  illegal  any  such  contract  which 
(1895),  (15  Sup.  Ct.  Hep.  249)  ;  Gibbs  I',  is  in  unreasonable  restraint  of  trade, 
McNeeley,  107  Fed.  210  (1901),  Dueber  while  leaving  all  others  unaffected  by 
Watch-Case  Mfg.  Co.  v.  Howard  Watch,  the  provisions  of  the  act ;  that  the 
etc.  Co.,  66  Fed.  639  (1895);  National  common-law  meaning  of  the  term  "  con- 
Distilling  Co.  V.  Cream  City  Importing  tract  in  restraint  of  trade  "  includes 
Co.,  86  Wis.  352  (1893),  (39  Am.  St.  only  such  contracts  as  are  in  unreason- 
Rep.  902).  able  restraint  of  trade,  and  when  that 

1  Hopkins  v.  United  States,  171  term  is  used  in  the  federal  statute,  it  is 
U.  S.  586  (1898),  (19  Sup.  Ct.  Hep.  40).     not  intended  to  include  all  contracts  in 

2  United  States  v.  Trans-Missouri  restraint  of  trade,  but  only  those  wliich 
Freight  Ass'n,  166  U.  S.  328  (1897),  are  in  unreasonable  restraint  thereof. 
(17  Sup.  Ct.  Kep.  540).  In  reachingthe  The  term  is  not  of  such  limited  sig- 
conclusion  stated  in  the  text  Mr.  Justice  nification.  Contracts  in  restraint  of 
Peckham  said  :  "  It  is  now  with  much  trade  have  been  known  and  spoken  of 
amplification  of  argument  urged  that  for  hundreds  of  years,  both  in  F-ngland 
the  statute,  in  declaring  illegal  every  and  tliis  country,  and  the  term  includes 
combination  in   the   form   of   trust   or     all   kinds  of  those  contracts  which  in 

36  661 


§  388  INTERCORPORATE  RELATIONS.  [PART    V. 

tract  in  restraint  of  trade,'  all  contracts  of  that  nature, 
whether  valid  or  otherwise,  would  be  included,  and  not  alone 
that  kind  of  contract  which  was  invalid  and  unenforceable  as 
being  in  unreasonable  restraint  of  trade.  When,  therefore, 
the  body  of  an  act  pronounces  as  illetral  every  contract  or 
combination  in  restraint  of  trade  or  commerce  among  the 
several  States,  etc.,  the  plain  and  ordinary  meaning  of  such 
language  is  not  limited  to  that  kind  of  contract  alone  which 
is  in  unreasonable  restraint  of  trade,  but  all  contracts  are 
included  in  such  language,  and  no  exception  or  limitation 
can  be  added  without  placing  in  the  act  that  which  has  been 
omitted  by  Congress." 

§  388.  Combination  must  have  Direct  Effect  upon  Interstato 
Commerce  —  (A)  In  General.  —  There  arc  few  commercial  con- 
tracts or  comljinations  which  cannot  be  said  to  have,  indi- 
rectly or  remotely,  some  bearing  upon  interstate  commerce 
and,  possibly,  to  restrain  it.  Private  enterprises  may  be 
carried  on  by  means  of  interstate  shipments.  Articles  may 
be  manufactured  which  the  manufacturer  intends  to  sell  in 
another  State.  Combinations  may  be  formed  which  result 
in  enhancing  the  cost  of  conducting  an  interstate  business. 
These  agreements,  and  others  of  a  similar  nature  which 
readily  suggest  themselves,  may  affect  —  and,  perhaps,  inter- 
fere Avith  —  interstate  commerce  without  contravening  the 
federal  statute,  because  the  restraint  produced  is  not  direct.^ 

fact    restrain    or    may   restrain   trade.  United   States  r.  Coal   Dealers  Ass'n, 

Some  of  such  contracts  liave  been  held  85  ¥e(\.  261  (1898). 

void   and   uuenforcealde  in  the   courts  In  the  Trans-Missouri  Freight  Ass'n 

by  reason  of  their  restraint  being  un-  Case  Justice  White  delivered  an  elabo- 

reasonable,    while    others    have    been  rate   dissenting  opinion,   concurred   in 

held  valid  because  they  were  not  of  that  by  Justices  Field,  Gray  and  Shiras,  in 

nature.    A  contract  may  be  in  restraint  whicli  he  reached   the  conclusion   that 

of  trade  and  still  be  valid  at  common  the  act  applied  only  to  contracts  in  un- 

law.     Although  valid,  it  is  nevertheless  reasonable  restraint  of  trade.    The  same 

a   contract   in   restraint   of   trade    and  view  was  also  expressed  in  the  earlier 

would  be  so  described  either  at  common  cases  of  Prescott,  etc.  R.  Co.  r.  Atchi- 

law  or  elsewhere."  son,  etc.  R.  Co.,    73   Fed.  4.38  (1896); 

See    also    United    States    v.    Joint  Dueber  Watch  Case  Mfg.  Co.  v.  Howard 

Traffic  Ass'n,  171  U.  S.  505  (1898),  (19  Watch,  etc.  Co.,  66  Fed.  6.37  (1895) ;  In 

Sup.    Ct.   Rep.    25);    United    States  v.  re  Greene,   52  Fed.   104  (1892);  In   re 

Chesapeake,  etc.  Fuel  Co..  105  Feil.  104  Nelson,  52  Fed.  647  (1892). 

(1900);  affirmed  115  Fed.  610  (1902);  l  Addyston  Pipe,  etc.  Co.  v.  United 

562 


CHAP.    XXXIX,]      CONSTRUCTION    AND   APPLICATION. 


§  388 


The  statute  must  receive  a  reasonable  construction,^  and  a 
combination  or  contract,  to  fall  within  the  provisions,  must 


States,  175  U.  S.  246  (1899),  (20  Snp.  Ct. 
Rep.  96) :  "  It  is  almost  needless  to  add 
that  we  do  not  hold  that  every  private 
enterprise  wliicli  may  be  carried  on, 
chiefly  or  in  part,  by  means  of  interstate 
shipments,  is,  therefore,  to  be  regarded 
as  so  related  to  interstate  commerce  as 
to  come  witliiu  the  regulating  power  of 
Congress.  Such  enterprises  may  be  of 
the  same  nature  as  the  manufacturing 
of  refined  sugar  in  the  Knight  Case, 
(United  States  v.  E.  C.  Knight  Co., 
156  U.  S.  1)  (1895),  (15  Sup.  Ct.  Kep. 
249))  — tliat  is,  the  parties  may  be  eu- 
gaged  as  manufacturers  of  a  commodity 
wliich  they  thereafter  intend  at  some 
time  to  sell,  and,  possibly,  to  sell  in 
another  State  ;  but  such  sale,  as  we  liave 
already  held,  is  an  incident  to  and  not 
the  direct  result  of  the  manufacture, 
and  so  is  not  a  regulation  of,  or  an 
illegal  interference  with  interstate 
commerce." 

Hopkins  v.  United  States,  171  U.  S. 
592  (1898),  (19  Sup.  Ct.  Rep.  40)  :  "  Tiie 
contract  condemned  by  the  statute  is 
one  whose  direct  and  immediate  effect 
is  a  restraint  u])on  tliat  kind  of  trade 
or  commerce  which  is  interstate.  .  .  . 
To  treat  as  condemned  by  the  act  all 
agreements  under  which,  as  a  result, 
the  cost  of  conducting  an  interstate 
business  may  be  increa.sed  would  en- 
large the  application  of  the  act  far 
beyond  the  fair  meaning  of  the  lan- 
guage used.  There  must  be  some 
direct  and  immediate  effect  upon  inter- 
state commerce  to  come  within  the 
act.  .  .  .  Many  agreements  suggest 
themselves  which  relate  only  to  facil- 
ities furnished  commerce,  or  else  touch 
it  in  an  indirect  way,  while  possibly 
enhancing  the  cost  of  transacting  the 
business,  and  which,  at  the  same  time, 
we  would  not  think  of  as  agreements 
in  restraint  of  interstate  trade  or  com- 
merce. .  .  .  An  agreement  may  in  a 
variety  of  ways  affect  interstate  com- 
merce just  as  state  legislation  may,  and 


yet,  like  it,  be  entirely  valid,  because 
the  interference  produced  by  the  agree- 
ment, or  by  the  legislation,  is  not 
direct." 

Anderson  v.  United  States,  171  U.  S. 
615  (1898),  (19  Sup.  Ct.  Rep.  50)  :  "It 
has  already  been  stated  in  the  Hopkins 
case,  above  mentioned,  that,  in  order  to 
come  within  the  provisions  of  the 
statute,  the  direct  effect  of  an  agree- 
ment or  combination  must  be  in  re- 
straint of  that  trade  or  commerce 
which  is  among  the  several  States  or 
with  foreign  nations." 

United  States  v.  Joint  Traffic  Ass'n, 
171  U.  S.  569  (1898),  (19  Sup.  Ct.  Rep. 
25) :  "  The  effect  upon  interstate  com- 
merce must  not  be  indirect  or  inci- 
dental only.  An  agreement  entered 
into  for  the  purpose  of  promoting  the 
legitimate  business  of  an  individual  or 
corporation  with  no  purj)ose  to  thereby 
affect  or  restrain  commerce  is  not,  as 
we  think,  covered  by  the  act,  although 
the  agreement  may  indirectly  and  re- 
motely affect  that  commerce." 

See  also  United  States  r.  Trans- 
Missouri  Freight  Ass'n,  166  U.  S.  290 
(1897),  (17  Sup.  Ct.  Rep.  540)  ;  United 
States  V.  E.  C.  Knight  Co.,  156  V.  S. 
12  (1895),  (15  Sup.  Ct.  Rep.  249) ;  Union 
Sewer  Pipe  Co.  v.  Connolly,  99  Fed.  354 
(1900);  affirmed  184  U.  S.  .540  (1902)  ; 
United  States  v.  Coal  Dealers  Ass'n, 
85  Fed.  252  (1898);  United  States  v. 
Chesapeake,  etc.  Fuel  Co.,  105  Fed.  93 
(1900);  affi'rmed  115  Fed.  610  (1902); 
Lowry  i-.  Tile,  etc.  Ass'n,  106  Fed.  38 
(1900)  ;  United  States  r.  Jellico  Moun- 
tain Coal.  etc.  Co..  46  Fed.  432  (1891). 

1  Hopkins  v.  United  States,  171 
U.  S.  600  (1898),  (19  Sup.  Ct.  Rep.  40)  : 
"  The  act  of  Congress  must  have  a 
reasonable  construction  or  else  there 
would  scarcely  be  an  agreement  or  con- 
tract among  business  men  that  could 
not  be  said  to  have,  indirectly  or  re- 
motely, some  bearing  ujiou  interstate 
commerce  and  possibly  to  restrain  it." 

563 


§389 


INTERCORPORATE   RELATIONS. 


[part  V. 


havo  some  direct  and  immediate  effect  in  restraint  of  com- 
morce  amonj^  the  States.  It  is  inapplicable  to  comliina- 
tioMs  w'liosc  cfTcct  upon  interstate  commerce  is  indirect  or 
incidental  only. 

§  889.  Combination  must  have  Direct  Effect  upon  Interstate 
Commerce — (B)  Combinations  of  Manufacturers.  Distinction  be- 
tween Manufacture  and  Commerce.  —  Manufactiirt'  irt  traii.sfor- 
mation.  C<>iijiu«ree  is  iiitircoursr.  *  "Commrrce  siicclmmIs 
to  manufacture  and  is  not  a  part  of  it.'"''  Kodiicinf^  raw 
materials  into  finished  j)ri>diiets  directly  involves  neitlier 
transf)ortation  nor  tratVic.  Comnuree  —  State  and  interstate 
—  begins  only  when  the  process  of  manufacture  is  compli'ted. 
The  article  produced,  itself,  becomes  the  subject  of  intiT- 
Btate  commerro  only  when  its  transfM)rtation  from  one  State 
to    another    conumnces.'^     The    purpose    and    intent    of    the 

'  In  Kidil  r.  IVarson,  I2«  I'.  S.  20  tho  wheat  (fnmrr  of  tho  Northwest, 
(188S),  (9  Sup.  f'l    l{rp.  f>).  Mr   Ji«tir«i     snil    Ihc  roU-.a    planter  i.f  the   .S<iuth. 


I^aninr  itniil :  "  No  ilintimtion  i»  niort* 
populur  to  thu  roninioii  ntind,  or  mure 
clenrly  cxprvwrti  iu  economic  and  puliti- 
cal  litcraturv,  than  ihnt  brlwern  manu- 
faituro  and  rtiniiiu^rcc.  Mantifarturc 
i'i  tran.tforniatioD  —  tho  foAliionin^  uf 
raw  matcriaU  into  a  change  of  form 
for    u»('.     Tho   functionii    «>f   conunm-o 


plant,  rattivato,  and  hnr«r«t  hiii  crop 
with  an  i\vo  on  the  pnccii  at  I.i«iT|M>ol, 
N«'w  York  and  Chicjifjo  »  The  |Miwer 
being  vmtrd  in  ('on^frrM  ami  denied 
to  tho  Siatcn,  it  would  follow  an  on 
inevitable  rvitull  that  tho  dutr  would 
devolve  on  (^imyrt***  to  rc(;nlat<<  all  of 
theav  delicate,  multiform,  and  vital  utter- 


arc  diffRrent.     The  buvin;;  and  iMdlinj;     est»  —  uitrrr.^t^    whiili    in  their    nature 
ami  tlie  tmniiportation  in<-id<-ntal  therrto     are.  and  munt  l>«.  local  in  all  tho  details 


cunnticnte  rummcrce  ;  and  the  rrj^ulatiou 
of  commerce  in  the  constitutional  iwnM) 
eml>raccs  tho  regulation  nt  loa«t  of  luch 
tran.sportation.  .  .  .  If  it  )>o  held  that 
the  term  includcii  tho  regulation  of  all 
such  manufactures  oa  arc  intended  to 
be    the    suliject   of    commercial    tran*- 


of  their  KDcccsiiful  management." 

'  I'nitcd  StaU-n  r.  K.  C.  Knight  Co. 

156  I'.  S.  12  (I89J),  (15  Snp.  Cl.   Hop. 

'.'■»•-•). 

'  In  re  Greene,  S2  Fed.   US  (1892), 

(Jackiion,  J.) ;  "  When  c«>mmcn-e  b«<gius 

w  iletermined  not  bv  the    chara«-lrr  of 


actions  in  the  future,  it  is  imposttilde  to  tho  rommotliir,  nor  l>y  tho  intention  of 
deny  that  it  would  also  include  all  the  tho  owner  to  transfer  it  to  another 
productive  industrie.s  that  contemplate  State  for  nale,  nor  by  Li«  preparation  of 
the  same  thing.  Tho  result  Wi>uld  lio  it  for  tran.<i{>ortation.  but  by  its  nctnal 
that  Cunjrress  would  be  invested,  to  tho  delivery  to  a  common  carrier  for  trans- 
exclusion  of  tiie  States,  with  the  power  portation.  or  the  actnal  commem  ement 
to  regulate,  not  only  m.mufactures,  bat  of  its  transfer  to  another  State.  At 
also  agriculture,  horticulture,  stock  rais-  that  time  the  jiower  ami  regulating 
iug,    domestic     fisheries,     mining  —  iu  authority  of  the  St.atea  cea.'tes.  and  that 


short,  every  branch  of  human  industry. 
For  is  there  one  of  them  that  dues  not 
contemplate,  more  or  lesj*  clearly,  an  in- 
terstate or  foreign  market  ?     Docs  not 

5G4 


of  Congress  attaches  and  continues, 
until  it  has  reached  another  State,  and 
becomes  mingled  with  the  general 
ma£s  of   property  in  the   latter  State. 


CHAP.    XXXIX.]       CONSTRUCTION    AND    APPLICATION. 


389 


manufacturer  in  producing  it   do   not   determine   when    or 
whether  it  belongs  to  interstate  commerce.^ 

Contracts  for  the  sale  and  transportation  across  State  lines 
of  manufactured  articles  are  proper  subjects  of  regulation  by 
Congress,  because  they  form  part  of  interstate  commerce. 
A  combination,  however,  simply  for  the  purpose  of  control- 
ling manufacture,  is  not  in  violation  of  the  federal  statute 
because,  upon  principles  already  indicated,  such  a  combina- 
tion docs  not  directly  affect  or  restrain  interstate  commerce.- 
Even  if  such  a  combination  directly  affected  commerce  within 
a  State  it  would  not  come  within  the  provisions  of  the  statute, 
for  State  commerce  is  a  matter  of  State  control.  These 
principles  are  clearly  stated  in  the  opinion  of  Mr.  Chief 
Justice  Fuller  in    United  States  v.  K   C.  Knight  Company :  ^ 


Neither  the  production  nor  manufacture 
of  articles  or  commodities  which  consti- 
tutes subjects  of  commerce,  and  wliich 
are  intended  for  trade  and  traffic  with 
citizens  of  other  States,  nor  the  prepara- 
tion  for  their  transportation  from  the 
State  where  produced  or  manufactured 
prior    to    the    commencement    of    the 
actual  transfer  or  transmission  thereof 
to   another    State,  constitutes   that   in- 
terstate commerce  which  comes  within 
the     regulating    power    of     Congress; 
and,  further,    after  the  termination  of 
the   transportation  of  commodities    or 
articles   of    traffic   from   one   State   to 
another,  and  the  mingling  or  merging 
thereof  in  the  general  mass  of  property 
in  the  State   of   destination,   the  sale, 
distribution,    and   consumption  thereof 
in   the   latter    State   forms  no  part  of 
interstate  commerce."  Citing  Pensacola 
Tel.  Co.  i:  Western  Union  Tel.  Co.,  96 
U.  S.  1  (1S77)  ;  Brown  v.  Houston,  114 
U.  S.  625  (1885),  (5  Sup.  Ct.  Ptep.  1091) ; 
Coe    V.   Errol,    116   U.    S.  520  (1886), 
(6  Sup.  Ct.  Eep.  475)  ;  Bobbins  v.  Shelby 
Taxing  Dist.,   120   U.   S.   497    (1887), 
(7  Sup.  Ct.  Rep.  592) ;  Kidd  v.  Pearson, 
128  U.  S.  I  (1888),  (9  Sup.  Ct.  Eep.  6). 
1  Addyston  Pipe,  etc.  Co.  r.  United 
States,  175  U.  S.  2-39  (1899),  (20  Sup.  Ct. 
Rep.  96)  ;  United  States  v.  E.  C  Knight 
Co.,   156  U.  S.  1    (1895),  (15   Sup.  Ct. 


Rep.  249)  ;  Gibbs  v.  McNeely,  107  Fed. 
211  (1901). 

2  Addyston  Pipe,  etc.  Co.  v.  United 
States,  175  U.  S.  239  (1899),  (20  Sup.  Ct. 
Rep.  96) ;  United  States  v.  E.  C.  Knight 
Co.,  156  U.  S.  1  (1895),  (15  Sup.  Ct.  Rep. 
249);  Dueber  Watch  Case  Mfg.  Co. 
V.  Howard  Watch,  etc.  Co.,  66  Fed.  642 
(1895);  Gibbs  v.  McNeely,  107  Fed. 
211  (1901). 

3  United  States  v.  E.  C.  Knight  Co., 
156  U.  S.  12  (1895),  (15  Sup.  Ct.  Rep. 
249).  In  this  case  it  appeared  that  the 
American  Sugar  Refining  Company,  a 
New  Jersey  corporation,  with  authority 
to  purchase,  refine  and  sell  sugar,  had, 
prior  to  March,  1892,  obtained  control  of 
all  the  sugar  refineries  in  the  United 
States  excepting  four  in  Philadelphia, 
including  the  E.  C.  Knight  Company, 
and  one,  of  small  capacity,  in  Boston, 
with  all  of  which  it  was  in  active  com- 
petition ;  that,  in  March,  1892,  the  Amer- 
ican Sugar  Refining  Company  entered 
into  contracts  with  the  stockholders  of 
each  of  the  Philadelphia  corporations 
whereby  it  purchased  their  stock  with 
its  own  stock ;  and  thereby  acquired  pos- 
session of  the  Philadelphia  refineries 
and  business  ;  that  there  was  no  con- 
certed action  between  the  stockholders 
of  the  companies,  but  each  company 
acted  independentlv  of  each  other  ;  that 

565 


§   389  INTEIICOBPORATE   RELATIONS.  [PART   T. 

"  r)i)ul)tlc88  the  power  to  (MJiitrul  the  manufacture  of  a  given 
thing  involves,  in  a  certain  souse,  t!ic  control  of  it8  ili(k|M>Hi- 
tion,  but  this  is  the  secontlarj  and  not  the  |(riniary  sense; 
and  although  the  exercise  of  that  power  may  result  in  hrinjf- 
ing  the  operation  of  commerce  into  play,  it  does  not  control 
it,  and  affects  it  only  incidentally  antl  indirectly.  .  .  .  Con- 
tracts to  huy.  Hell,  or  exclianije  ^'oods  to  he  transported  an)ong 
the  several  States,  the  transiportation  and  its  instrumental- 
ities, and  articles  bought,  sold,  or  exchanged  for  the  purfKwes 
of  such  transit  among  the  States,  or  put  in  the  way  of  transit, 
may  he  regulated,  hut  this  is  because  they  form  part  of 
interstate  trade  or  commerce.  The  fact  that  an  article  is 
manufactured  for  export  to  another  State  docs  not  of  itself 
make  it  an  article  of  interstate  ci>nimeree,  and  the  intent  of 
th«'  manufaeturer  does  not  determine  the  time  when  the 
article  or  pro<luct  passes  from  the  control  of  Uie  State,  and 
belongs  to  commerce." 

When,  however,  the  combination,  although  relating  to 
manufacture  —  to  production  —  goes  further  and  restrains 
the  ditpotition  of  the  manufactured  article  and  its  distribu- 
tion among  several  States,  its  direct  and  imnn-diate  effect 
is  to  restrain  interstate  commerce,  an«l  it  comes  within  the 
prohibition  of  the  statute.  The  distinction  between  combi- 
nations simply  to  control  manufactiire  and  produetion,  and 
those  embracing  the  additional  purpose  of  controlling  dis- 
position and  distribution,  is  pointed  out  by  the  Supreme 
Court  of  the  United  States  in  Addt/titon  J'ipe^  etc.  Company 
V.   United  Statm,^  where  the  combination  under  consideration 

the  contracts  of  sale   left  the   Tcmlor*  Fed.  934  (H94)).  and  by  Suprein*  Coort 

free  to  eii^^oce  >»  the    s  inic   husincits ;  of   the    I'niled    Stalva    Id    the   dcciaiuo 

that  the   object  in  {lurchn^iiif;  the  I'hil-  aboTe  riled. 

adelphia   rchncries  wa^  to  obtain  more  '  Addjiton  Pipe,  etc.  Co.  c.  United 

perfect    control    over    the    bu.siness    of  States,  175   U.  S.  2<40   (1899),  (20  Sup. 

refining  and  selling  sugar  in  the  I'nited  Ct.  Uep.  96). 

States.  In  this  rase,  it  appeared  thnt  six  cor- 

Bi  11  filed  by  the  United  States  against  porations,   manufacturing  iron    pipe    in 

E.  C.  Knight  Cotnpan}  charging  viola-  several  diffennt  States,  formed  an  asso- 

tion   of   federal    anti-trust   act  was  liis-  ciatioii   whereby  the  territory  in  which 

missed  by    Circuit  Court  (CO  Fed.  306  they  principally  operated,  comprising  a 

(1894));    decree     affirmed    by    Circuit  large  i>art   of    the  United    State*,    was 

Court  of  Appeals  for  Third  Circuit  (60  divided  into  "  reserred  "  cities  and  "  pay 

ot)6 


CHAP.    XXXIX.]       CONSTRUCTION   AND    APPLICATION.  §  389 

is  distinguished  from  that  involved  in  the  Knight  case. 
Mr.  Justice  Peckham  said:  "The  direct  purpose  of  the 
combination  in  the  Knight  case  was  the  control  of  the  manu- 
facture of  sugar.  There  was  no  combination  or  agreement, 
in  terms,  regarding  the  future  disposition  of  the  manufact- 
ured article;  nothing  looking  to  a  transaction  in  the  nature 
of  interstate  commerce.  The  probable  intention  on  the  part 
of  the  manufacturer  of  the  sugar  to  thereafter  dispose  of  it  by 
sending  it  to  some  market  in  another  State,  was  held  to  be 
immaterial  and  not  to  alter  the  character  of  the  combination. 
.  .  .  The  case  was  decided  upon  the  principle  that  a  com- 
bination simply  to  control  manufacture  was  not  in  violation 
of  the  act  of  Congress,  because  such  contract  or  combination 
did  not  directly  control  or  affect  interstate  commerce,  but 
that  contracts  for  the  sale  and  transportation  to  another 
State  of  specific  articles  were  proper  subjects  of  regulations, 
because  they  did  form  part  of  such  commerce.  We  think 
the  case  now  before  us  involves  contracts  of  the  nature  last 
mentioned,  not  incidentally  or  collaterally,  but  as  a  direct 
and  immediate  result  of  the  combination  engaged  in  by  the 
defendants.  ...  If,  therefore,  an  agreement  or  combination 
directly  restrains,  not  alone  the  manufacture,  but  the  pur- 
chase, sale  or  exchange  of  the  manufactured  commodity 
among  the  several  States,  it  is  brought  within  the  provisions 
of  the  statute.     The  power  to  regulate  such  commerce,  that 

territory."    The  reserved  cities  were  al-  charging    a  violation    of    the   federal 

lotted  to  certain  members  of  the  associ-  anti-trust   act,    was    dismissed   by  the 

ation,  free  from  competition,  although  trial  court  (78  Fed.  712   (1897)),   but, 

the  other  members  agreed  to  simulate  upon  appeal  to  tlie  Circuit  Court  uf  Ap- 

competition  by  putting  in  higher  bids.  peals  for  the  Sixtli  Circuit,  Judge  Taft 

In  the  pay  territory  all  offers  to  pur-  delivering  an  able  and  elaborate  opin- 

chase  pipe  were  submitted   to  a  com-  ion    (United   States  v.  Addyston  Pipe, 

mittee     which    fixed     the     price     and  etc.   Co.,  85  Fed.  271  (1898)),  the  judg- 

awarded  the   contract  by  an  "auction  ment  was  reversed, , with  instructions  to 

pool"  — the  member  of  the  association  enter  decree  perpetually  enjoining  the 

agreeing  to  pay  the  largest  bonus  to  be  defendants  from  maintaining  or  doing 

divided  among  the  others  receiving  tlie  any  business   under  said   combination, 

contract.     In  the  "  free  territory  "  tliere  Upon  appeal  to  tlie  Supreme  Court  of 

were  no  restrictions  upon  competition.  the  United  States,  tliis  decree,  modified 

Bill  by  the  United  States  against  the  and  limited  to  that  portion  of  the  com- 

Addyston  Pipe  and  Steel  Com])any  and  bination  which  was   interstate  in  char- 

the  other  members  of  the  association,  acter,  was  afiirmed. 

56T 


§389 


INTFRPORPORATF    RFLATI0M8. 


[PABT   V. 


is,  the  power  i<»  j>n'8cril)C  the  rukrt  hy  which  it  shall  !>e 
goveriKMl,  is  vested  in  Coiij^ress,  ami  when  Conj^ress  hos 
enacted  a  statute  sucli  as  tlie  one  in  qiiestiun,  any  aj^recmcnt 
or  «'<)ml»inati()n  which  dirtctly  oiM'nitrs,  not  alon<'  upon  the 
niauiitacturc,  hut  upon  the  sale,  tranH|Hjrtation  and  delivery 
of  an  article  of  interstate  commerce,  hy  prevcntini?  or  re- 
stricting its  sale,  etc.,  therehy  regulates  interstate  commerce 
to  that  extent,  and  to  the  same  extent  trenches  upon  the  power 
of  the  national  letjislature  and  violates  the  statute."  ' 


'  In  the  recent  ciwc  of  (liKfm  r. 
McNcol.v,  107  Fcil.  211  (11K)I).  the 
Court  coii5lil<«rrd  itnd  <li'<tin(»Mi«hcd  Iw- 
twocti  the  prin«iplr«  aii'l  ri»*€>«  vtntol 
in  thu  text :  "  In  the  cane  of  I'nitcd 
Stnten  r.  E.  C.  Knight  Vo,  156  V.  S. 
1  (1895).  (15  Sup  (*t.  lC«p.  249),  thoSa- 
pri-me  Court  hcM  that,  although  the 
American  Supnr  Kctlninf;  Company 
ba<l  olitained  a  practical  m"n<)|)«lr  of 
the  buninoM  of  nianufncturiiiK  tu^r, 
yot  the  act  of  Contjrrss  ditl  not  touch  the 
cn»e,  l>««can»c  the  com)>infition  only  re- 
label! to  ninnufactiire,  and  not  to  com- 
mene  iiniong  the  Stntwi  or  foriTitrn 
rountrio.-* ;  that  a  coml>ination  wliich 
directly  related  to  manuf.icturo  only 
was  not  hrouglit  within  the  purview 
of  the  net,  nlthou^h,  a-H  an  indirect  and 
ineident.ll  resnit  of  8iich  conihination, 
commereo  nmonp  the  Statc.H  mij;ht  l>e 
thereafter  somewhat  affected  The 
Court  in  that  case  !»ays :  '  The  fact 
that  an  article  if*  manufactured  for  ex- 
port to  another  State,  dues  not  of  itself 
make  it  an  article  of  interstate  com- 
merce, and  the  intent  of  the  manufac- 
turer does  not  determine  the  time  when 
the  article  or  product  p.isses  from  the 
control  of  the  State  and  belongs  to 
commerce.'  In  the  more  recent  case 
of  Addyston  Pipe,  etc.  Co.  r.  United 
States,  irs  U.S.  239  (1899),  (20 Sup.  Ct. 
Rep.  9t;),  the  princi|de  was  recopnizeil, 
that  a  comhin.ition  to  control  manufac- 
ture is  not  a  violation  of  the  Act  of 
Congress,  since  such  a  combination 
does  nut  directly  control  or  effect  inter- 
state   commerce.      The    Court    distin- 

568 


(»ui«he.|  «nch  a  ronit.in.ition  from  one 
havinf;  for  its  objec'  the  •i\\c  an  I  tnui»- 
portntioii  lo  other  States  of  ii|)eciHc 
arti>-U<«.  Combinations  of  the  latter 
rlrtM  ar«>  held  to  l>c  pr<>|>er  iiubject« 
of  repil.ition,  l>craniie  they  enter  into 
•nch  ronimerce.  To  which  cImm  don 
the  c%.*f  on  trial  l>e|onf;  '  I'UiutifT  ron- 
trnils  tbiit,  inajimuch  as  the  ronildnA- 
tion  nnder  cunsideration  enntnds  not 
only  the  iiianufarturr,  but  the  Mtle,  uf 
the  mnnnfartnred  priMluct.  this  caM 
Iwlongs  to  the  latter  cln.M  ;  that  defend- 
ants' combination  affects  interstate  com- 
merce, and  is,  therefore,  made  unlawful 
by  the  Act  of  Conprcss.  The  reason 
why  the  manuf.ictnrc  within  a  State  of 
an  article  of  commerce  is  not  within 
the  purview  of  the  act,  although  the 
manufacturing  combination  constitu'es 
a  monopidy,  being  that  it  involres 
nothing  in  the  way  of  interstate  com- 
merce, does  it  alter  the  case  that  the 
combination  includes  the  sale  of  ita 
pro4lu(  t  among  its  objects  '  I  am  of 
the  opinion  that  it  does  not ;  that  the 
lawfulness  of  what  is  done  depends 
npon  the  place  directly  affected,  and 
not  upon  the  character  in  otiier  respects 
of  what  is  done  It  makes  no  differ- 
ence that  the  m.inufacturer  intends  his 
pmduct  for  s.ile  in  other  States  and 
foreign  countries.  Such  an  intention 
does  not  alter  the  character  of  the  com- 
bination to  manuf-vture,  and  upon  this 
principle  it  makes  no  difference  that 
the  contract  or  coml>ination  is  for  the 
manufacture  an<l  sale  of  specific  ar- 
ticles.    It  must  go  further,  and  provide 


CHAP.    XXXTX.]      COXSTRUCTTON    AND    APPLICATION.  §  390 

§  390.  Combination  must  have  Direct  Effect  upon  Interstate 
Commerce  —  (C)  Restraints  upon  Facilities  for  Commerce.  —  As 
already  shown,  the  combination  condemned  by  the  anti-trust 
act  is  one  whose  direct  and  immediate  effect  is  a  restraint 
upon  interstate  commerce.  In  thus  applying  the  statute,  a 
distinction  is  drawn  between  a  combination  or  contract 
which  directly  affects  and  interferes  with  interstate  com- 
merce, and  one  which  relates  to  a  local  facility  provided  in 
furtfterance  and  aid  of  such  commerce.  These  facilities 
may  consist  of  privileges  and  conveniences  provided  and 
made  use  of,  and  services  rendered,  in  aid  of  commerce,  as 
well  as  in  the  use  of  tangible  property.  Such  facilities  are 
not,  in  themselves,  a  part  of  interstate  commerce,  and  touch 
it  only  in  an  indirect  way.  Charges  for  such  facilities  are 
not  a  restraint  upon  interstate  commerce,  although  the  cost 
of  conducting  an  interstate  business  may  be  thereby  in- 
creased ;  and  agreements  or  combinations  relating  to  the 
amount  of  such  charges  or  the  furnishing  of  such  facilities 
are  not  in  contravention  of  the  federal  statute,  however 
much  they  may  offend  against  public  policy  or  local  law.^ 

These  principles  are  stated  and  illustrated  in  the  case 
of  Hopkins  v.   United  States,^  decided  by  the  Supreme  Court 

for  the  sale  and  transportation  to  other  ceive  the  price  and  remit  the  proceeds, 

States  of  the  specific  articles  ;    other-  after  deducting  commissions,  advances 

wise,  what  is  proposed  cannot  be  said  and    expenses,   to    the    owners.      The 

to  look  to  interstate  commerce.     Mere  members    solicited    consignments    and 

State  commerce  is  a  matter   of   State  made  advances  thereon.     The  rules  of 

control."  the  association  forbade  members  from 

1  Hopkins  v.  United  States,  171  buying  stock  of  merchants  in  Kansas^ 
U.  S.  578  (1898),  (19  Sup.  Ct.  Rep.  40)  ;  City,  not  members  of  the  exchange, 
Anderson  v.  United  States,  171  U.  S.  fixed  commissions,  and  provided  that 
604  (1898),  (19  Sup.  Ct.  Rep.  50).  no   member  should    do   business   with 

2  Hopkins  I'.  United  States,  171  U.  S.  any  person  violating  the  rules.  The 
590  (1898).  (19  Sup.  Ct.  Rep.  40).  The  stockyards  were  situated  partly  in 
following  is  a  summary  of  the  facts  in  Missouri  and  partly  in  Kansas,  but  this 
this  case  :  The  Kansas  City  Live  Stock  fact  was  deemed  unimportant  by  all 
Exchange  was  a  voluntary  association  the  courts. 

doing  business  at  the  stockyards  in  Kan-  Bill   by   the   United  States   against 

sas  City.     The  business  of  its  members  Hopkins,    and    other   members   of  the 

was   to   receive,  'individually,    consign-  association,  was  filed,  charging  that  the 

ments  of  live  stock  from  owners  living  association  was  in  violation  of  the  act 

in  different  States,  to  feed  the  stock  and  of  July  2,  1890,  and  praying  fur  an  in- 

prepare  it  for  the  market ;  to  sell  it,  re-  junction.     The  trial  court  granted  the 

569 


§  300  INTKRCOHrORATE   UELATIONS.  [PART   V. 

of  the  United  States,  which  related  to  an  associjitiun  of 
commission  men  for  the  purpose,  primarily,  of  regulating 
the  sale  of  live  stock  upon  its  arrival  at  stockyards.  Mr. 
Justice  I'ockham  said:  ''The  selling  of  an  article  at  its  des- 
tination, wiiich  has  heen  sent  from  another  State,  whiK*  it 
may  lie  regarded  as  an  interstate  sale  and  one  which  the 
iuiportor  was  entitled  to  make,  yet  the  services  of  the  indi- 
vidual oniploy«Mi  at  the  place  where  the  article  is  soM  are 
not  so  connected  with  the  subject  sold  as  to  make  them  a 
portion  of  interstate  commerce,  and  a  combination  in  regard 
to  the  amount  to  be  charged  for  such  service  is  not,  there- 
fore, a  combination  in  restraint  of  that  trade  or  commerce. 
.  .  .  Charges  for  services  of  this  nature  do  not  immedi- 
ately touch  or  act  upon,  nor  do  they  directly  affect,  the 
subject  of  the  transportation.  Indirectly,  and  as  an  inci- 
dent, they  may  «'nhancL'  the  cost  to  the  owner  of  the  cattle 
in  finding  a  market,  or  tiny  may  adil  to  the  price  paid 
by  the  purchaser,  i»ut  they  arc  not  charges  which  are  directly 
laid  upon  the  article  in  the  course  of  transportation  and 
which  are  charges  upon  the  commerce  itself;  they  are 
charges  for  the  facilities  given  or  provided  the  owner  in  the 
course  of  the  movement  from  the  home  situs  of  the  article  to 
the  place  and  point  where  it  is  sold.  ...  If  charges  of  the 
nature  described  do  not  amount  to  a  regulation  of  interstate 
trade  or  commerce  because  they  touch  it  only  in  an  indirect 
and  remote  way,  or  else  because  they  are  in  the  nature  of 
compensation  for  the  use  of  property  or  privileges  as  a  mere 
facility  for  that  commerce,  it  would,  for  a  like  reason,  seem 
clear  that  agreements  relating  to  the  amounts  of  charges 
among  those  who  furnish  the  privileges  or  facilities  arc  not 
in  restraint  of  that  kind  of  trade.  While  the  indirect  effect 
of  the  agreements  may  be  to  enhance  the  expenses  of  those 
engaged  in  the  Imsincss,  yet  as  the  agreements  are  in  regard 
to  compensation  for  privileges  accorded  and  for  services  ren- 

injnnction  (82  Fed.  529  (1897)),  and  the  also  Green  v.  Stoller,  77  Fed.  1  (1896), 

case  came  by  certiorari  from  the  Cir-  which  related  to  the  Kansas  City  Live 

cuit  Court  of  Appeals  to  the  Supreme  Stock  Exchange. 
Court,  which  reversed  the  decree.     See 

570 


CHAP.    XXXIX.]      CONSTRUCTION   AND   APPLICATION. 


§391 


dered  as  a  facility  to  commerce  or  trade,  they  are  not  illegal 
as  a  restraint  thereon." 

§  391.  Combination  must  have  Direct  EfiFect  upon  Interstate 
Commerce  —  (D)  Exchanges  and  Similar  Associations.  —  Upon 
the  principle  stated  in  the  preceding  sections,  that,  in  order 
to  come  within  the  provisions  of  the  federal  statute,  the 
direct  effect  of  a  combination  must  be  in  restraint  of  inter- 
state commerce,  it  follows  that  a  voluntary  association  or 
"  exchange  "  formed  by  dealers  in  articles  of  a  similar  nature 
in  a  particular  locality  for  the  purpose  of  fairly  regulating 
the  methods  of  conducting  business  and  establishing  a  gen- 
eral headquarters,  and  the  by-laws  of  which  provide  rules 
for  fair  dealing  among  the  members,  but  which  exercises  no 
control  over  prices  or  production,  is  not  in  contravention  of 
the  statute.  1    Neither  the  object  nor  consequence  of  such  an 


1  Anderson  v.  United  States,  171 
U.  S.  604  (1898),  (19  Sup.  Ct.  Rep.  50) 
Hopkins  i'.  United  States,  171  U.  S. 
578  (1898),  (19  Sup.  Ct.  Kep.  40). 

In  the  Anderso7i  case,  the  Traders' 
Live  Stock  Exchange  was  a  voluntary 
association  in  Kansas  City,  whose  mem- 
bers carried  on  much  the  same  business, 
and  in  the  same  manner,  as  that  car- 
ried on  by  members  of  the  Kansas  City 
Live  Stock  Exchange  passed  upon  in 
the  Hopkins  case  {ante,  §  390,  note). 
The  principal  difference  was  that  the 
members  of  the  Traders'  Exchange 
were  themselves  purchasers  of  cattle 
in  the  market,  while  the  members  of 
the  other  association  sold  cattle  upon 
commission.  In  holding  that  the  asso- 
ciatit)n  did  not  violate  the  anti-trust 
act,  the  Supreme  Court  of  the  United 
States  (per  Peckham,  ,J.)  said  (p.  616)  : 
"  From  very  early  times  it  has  been  the 
custom  for  men  engaged  in  the  busi- 
ness of  buying  and  selling  articles  of  a 
similar  nature,  at  any  particular  place, 
to  associate  themselves  together.  The 
object  of  the  association  has,  in  many 
cases,  been  to  provide  for  the  ready 
transaction  of  the  business  of  the  asso- 
ciates by  obtaining  a  general  headquar- 
ters for  its  conduct,  and  thus  to  ensure 


a  quick  and  certain  market  for  the  sale 
or  purchase  of  the  article  dealt  in. 
Another  purpose  has  been  to  provide  a 
standard  of  business  integrity  among 
the  members  by  adopting  rules  for  just 
and  fair  dealing  among  them,  and  en- 
forcing the  same  by  penalties  for  their 
violation.  The  agreements  have  been 
voluntary,  and  the  penalties  have  been 
enforced  under  the  supervision  and  by 
the  members  of  the  association.  The 
preamble  adopted  by  the  association  in 
this  case  shows  the  ostensible  purpose 
of  its  formation.  It  was  not  formed 
for  pecuniary  profits,  and  a  careful  pe- 
rusal of  the  whole  agreement  fails,  as 
we  think,  to  show  that  its  purpose  was 
other  than  as  stated  in  the  preamble, 
and  that  the  result  naturally  to  be  ex- 
pected from  an  enforcement  of  the 
rules  would  not  directly,  if  at  all,  affect 
interstate  trade  or  commerce." 

The  Court  then  distinguished  the 
agreement  in  question  from  those  in 
United  States  v.  Jellico  Mountain  Coal, 
etc.  Co.,  46  Fed.  432  (1891);  United 
States  V.  Coal  Dealers  Ass'n,  85  Fed. 
252  (1898),  and  United  States  v.  Addys- 
ton  Pipe,  etc.  Co.,  85  Fed.  271  (1898), 
(affirmed  175  U.  S.  211)  (1899),  (20 
Sup.  Ct.  Rep.   96),  upon  the   ground 

571 


§  302 


INTERCORrORATE   RELATIONS. 


[part  V. 


association  is  to  suppress  competition,   and  its  effect  upon 
interstate  commerce,  if  any,  is  renuite. 

S  302.  Statute  applies  to  Combinations  of  Railroad  Companies 
and  other  Carriers.  —  The  statute  declares  illegal  every  con- 
tract, combination,  or  conspiracy  in  restraint  of  commerce 
among  the  several  States.  Railroad  companies  and  other 
carriers  engaged  in  transporting  persons  and  property  be- 
tween different  States  arc  engaged  in  interstate  commerce,^ 
and  any  contract  or  comljination  between  competing  carriers 
for  the  ])urposc  of  maintaining  rates  or  preventing  competi- 
tion, directly  restrains  interstate  commerce  and  contravenes 
the  federal  statute.^ 


that  tlio  aijropnicnts  in  all  those  rases 
provided  for  fixing  thn  prices  of  the 
articles  dealt  in.  In  comparing  these 
cases,  also  note  United  States  r.  Chesa- 
peake, etc.  Fuel  Co.,  105  Fed.  93 
(1900),  affirnud  115  Fed.  610  (1902); 
Lowry  1-.  Tile,  etc.  Assoc,  106  Fed.  38 
(1900'). 

1  United  States  v.  Joint  Traffic 
Ass'n,  171  U.  S.  570  (189S),  (20  Sup. 
Ct.  Kep.  96):  "The  liusine.«s  of  a  rail- 
road carrier  is  of  a  puMic  natnro,  and 
in  performing  it  the  carrier  is  also  per- 
forniin<:,  to  a  certain  extent,  a  function 
of  government  wl.ich,  as  counsel  ob- 
served, requires  tiiein  to  perform  the 
service  on  equal  terms  to  all.  This 
public  service,  that  of  transportation  of 
passengers  and  freiglit,  is  a  part  of 
trade  and  commerce,  and  when  trans- 
ported between  States,  such  commerce 
becomes  wliat  is  described  as  interstate, 
and  comes,  to  a  certain  extent,  under  the 
jurisdiction  of  Congress,  by  virtue  of 
its  power  to  regulate  commerce  among 
the  several  States." 

2  United  States  r.  Trans-Missouri 
Freight  A.ss'n,  166  U.  S.  290  (1897), 
(17  Sup.  Ct.  Rep.  540)  ;  United  States 
V.  Joint  Traffic  Ass'n,  171  U.  S.  505 
(1898),  (19  Sup.  Ct.  Rep.  25).  The 
nature  of  an  agreement  between  car- 
riers which  falls  within  the  provisions 
of  the  federal  anti-tru.st  act,  cannot  be 
better  illustrated  than  by  outlining  the 

572 


traffic  arrangements  involved  in  these 
two  leading  ca.ses. 

In  tlie  Trans- Missouri  Cns*  it  ap- 
peared that  eighteen  competing  West- 
em  railroad  companies  formed,  in  1889, 
a  voluntary  association  called  the 
"  Trans- Mi.s.souri  Freiglit  As.sociatiou," 
for  tlie  jiurposo,  as  stated  in  the  agree- 
ment, "  of  mutual  protection  by  estab- 
li.xhing  and  maintaining  reasonable 
rates,  rules  and  regulations,  on  all 
freight  traffic,  both  through  and  local." 
The  agreement  provided  for  electing  a 
chairman  of  the  association,  ami  repre- 
sentatives of  each  company  to  vote  io 
its  behalf  at  the  monthly  meetings  of 
the  association  ;  for  appointing  a  com- 
mittee to  establish  traffic  rates  and 
regulatifins,  "an<l  to  make  rults  for 
vieiting  the.  competition  of  outside  lines  ;  " 
for  changing  rates  ;  for  arranging  with 
connecting  lines  when  authorized  by 
the  association,  and  for  imposing  and 
enforcing  the  penalties  prescribed  for 
infractions  of  the  agreement. 

Bill  by  the  United  States  for  dissolu- 
tion of  the  association,  and  for  an  injunc- 
tion, on  the  ground  that  the  agreement 
violated  the  act  of  July  2,  1890,  was 
mi.<!sed  by  the  Circuit  Court  (5.3  Fed. 
440  (1892)).  This  decree  was  affirmed 
by  the  Circuit  Court  of  Appeals  (58 
Fed.  58  (1893)),  but  was  reversed  by 
the  Suj)reme  Court. 

In  the  Joint  Traffic  Association  Case 


CHAP.    XXXIX.]      CONSTRUCTION   AND    APPLICATION.  §  392 

In  United  States  v.  Trans-3Iissouri  Freight  Association^^ 
the  Supreme  Court  of  the  United  States  said :  "  Congress  has, 
so  far  as  its  jurisdiction  extends,  prohibited  all  contracts  or 
combinations  in  the  form  of  trusts  entered  into  for  the  pur- 
pose of  restraining  trade  and  commerce.  The  results  natur- 
ally flosving  from  a  contract  or  combination  in  restraint  of 
trade  or  commerce,  when  entered  into  by  a  manufacturing 
or  trading-  company,  such  as  above  stated,  while  differing 
somewhat  from  those  which  may  follow  a  contract  to  keep 
up  transportation  rates  by  railroads,  are  nevertheless  of  the 
same  nature  and  kind,  and  the  contracts,  themselves,  do  not 
so  far  differ  in  their  nature  that  they  may  not  all  be  treated 
alike  and  be  condemned  in  common.  It  is  entirely  appro- 
priate, generally,  to  subject  corporations  or  persons  engaged 
in  trading  or  manufacturing  to  different  rules  from  those 
applicable  to  railroads  in  their  transportation  business;  but 
when  the  evil  to  be  remedied  is  similar  in  both  kinds  of 
corporations,  such  as  contracts  which  are  unquestionably 
in  restraint  of  trade,  we  see  no  reason  why  similar  rules 
should  not  be  promulgated  in  regard  to  both,  and  both  be 
covered  in  the  same  statute  by  general  language  sufficiently 
broad  to  include  them  both.  We  see  nothing  either  in  con- 
temporaneous history,  in  the  legal  situation  at  the  time  of 
the  passage  of  the  statute,  in  its  legislative  history,  or  in 
any  general  difference  in  the  nature  or  kind  of  these  trading 
or  manufacturing  companies,  which  would  lead  us  to  the 

it  appeared  that  thirty-one  railroad  com-  association  ;  that  the  powers  conferred 
panies  engaged  in  transportation  be-  upon  the  managers  should  be  exercised 
tween  Chicago  and  the  Atlantic  Coast,  in  conformity  to  the  provisions  of  the 
formed  a  voluntary  association  called  interstate  commerce  act,  and  that  the 
the  Joint  Traffic  Association,  by  which  managers  should  have  power  to  deal 
they  agreed  that  the  associ.ition  should  with  connecting  comi)anies,  not  parties 
have  jurisdiction  over  all  competitive  to  the  agreement,  which  declined  to  ob- 
traffic,  with  certain  exceptions,  passing  serve  the  established  rates.  Bill  by  the 
through  the  western  termini  of  the  United  States  was  dismissed  by  the 
trunk  lines  and  certaiu  other  points,  Circuit  Court  (76  Fed.  895)  ;  the  de- 
an d  to  fix  the  rates,  fares  and  charges  cree  was  affirmed  by  the  Circuit  Court  of 
therefor,  and  to  change  the  same,  and  Appeals,  without  opinion  (89  Fed.  1020), 
no  party  to  the  agreement  was  per-  but  was  reversed  by  the  Supreme  Court, 
mitted  to  deviate  from  the  rates  so  i  United  States  v.  Trans-Missouri 
fixed.  The  agreement  also  provided  Freight  Ass'n,  166  U.  S.  324  (1897), 
for  the  appointment  of  managers  of  the  (17  Sup.  Ct.  Rep.  540). 

573 


§  302  INTERCORPORATK    RELATIONS.  [PART    V. 

conclusion  that  it  cannot  be  supposed  the  lo'^islaturc,  iu 
prohibiting;  the  making  of  contracts  in  restraint  of  trade, 
intended  to  include  railroads  within  the  purview  of  that 
act."  » 

The  conclusion  that  the  statute  applies  to  combinations 
of  railroads  unavoidably  follows  from  the  premise  that  all 
combinations  in  restraint  of  interstate  commerce  violate  its 
provisions.  In  reachinir  this  conclusion,  however,  the  Supreme 
Court  in  the  Tnum-Mixitouri  Fniijht  Association  Caxe  was 
met  by  two  contentions: 

First.  "That  the  debates  in  Congress  show  beyond  a 
doubt  that  the  act  as  passed  docs  not  include  railroads." 
But  after  reviewing  the  debates  referred  to,  Mr.  Justice 
Peckham  said:  "All  that  can  be  determined  from  the  de- 
bates and  reports  is,  that  various  members  had  various 
views,  and  we  are  left  to  determine  the  meaning  of  this  act, 
as  we  determine  the  meaning  of  other  acts,  from  the  language 
used  therein."* 

Serond.  That  the  statute  did  not  apply  to  traffic  contracts 
between  railroad  companies,  because  they  were  authorized  by 
the  interstate  commerce  act,  and  that  a  construction  should 
not  1)0  adopted  which  would  rej)eal,  by  implication,  any 
provision  of  that  act.  Mr.  Justice  Peckham,  liowever, 
said:  ''The  first  answer  to  this  argument  is  that,  in  our 
opinion,  the  commerce  act  does  not  authorize  an  agreement 
of  this  nature.  It  may  not  in  terms  jirohibit,  but  it  is  far 
from  conferring,  cither  directly  or  by  implication,  any  author- 
ity to  make  it.  If  the  agreement  be  legal,  it  does  not  owe  its 
validity  to  any  provision  of  the  commerce  act,  and  if  illegal, 

^  The  Conrt  also  said  (p.  340)  :  "If  trust  act  applies  to  railroads,  and  that 

the  law  prohibits  any  contract  or  com-  '^  remlcrs  illofral  all  aprcemciits  which 

bination  in  restraint'of  trade  or  com-  «re  in  restraint  of  trade  or  commerce 

merce,  a  contract  or  combination  made  m  wx  have  al)Ove  defined  that  expres- 

in  violation  of  such  law  is  void,  what-  -"io" ;    and    the    question    theu    arises 

ever  may  have  been  theretofore  decided  whether  the  agreement  before  us  is  of 

by  the  courts  to  have  been  the  public  that  nature." 

policy  of  the  country  on  that  subject.  *  United   States    v.   Trans-Missouri 

The  conclusion  which  we  have  drawn  Freight  Ass'n,  166   U.   S.  318   (1897), 

from  the  examination  above  made  into  (17  Sup.  Ct.  Kep.  540J. 
the  question  before  us  is  that  the  anti- 

574 


CHAP.    XXXIX.]      CONSTRUCTION    AND    APPLICATION.  §  392 

it  is  not  made  so  by  that  act.  The  fifth  section  prohibits 
what  is  termed  "pooling,"  but  there  is  no  express  provision 
in  the  act  prohibiting  the  maintenance  of  traffic  rates  among 
competing  roads  by  making  such  an  agreement  as  this,  nor  is 
there  any  provision  which  permits  it.  .  .  .  As  the  commerce 
act  does  not  authorize  this  agreement,  argument  against  a 
repeal  by  implication  of  the  provisions  of  the  act  which,  it  is 
alleged,  grant  such  authority  becomes  ineffective.  There  is 
no  repeal  in  the  case  and  both  statutes  may  stand,  as  neither 
is  inconsistent  with  the  other. "  ^ 

While  traffic  associations  and  other  combinations  between 
competing  carriers  for  the  purpose  of  maintaining  rates, 
or  otherwise  controlling  or  regulating  competition,  are  in 
violation  of  the  federal  statute,  it  has  been  held  that  an 
agreement  between  connecting  railroad  companies  for  the 
reception  and  forwarding  of  freight  beyond  their  own  lines, 
does  not  fall  within  the  provision  of  the  statute  ;2  nor  is  this 
result  altered  by  the  fact  that  special  facilities,  in  the  way 
of  advancement  of  freight  charges,  may  be  granted.^  Upon 
similar  principles,  it  was  held  that  a  custom  or  usage  exist- 
ing among  several  express  companies  for  mutual  advantage, 
for  a  receiving  company  to  pay  accrued  charges  on  goods, 
or  transport  them  to  their  destination  without  prepayment  of 
charges,  was  not  prohibited  by  the  statute* 

In  determining  whether  a  particular  combination  of  car- 
riers comes  within  the  provisions  of  the  statute,  the  intent  of 
the  parties  in  entering  it  is  not  important.  The  essential 
question  is  one  of  law,  in  regard  to  the  meaning  and  effect 

1  United  States  v.  Trans-Missouri  directly  opposed  to  the  ruling  of  the 
Freight  Ass'n,  166  U.  S.  314  (1897),  Supreme  Court  in  the  Trans-Missouri 
(17  Sup.  Ct.  Rep.  540).  case  {ante,  §  387),  which  was  announced 

2  Prescott,  etc.  R.  Co.  v.  Atchison,  after  the  decision  in  this  case.  The 
etc.  R.  Co.,  73  Fed.  438  (1896).  The  true  reason  for  hokling  the  agreement 
conclusion  of  the  Court  in  this  case,  not  in  contravention  of  the  statute 
that  the  agreement  in  question  did  not  would  seem  to  be  that  it  was  not  in 
contravene  the  provisions  of  the  federal  restraint  of  trade  or  commerce, 
anti-trust  act,  is  probably  well  founded,  ^  Gulf,  etc.  R.  Co.  v.  Miami  Steam- 
but  the  reasons  stated  for  so  holding,  ship  Co.,  86  Fed.  407  (1898). 

that  that  act  "  is  directed  solely  against  *  Southern     Indiana     Exp.    Co.    v. 

contracts  which  would  have  been  unlaw-     United  States  Exp.  Co.,  88   Fed.  659 
ful  before  the  passage  of  the  act,"  is     (1898),  affirmed  92  Fed.  1022  (1899). 

575 


§  393  INTEItCORPORAlE   RELATIONS.  [PART   V. 

of  the  combination  agreement.  Does  the  ayreemeni  restrain 
trade  or  commerce  in  any  ivay?^ 

§  393.  Form  of  Combination  immaterial.  Illegality  of  Corpo- 
rate Device.  —  In  the  Trans- Missouri  Freiyht  ^Association 
Case  it  was  urged  that  the  federal  statute  was  inaiiplicablc 
to  an  association  of  railroad  companies  for  the  purpose  of 
regulating  trallic  rates,  because  the  language,  "every  con- 
tract, combination  in  the  form  of  trust  or  otherwise,"  covers 
only  contracts  or  combinations  in  the  trust  form  or  those 
which,  while  not  exactly  trusts,  arc  of  a  similar  f(jrm  ov 
nature.  IJut  the  Supreme  Court  of  the  United  States  said:^ 
"This  is  clearly  not  so.  While  the  statute  prohibits  all 
combinations  in  the  form  of  trust  or  otherwise,  the  limitation 
is  not  confined  to  that  form  alone.  All  combinations  which 
are  in  restraint  of  trade  or  commerce  are  prohibited,  whether 
in  the  form  of  trusts  or  in  any  other  form  whatever." 

Every  contract,  combination  or  conspiracy  in  restraint  of 
interstate  or  foreiujn  commerce  is  illegal.  Tlie  method 
adopted  in  bringing  about  the  combination  is  immaterial ; 
and  the  device  of  a  holding  corjjoration  for  the  purpose  of 
circumventing  the  law  can  be  no  more  effectual  than  any 
other  means.  While  a  corporation,  in  the  legitimate  exer- 
cise of  power  conferred,  may  purchase  and  hold  the  shares 
of  other  corporations,  the  formation  of  a  holding  corpora- 
tion, as  a  part  of  a  scheme  to  bring  about  a  combination  of 
competing  railroad  companies  —  a  practical  consolidation 
through  the  pooling  of  earnings  and  virtual  pooling  of  stocks 

^  United    States    v.   Trans-Missouri  lies  created  by  contract  or  combination 

Freight   Ass'n,    lOO    U.  S.  341   (1897),  in  the  form   of  trust,  which  of  coarse 

(17  Sup.  Ct.  Kep.  540).  would  be  of  a  'contractual  character,' 

2  United  States  v.  Trans-Missouri  was  adhered  to,  is  clear ;  but  it  is  equally 
Freight  Ass'n,  166  U.  S.  326  (1897),  clear  that  afurther  and  more  compre- 
(17  Sup.  Ct.  Rep.  540) ;  United  States  hensive  purpose  came  to  be  entertained, 
V.  Debs,  64  Fed.  747  (1894):  "It  is  and  was  enil)odied  in  the  final  form  of 
therefore  tlie  privilege  and  duty  of  the  the  enactment.  Combinations  are  con- 
court,  uncontrolled  by  considerations  denuied,  not  only  when  they  take  the 
drawn  from  other  sources,  to  find  the  form  of  trusts,  but  in  whatever  form 
meaning  of  the  statute  in  the  terms  of  found,  if  tliey  be  in  restraint  of  trade. 
its  provisions,  interpreted  by  the  settled  That  is  tlie  effect  of  the  words  '  or 
rules  of  construction.  That  the  original  otherwise.' " 
design  to  suppress  trusts  and  mpnopo- 

576 


CHAP.    XXXIX.]       CONSTRUCTION   AND    APPLICATION.  §  395 

—  in   restraint   of   interstate  or   foreign  commerce,    seems 
clearly  in  violation  of  the  provisions  of  the  statute. ^ 

§  394.  statute  inapplicable  to  States  Monopoly  and  to  Monop- 
oly under  Patent.  —  The  statute  declares  that  every  person 
who  monopolizes  interstate  trade  or  commerce  shall  be 
deemed  guilty  of  a  misdemeanor,  and  that  the  word  "  person  " 
includes  "corporations  "  and  "associations."  A  State,  how- 
ever, is  neither  a  person,  corporation  nor  association,  and 
the  statute  is  inapplicable  to  a  monopoly  maintained  by  a 
State. 2 

Conditions  imposed  by  a  patentee  in  a  license  to  manu- 
facture a  patented  article  which  tend  to  keep  up  the  monop- 
oly and  maintain  prices,  and  an  agreement  not  to  grant 
similar  licenses  to  other  persons,  are  not  in  contravention  of 
the  statute.  The  monopoly  results  from  the  patent  and  not 
from  the  agreement.  ^ 

§  oJo.  Statute  not  retroactive  but  applies  to  Continuing 
Combinations.  —  While  the  federal  statute  is  not  retroactive,* 
it  applies  to  combinations  continued  in  force  after  its  enact- 
ment." Although  a  combination  may  have  been  lawful  when 
formed,  its  continuation  after  it  has  been  declared  illegal 
becomes  a  violation  of  the  act.  The  statute  is  not  of  an 
ex  post  facto  nature,  but  the  legal  effect  of  its  enactment 
was  to  prohibit  the  continuance  of  existing  combinations  in 
contravention  of  its  provisions,  and  the  formation  of  such 
combinations  in  the  future. 

1  The  principles  of  public  policy  re-  (1895),  holding  that  the  federal  anti- 
garding  the  purchase  by  one  corpora-  trust  act  was  inapplicable  to  the  State 
tiou  of  stock  in  another  for  the  purpose  of  South  Carolina  which,  by  its  laws, 
of  extinguishing  competition,  while  not  assumed  a  complete  monopoly  of   the 
directly  in  point,  are  not  without  some  traffic  in  intoxicating  liquors, 
bearing  in  determining  tlie  validity  of  a  ^  Bement  v.  National  Harrow  Co., 
holding  corporation  of  the  character  in-  22  Sup.  Ct.  Rep.  747  (1902). 
dicated.     For  a  consideration  of  these          *  In  re  Greene,  52  Fed.  112  (1892). 
principles,  see    ante,    §292:  "Holding          ^  United    States   v.   Trans-Missouri 
Stock  to  prevent  Competition."  Freight  Ass'n,  166  U.  S.  342  (1897),  (17 

2  Lowenstein  f.  Evans,  69  Fed.  908  Sup.  Ct.  Rep.  540). 


37  577 


§396 


INTEHCOBPOUATE  DELATIONS. 


[I'ART   V. 


CHAPTER  XL. 

RIGHTS,    REMEDIES   AND   PROCEDURE   UNDER    FEDERAL   STATUTE. 

§  396.  Invalidity  nnder  Federal  Statntc  as  a  Ground  of  Collateral  Attack. 

§  397.  Injunctive  Relief  Remedy  of  Government  only. 

§  398.  Actions  by  Government  to  enforce  Forfeitures. 

§  399.  Criminal  Proceedings — ludictment.s. 

§  400.  Actions  at  Law  by  Private  Persons —  Damages. 

§  401.  Illegality  of  Combination  must  be  shown  —  Evidence. 

§  402.  Parties  Defendant. 

§  403.  Kffpct  of  Voluntary  Dissolution  of  Combination  pending  Proceedinga. 

§  404.  Limitations  of  Actions. 

§  300.  Invalidity  under  Federal  Statute  as  a  Ground  of  Col- 
lateral Attack.  —  Upon  principles  elsewhere  stated  in  refer- 
ence to  illegal  combinations  in  general,*  the  fact  that  one 
of  tho  parties  to  an  agreement  may  be  a  combination  in 
violation  of  the  federal  statute  cannot  be  invoked  collaterally 
to  affect,  in  any  manner,  its  independent  contractual  obliga- 
tions   or   rights.^     Parties   dealing    with   the   combination 


1  See  ante,  §  369  :  "  Collateral  Attack 
upon  Combination.  Remedies  upon  In- 
dependent Contracts"  Reference  should 
be  had  to  this  section  for  consideration 
of  general  principles,  applicable  as  well 
to  combinations  in  violation  of  the 
federal  statute  as  to  those  inimical  to 
public  policy. 

2  One  who  requests  and  accepts  the 
services  of  a  tug  for  towage  purposes 
cannot  escape  paying  the  reasonable 
value  of  the  services  rendered,  on  the 
ground  that  the  owners  of  the  tug  were 
members  of  a  combination  in  violation 
of  the  federal  statute.  The  Charles 
E.  Wiswall,  86  Fed.  671  (1898),  affirm- 
ing 74  li'ed.  802  (1896).  In  this  case, 
however,  the  Court  held  that  the  com- 
bination was  not  in  restraint  of  inter- 
state commerce  so  as  to  come  within 
the  condemn.ition  of  the  statute. 

A  note  for  a  balance  of  account  can- 
not be  avoided  on  the  ground  that  the 
payee  is  an  unlawful  combination  coo- 

678 


trary  to  tho  anti-tru.st  act.  Union 
Sewer  Pipe  Co.  v.  Connolly,  99  Fed. 
354  (1900).  In  affirming  the  decision  in 
this  ca.se  (sub  nom.  Conuolly  v.  Union 
Sewer  Pipe  Co.,  184  U.  S.  550  (1902)), 
the  Supreme  Court  of  the  United  States 
said  :  "  If  tho  contract  between  plaintiff 
corporation  and  the  other  named  cor- 
porations, persons  and  companies,  or 
tlie  combination  thereby  formed,  was 
illegal  under  the  act  of  Congress,  then 
all  those,  whether  persons,  corporations 
or  associations,  directly  connected  there- 
with, became  subject  to  the  penalties 
prescribed  by  Congress.  But  the  act 
does  not  declare  illegal  or  void  any  sale 
made  by  such  combination,  or  by  its 
agents,  of  property  it  acquired  or  which 
came  into  its  possession  for  the  purpose 
of  being  sold,  such  property  not  being, 
at  the  time,  in  the  course  of  transporta- 
tion from  one  State  to  another  or  to 
a  foreign  country.  The  buyer  could  not 
refuse  to  comply  with  his  contract  of 


CHAP.    XL.]         RIGHTS,   REMEDIES   AND    PROCEDURE, 


§  396 


cannot  set  up  its  illegality  as  a  defence  to  demands  not 
connected  with  the  illegal  transaction  and  not  dependent 
upon  it  for  enforcement. 

Conversely,  when  the  combination  must  establish  its  claim 
through  the  illegal  transaction,  it  will  fail.  Clean  hands 
are  essential  in  a  court  of  equity,  and  a  combination  in 
violation  of  the  anti-trust  law  cannot  invoke  the  aid  of  a 
court  of  equity  for  the  protection  of  its  rights  under  con- 
tracts entered  into  as  the  direct  result  of  the  unlawful 
combination.  1 


purchase  npon  the  gronnd  that  the 
seller  was  an  illegal  combination  which 
might  be  restrained  or  su[)pressed  in 
the  mode  prescribed  by  the  act  of  Con- 
gress ;  for  Congress  did  not  declare 
that  a  combination  illegally  formed 
under  the  act  of  1890  should  not,  in  the 
conduct  of  its  business,  become  the 
owner  of  property  which  it  might  sell 
to  whomsoever  wished  to  buy  it.  So 
that  there  is  no  necessary  legal  connec- 
tion here  between  the  sale  of  pipe  to 
the  defendants  by  the  plaintiff  corpora- 
tion and  the  alleged  arrangement  made 
by  it  with  other  corporations,  companies 
and  firms.  The  contracts  under  which 
the  pipe  in  question  was  sold  were,  as 
already  said,  collateral  to  the  arrange- 
ment for  the  combination  referred  to, 
and  this  is  not  an  action  to  enforce  the 
terms  of  such  arrangement.  That  com- 
bination may  have  been  illegal,  and  yet 
the  sale  to  the  defendants  was  valid." 

1  In  Delaware,  etc.  R.  Co.  v.  Frank, 
IIO  Fed.  689  (1901),  a  suit  by  a  railroad 
company  to  enjoin  the  defendants,  who 
were  ticket  brokers,  from  dealing  in 
special  tickets  issued  on  account  of  the 
Pan-American  Exposition,  which  were 
by  their  terms  non-transferable,  it  aj>- 
peared,  on  hearing  of  motion  for  prelimi- 
nary injunction,  that  complainant  was  a 
member  of  a  combination  known  as  the 
"  Trunk  Line  Association,"  formed  by 
a  number  of  railroads  operating  in 
different  States  for  the  purpose  of  pre- 
venting competition ;  that  passenger 
receipts  were  pooled  and  divided  on  an 


agreed  basis ;  and  that  the  special  rates 
made  on  account  of  the  Exposition  were 
fi.\ed,  and  the  terras  of  the  ticket  which 
were  the  basis  of  the  suit  prescribed, 
by  such  association.  Judge  Ilazen  held 
that  such  association  was  in  violation 
of  the  federal  anti-trust  law  and  said : 
"  The    defendants    do    not     deny    the 

charges  of  wrongdoing But   can 

the  aid  of  a  federal  tribunal  be  invoked 
to  protect  the  complainant  in  the  issu- 
ance of  a  ticket  over  its  railroail,  which, 
as  far  as  it  appears  to  the  court,  is  the 
culmination  as  well  as  the  evidence  of 
an  agreement  between  railroad  corpora- 
tions specifically  forbidden  by  an  act  of 
Congress  which  has  been  sustained  by 
the  Supreme  Court  of  the  United 
States  ?  .  .  .  The  complainant  contends 
that  this  charge  made  by  tlie  defendant 
does  not  avail,  as  the  wrong-doing,  if 
any  exists,  does  not  relate  to  the  sub- 
ject m.atter.  I  am  not  convinced  as  to 
the  soundness  of  this  contention.  Can 
the  railroad  complainant  conspire  un- 
lawfully to  fi.x  rates,  and  then  come  into 
a  court  of  equity  and  invoke  its  aid  to 
protect  those  rates  which  are  repre- 
sented by  the  ticket  presented  to  the 
court,  and  which  is  wrongfully  used  by 
the  defendants'?  The  evil  practice 
wliich  stands  admitted  by  the  papers 
is  the  very  practice  for  which  the 
court's  protection  is  invoked." 

In  Bement  v.  National  Harrow  Co., 
22  Sup.  Ct.  Rep.  754  (1902),  the  Supreme 
Court  of  the  United  States  said  :  "  The 
plaintiff  contends,  in  the  first  place,  that 

579 


§  307 


INTERCORPORATE   RELATIONS. 


[part  V. 


§  307.  Injunctive  Relief  Remedy  of  Government  only.  —  The 
first  three  sections  of  the  statute  dechire  certain  acts  and 
agreements  criminal  ofTences  against  the  United  States. 
The  fourth  section  confers  jurisdiction  upon  the  circuit 
courts  of  the  United  States  to  restrain  violations  of  the  act, 
and  declares  it  to  be  the  duty  of  t'le  several  district  attorneys 
"under  the  direction  of  the  Attorney-General,  to  institute 
proceedings  in  equity  to  prevent  and  restrain  such  viola- 
tions." The  fifth  section  provides  for  the  citing  in  of  addi- 
tional parties,  the  sixth,  for  the  forfeiture  to  the  United 
States  of  certain  property  in  course  of  transportation,  and 
the  eighth  states  a  rule  of  construction.  The  only  remedy 
afforded  a  private  person  is  provided  in  the  seventh  section, 
which  gives  a  party  injured  the  right  to  recover  threefold 
damages,  costs  and  attorney's  fees.  ^    The  statute,  being  penal 


only  the  Attorney-Gcneml  of  the  Fuited 
States  can  briniGj  an  action  under  the 
statute,  excej)tin<:f  tliat  liy  section  7  of  tlie 
act  any  person  injured  in  his  business  or 
property,  as  provided  for  therein,  may 
himself  sue  in  any  circuit  court  of  tiie 
United  States  in  the  district  in  wliich 
tlie  defendant  resides  or  is  found.  As- 
suming that  the  plaintiff  is  rijjht  so  fur 
as  regards  any  suit  brought  under  that 
act,  we  are  nevertheless  of  opinion  that 
anyone  sued  upon  a  contract  may  set  up 
as  a  defence  that  it  is  a  violation  of  tlie 
act  of  Congress,  and,  if  found  to  be  so, 
that  fact  will  constitute  a  good  defence 
to  the  action." 

1  Groerr.  Stoller,  77  Fed.  2  (1896), 
{per  Philips,  J.)  :  "  Can  a  private  citizen 
for  a  redress  of  a  private  grievance, 
maintain  a  bill  in  equity  for  an  injunc- 
tion under  this  act?  Tlie  things  for- 
bidden by  the  act  are  declared  to  be 
criminal  offences  against  the  govern- 
ment of  the  United  States.  By  the 
fourth  section,  the  jurisdiction  is  con- 
ferred upon  the  circuit  courts  of  the 
United  States  to  prevent  and  restrain 
the  violations  of  this  act,  '  and  it  shall  be 
the  duty  of  the  several  district  attorneys 
of  the  United  States  in  their  respective 
districts,   under   the  direction    of    the 

580 


Attorney-General,  to  institute  proceed- 
ings in  e<iuity  to  prevent  and  re.straia 
such  violations;  sucii  proceeilings  may 
be  by  way  of  petition  setting  forth  tiie 
case  and  praying  tliat  such  violations 
shall  be  enjoined  or  otherwise  pro- 
hibited.' Section  7  gives  to  tlie  pri- 
vate person  '  injured  in  his  business 
or  projierty  by  any  other  ])erson  or 
corporation  by  reason  of  anything  for- 
bidden, or  declared  to  be  unlawful  by 
tiiis  act,'  a  right  to  sue  in  a  circuit 
court  of  the  United  States  in  the  dis- 
trict in  which  the  defendant  resides  or 
is  found  for  threefold  damages  by  him 
sustained.  The  statute,  being  highly 
penal  in  its  character,  mu.st  be  strictly 
construed  ;  and,  having  created  a  new 
offence,  and  imposed  new  liabilities, 
and  having  provided  the  modes  of  re- 
dress to  the  public  and  the  private 
citizen,  by  established  rules  of  con- 
struction, these  remedies  are  inclusive 
of  all  others.  Suth.  St.  Const.  §§  392- 
394;  Riddick  v.  Governor,  1  Mo.  147 
(1821);  Stafford  v.  Ingersol,  3  Hill 
(N.  Y.),  38  (1842) ;  Chandler  v.  Hanna, 
73  Ala.  390  (1882).  While  there  has 
been  some  contrariety  of  opinion 
among  judges  as  to  whether  or  not 
the   right  of   injunction    to   a   private 


CHAP.    XL.]         RIGHTS,    REMEDIES   AND    PROCEDURE. 


§  39T 


in  its  nature,  must  be  strictly  construed.  It  imposes  now 
liabilities  and  provides  particular  modes  of  redress,  both  for 
the  public  and  the  individual,  and  the  methods  so  })re- 
scribed  are  exclusive.  The  United  States,  through  its  dis- 
trict attorneys,  has  the  sole  power  to  maintain  a  bill  for  au 
injunction  to  prevent  a  violation  of  the  statute,  and  the 
only  remedy  of  the  individual  is  that  provided  by  the 
statute.  ^ 

In  proceedings  for  injunctive  relief  it  is  provided  that  a 
petition  shall  be  filed  setting  forth  the  case,  and  praying  that 
the  alleged  violation  of  the  law  may  be  enjoined  or  otherwise 
prohibited ;  that,  after  notice  to  the  parties  complained  of, 
the  court  shall  proceed  as  soon  as  may  be  to  hear  and  deter- 
mine the  case,  and  that,  pending  petition  and  before  final 
decree,  it  may  make  such  temporary  restraining  order  as 
may  be  just.  In  construing  these  provisions,  it  has  been 
held  that  a  restraining  order  may  be  issued  without  notice 
where,  on  account  of  the  exigencies  of  the  case,  notice  might 


citizen  is  accorded  by  this  statute,  my 
conclusion  is  that  the  right  is  limited 
by  tlie  fourth  section  to  injunction  at 
the  relation  of  tlie  district  attorney, 
and  that  the  seventh  section  gives  to 
the  private  citizen  his  only  remedy." 

Southern  Indiana  Exp.  Co.  v.  United 
States  Exp.  Co.,  88  Fed.  663  (1898), 
(affirmed  92  Fed.  1022),  (1899)  :  "The 
anti-trust  law  of  July  2,  1890,  has 
•wrought  no  such  change  in  the  law 
as  will  enable  the  court  to  enforce  its 
provisions  in  favor  of  a  private  party 
by  a  bill  in  equity.  Under  this  act, 
the  only  remedy  giveu  to  any  other 
party  than  the  government  of  the 
United  States  in  an  action  at  law  for 
threefold  damages,  with  costs  and  at- 
torney's fees,  and  the  only  party  en- 
titled to  maintain  a  bill  in  equity  for 
injunctive  relief  for  an  alleged  violation 
of  its  provisions  is  the  United  States 
by  its  district  attorney,  on  the  author- 
ization of  its  attorney-general." 

See  also  Metcalf  v.  American  School- 
Furniture  Co.,  108  Fed.  909  (1901); 
Block  V.  Staudard   Distilling,  etc.  Co., 


9.5  Fed.  978  (1899)  ;  Gulf,  etc.  E.  Co.  v. 
Miami  Steamship  Co.,  86  Fed.  407 
(1898)  ;  Pidcock  v.  Harrington,  64  Fed. 
821  (1894);  Hagan  v.  Blindell,  56  Fed. 
696  (1893)  ;  affirming  Blindell  v.  Hagan, 
54  Fed.  40  (1893). 

1  United  States  v.  Trans-Missouri 
Freight  Ass'n,  166  U.  S.  342  (1897). 
(17  Sup.  Ct.  Rep.  540)  :  "It  is  urged 
that  the  United  States  have  no  stand- 
ing in  court  to  maintain  this  bill  ;  that 
they  have  no  pecuniary  interest  in  the 
result  of  the  litigation  or  in  the  ques- 
tion to  be  decided  liy  the  court.  We 
think  that  the  fourth  section  of  the  act 
invests  the  government  with  full  power 
and  authority  to  bring  such  an  action  as 
tliis,  and  if  the  facts  are  proved,  an  in- 
junction sliould  issue.  Congress  hav- 
ing the  control  of  interstate  commerce, 
has  also  the  duty  of  protecting  it,  and  it 
is  entirely  competent  for  that  body  to 
give  tlie  remedy  by  injunction  a.s  more 
efficient  than  any  other  civil  remedy." 
See  also  In  re  Debs,  158  U.  S.  564 
(1895),  (15  Sup.  Ct.  Kep.  900). 

581 


§  399 


INTERCORPORATE    RELATIONS. 


[part  V. 


be  dispensed  with  according  to  established  usages  of  equity 
practice.* 

§  398.  Actions  by  Government  to  enforce  Forfeiture.  —  Tlie 
sixth  section  of  the  act  provides  for  tlie  forfeiture  to  the 
United  States  of  property  owned  by  an  unlawful  combination 
while  in  course  of  transportation  from  one  State  to  another. 
The  method  of  procedure  under  this  statute  follows  that 
provided  for  the  forfeiture,  seizure  and  condemnation  of 
property  unlawfully  imported  into  the  United  States,  and 
involves  a  trial  by  jury.  There  can  be  no  seizure  in  a  suit 
in  equity  for  an  injunction  under  the  fourth  section  of  the 
act.  •■2 

The  locomotives  and  cars  of  a  railroad  carrier  are  not 
subject  to  forfeiture  because  it  trans|)orts  j)roperty  shipped 
in  violation  of  the  statute.  Simple  transportation  is  not  a 
contract,  combination  or  conspiracy.^ 

§  390.  Criminal  Proceedings.  Indictments.  —  The  first  and 
third  sections  of  the  federal  auti-trust  statute  in  declaring 


^  United  States  i;.  Coal  Dealer's 
Ass'n,  85  Fed.  252  (189S). 

^  United  State.s  v.  Addyston  Pipe, 
etc.  Co.,  85  Fed.  271  (I8'J8)'. 

3  United  States  v.  Trans-Mi.ssouri 
Freight  Ass'n,  1G6  U.  S.  313  (^97), 
(17  Sup.  Ct.  Kep.  540):  "Nor  do  we 
tliink  tiiat  l)erau.se  the  si.\th  section 
does  not  forfeit  the  i)roperty  of  the 
railroad  company  when  merely  en- 
gaged in  the  transportation  of  prop- 
erty owned  under  and  wiiich  was  tlie 
subject  of  a  contract  or  combination 
mentioned  in  the  first  section,  any 
ground  is  sliown  for  hokliiig  the  rest 
of  the  act  inapplicable  to  carriers  by 
railroad.  It  is  not  perceived  why,  if 
the  rest  of  the  act  were  intended  to 
apply  to  such  a  carrier,  the  sixth  sec- 
tion oufjht  nece.s.sarily  to  have  provided 
for  the  seizure  and  condemnation  of  the 
locomotives  and  cars  of  the  carrier  en- 
gaged in  the  transportation  between  the 
States  of  those  articles  of  commerce 
owned  as  stated  in  that  sixth  section. 
There  is  some  justice  and  propriety  in 
forfeiting    those   articles,   but   we   see 

582 


none  in  forfeiting  the  locomotives  or 
cars  of  the  carrier  simply  liecau.se  such 
carrier  was  transporting  articles  as  de- 
scribed from  one  State  to  another, 
even  though  tlie  carrier  knew  that 
they  had  been  manufactured  or  sold 
under  a  contract  or  combination  in 
viohition  of  the  act.  In  the  case  of 
siinj)le  transportation  of  snch  articles 
the  carrier  would  be  guilty  of  no  vio- 
lation of  any  of  the  provisions  of  the 
act.  Why,  therefore,  would  it  follow 
that  the  sixth  section  should  provide 
for  the  forfeiture  of  the  property  of 
the  carrier  if  the  rest  of  the  act  were 
intended  to  apjdy  to  it  1  To  subject 
the  locomotives  and  cars  to  forfeiture 
under  such  circumstances  might  also 
cause  great  confusion  to  the  general 
business  of  the  carrier,  and,  in  that 
way,  inflict  unmerited  punishment  upon 
the  innocent  owners  of  other  property 
in  the  course  of  transportation  in  the 
same  cars  and  drawn  by  the  same 
locomotives.  If  the  company  itself 
violates  the  act,  the  penalties  are  suf- 
ficient as  provided  for  therein." 


CHAP.   XL.]         RIGHTS,   REMEDIES   AND   PROCEDURE.  §  400 

contracts  in  restraint  of  interstate  and  interterritorial  trade 
or  commerce  not  only  illegal,  but  criminal  offences  against 
the  United  States,  punishable  by  fine  and  imprisonment,  go 
a  step  beyond  the  common  law.  Contracts  in  restraint  of 
trade,  while  illegal  at  common  law  as  being  contrary  to 
public  policy,  were  not  criminal  or  indictable.^  The  other 
provisions  of  these  sections,  however,  directed  against  com- 
binations and  conspiracies  in  restraint  of  interstate  commerce, 
and  the  second  section,  imposing  a  penalty  upon  persons  mo- 
nopolizing or  attempting,  combining  or  conspiring  to  monop- 
olize such  commerce,  cover  offences  —  criminal  conspiracies 
and  monopolies  —  known  to  the  common  law,  and  impose 
new  and  additional  penalties  upon  persons  committing  them 
when  affecting  interstate  commerce. 

The  statute  does  not  define  what  constitutes  a  contract, 
combination  or  conspiracy  in  restraint  of  trade  or  commerce, 
or  what  the  term  "  monopolize  "  means,  and  recourse  must 
be  had  to  the  common  law  and  outside  sources  to  obtain  the 
proper  definitions  of  these  terms.  The  statute  fails,  more- 
over, to  set  forth  all  the  elements  necessary  to  constitute 
the  several  offences,  and  an  indictment  simply  following  the 
language  of  the  statute,  without  stating  the  particular  acts 
of  the  accused,  would  be  wholly  insufficient. ^  An  indictment 
under  this  statute  must,  therefore,  be  tested  by  the  specific 
acts  alleged  to  have  been  done  or  committed ;  and  it  must  be 
distinctly  averred  that,  by  means  of  such  acts,  the  designated 
offence  against  the  freedom  of  interstate  commerce  was 
committed.^ 

The  statute  applies  to  corporations  as  well  as  to  persons, 
and  an  indictment  charging  a  stockholder  with  the  acts  of 
his  corporation  is  fatally  defective.* 

§  400.  Actions  at  Law  by  Private  Persons  —  Damages.  —  As 
already  indicated,  the  only  remedy  provided  for  an  individual 

1  /n  re  Greene,  52  Fed.  104  (1892).  (1892)  ;  United    States   v.    Nelson,    52 

3  In  re  Greene,  52  Fed.  104  (1892) ;  Fed.  646  (1892);  In  re  Greene,  52  Fed. 

United   States  v.  Nelson,  52  Fed.   646  104(1892);  United  States  ?\  Tatterson. 

(1892),  55  Fed.  605  (1893).     See  also  In  re  Ter- 

3  United  States  v.  Greenhut,  .50  Fed.  rell,  51  Fed.  213  (1892). 

469  (1892) ;  In  re  Corning,  51  Fed.  205         *  In  re  Greene,  52  Fed.  104  (189"). 

583 


§  400 


INTERCORPORATE   RELATIONS. 


[part  V. 


injured  by  reason  of  anything  forbidden  or  declared  to  be 
unlawful  by  the  federal  statute  is  an  action  at  law,  under  the 
seventh  section,  for  the  recovery  of  threefold  damages,  costs 
and  attorney's  fees.^  Such  an  action  may  be  brought  in  any 
circuit  court  of  the  United  States,  in  the  district  in  which 
the  defendant  resides  or  is  found,  without  regard  to  the 
amount  in  controversy. 

In  order  to  obtain  a  recovery,  it  is  necessary  for  a  plaintiff 
to  show : 

(1)  That  the  defendants  have  entered  into  a  combination 
or  conspiracy  to  restrain  or  monopolize  interstate  or  foreign 
commerce.^ 

(2)  That  he  has  been  injured  in  his  business  or  property 
by  reason  of  the  acts  of  the  defendants  in  pursuance  of  such 
combination  or  conspiracy.^ 

(3)  That  the  injury  has  involved  actual,  and  not  merely 
speculative,  damage  to  his  business  or  property.* 


*  For  consideration  of  constitution- 
ality of  a  provision  fur  the  recovery  of 
attorney's  fees,  see  In  re  Grice,  79  Fed. 
627   (1897). 

2  Gibbs  I'.  McNeeley,  102  Fed.  599 
(1900).  In  an  action  for  damajjes  un- 
der the  statute  a  complaint  is  demur- 
rable which  fails  to  aver  that  the  acts 
of  the  defendants  complained  of  liave 
some  connection  with  a  contract  or 
comltination  in  restraint  of  interstate 
commerce.  Bishop  v.  American  Pre- 
servers Co.,  51  Fed.  272  (1892),  {af- 
firmed 105  Fed.  845  (1900)). 

8  Gibbs  I'.  McNeeley,  102  Fed.  599 
(1900);  Lowry  v.  Tile,  etc.  Ass'n,  106 
Fed.  38  (1900),  {affirming  98  Fed.  817 
(1899)). 

Section  7  of  the  act  does  not  author- 
ize an  action  against  an  alleged  trust 
or  combination,  by  one  who  was  a  party 
to  its  organization  and  a  stockholder 
therein,  to  recover  damages  resulting 
from  the  enforcement  by  defendant  of 
rights  given  it  by  the  alleged  unlawful 
agreement.  Bishop  v.  American  Pre- 
servers Co.,  105  Fed.  845  (1900),  {af- 
firming 51  Fed.  272  (1892)). 

584 


*  In  Lowry  v.  Tile,  etc.  Ass'n,  106 
Fed.  46  (1900),  an  action  for  tlie  re- 
covery of  damages  under  tlie  federal 
statute,  Judge  Morrow  charged  the  jury 
as  follows  :  "  Under  these  instructions, 
there  is  left  for  your  consideration  the 
single  cjuestion  of  damages ;  and,  under 
the  provisions  of  the  statute,  if  you  find 
that  tiie  plaintiffs  have  been  injured  in 
their  business  l)y  reason  of  this  unlaw- 
ful combination  and  association  of  the 
defendants,  you  will  find  for  the  plain- 
tiffs in  such  a  sum  as  will  be  ecjuivaleut 
to  and  represent  the  actual  damages 
sustained  by  the  plaintiffs.  It  is  ior  the 
court,  in  e.Kecuting  the  provi.sions  of 
the  statute  in  entering  judgment  upon 
the  verdict  (if  you  shall  find  for  the 
plaintiffs),  to  treble  the  amount  of  the 
damages;  that  is  to  say,  any  verdict  ren- 
dered by  you,  and  upon  which  judg- 
ment will  be  entered  by  the  court,  will 
be  multiplied  by  three,  and  a  judgment 
entered  for  such  treble  damages.  Your 
verdict  will,  however,  be  limited  to  the 
actual  damages  which  the  evidence 
shows  the  plaintiffs  have  sustained  by 
reason  of  the  acts  of  the  defendants  in 


CHAP.    XL.]  RIGHTS,   REMEDIES   AND    PROCEDURE. 


§401 


§401.  Illegality  of  Combination  must  be  shown — Evidence. 
—  In  determining  whether  a  particular  contract  or  combi- 
nation comes  within  the  provisions  of  the  federal  statute, 
illegality  is  not  to  be  presumed  but  must  be  proved. ^  It 
must  be  shown  that  the  agreement,  or  the  method  of  doing 
business  thereunder,  is  in  violation  of  the  statute.  Where 
the  necessary  effect  of  an  agreement,  as  shown  upon  its  face, 
is  to  restrain  interstate  trade  or  commerce,  the  combination 
thereunder  is  illegal,  and  the  question  of  the  intent  of  the 
parties,  in  entering  into  it,  is  immaterial.^ 


violation  of  the  act  of  Congress.  The 
sole  question,  then,  as  to  daniafxes,  in 
this  case,  relates  to  an  injury  which  the 
plaintiffs  may  have  sustained  in  their 
business  by  reason  of  the  association  in 
question.  It  is  not  enough,  in  an  action 
of  this  kind,  which  is  one  at  law,  for  the 
plaintiffs  to  establish  the  existence  of 
an  association  which  comes  within  the 
inhibition  of  the  act  of  Congress.  Plain- 
tiffs must  go  still  further,  and  the  bur- 
den of  proof  is  upon  them  to  show  some 
real  and  actual  damage  to  tlieir  business 
by  reason  of  such  an  a.ssociation.  There 
is  no  duty  imposed  by  the  law  upon  the 
association,  even  if  within  the  statute,  to 
show  that  its  acts  have  not  worked  in- 
jury to  the  business  of  plaintiffs.  On 
the  contrary,  the  duty  and  burden  of 
proving  damage  to  their  business  is  im- 
posed by  law  upon  the  plaintiffs,  and, 
unless  they  prove  this  damage  to  their 
business  by  a  preponderance  of  evidence 
the  verdict  must  be  for  the  defendants. 
Mere  speculation  as  to  the  possible  prof- 
its of  a  mercantile  business,  in  the 
absence  of  evidence  directed  to  such 
conditions,  cannot  be  indulged  in  by  the 
jury  for  purposes  of  finding  a  verdict  in 
dama^'es.  The  damages  which  the  law 
contemplates,  and  which  tlie  act  of 
{^ongress  provides  for,  must  be  reason- 
aMe  damages  ascertainable  upon  the 
evidence  presented  in  tiie  case.  There 
must  be  facts,  transactions,  actual  evi- 
dence of  some  material  and  pertinent 
character,  relating  to  a  business  from 
which  the  jury  can  ascertaiu  with  rea- 


sonable certainty  that  damage  has  ac- 
tually been  worked  to  such  business, 
before  any  verdict  in  damages  can  be 
returned,  other  than  nominal  damages." 
See  also  Gibbs  v.  McNecley,  102 
Fed.  599  (1900). 

1  United  States  i;.  Addyston  Pipe, 
etc.  Co.,  78  Fed.  723  (1897),  '(rercrscl  85 
Fed.  271)  (1898),  175  U.  S.  211  (1899), 
(20  Sup.  Ct.  Kep.  90) ;  United  States  v. 
Trans-Missouri  Freight  Ass'n,  58  Fed. 
58  (1893),  (reversed  166  U.  S.  341) 
(1897),  (17  Sup.  Ct.  Rep.  540).  The  re- 
versal of  the  judgments  of  the  lower 
courts  in  these  cases  in  no  way  affecta 
the  principle  stated  in  the  te.xt. 

2  United  States  v.  Tran.s- Missouri 
Freight  Ass'n,  166  U.  S.  341  (1897), 
(17  Sup.  Ct.  Kep.  540) :  "  Although  the 
case  is  heard  on  bill  and  answer,  thus 
making  it  necessary  to  assume  the  truth 
of  the  allegations  in  the  answer  which 
are  well  pleaded,  yet  the  legal  effect  of 
the  agreement  itself  cannot  be  altered 
by  the  answer,  nor  can  its  violation  of 
law  be  made  valid  by  allegations  of 
good  intention  or  of  desire  to  simply 
maintain  reasonalde  rates;  nor  can  the 
plaintiffs'  allegations  as  to  the  intent 
with  which  the  agreement  was  entered 
into  be  regarded,  as  such  intent  is  denied 
on  the  part  of  the  defendants.  And  if 
the  intent  alleged  in  the  bill  were  a 
necessary  fact  to  be  proved  in  order  to 
maintain  the  suit,  the  bill  would  have 
to  be  dismi.ssed.  In  the  view  we  have 
taken  of  the  (juestion,  the  intent  alleged 
by  the  government  is  not  necessary  to  be 

585 


§  402  INTERCORPORATE   RELATIONS.  [PART    V. 

Where  the  agreement,  itself,  does  not  establish  the  ille- 
gality of  the  combination,  it  may  be  shown  by  all  the  facts 
and  circumstances  of  the  csae;  and  the  practical  working 
nnd  effect  of  the  defendant's  methods  of  doing  business  may 
properly  be  considered.^ 

In  Addyston  Pipe,  etc.  Co.  v.  United  States  the  Supreme 
Court  of  the  United  States  said:  "It  is  the  effect  of  the 
combination  in  limiting  and  restricting  the  right  of  each  of 
the  members  to  transact  business  in  the  ordinary  way,  as 
well  as  its  effect  upon  the  volume  or  extent  of  the  deal- 
ing in  the  commodity,  that  is  regarded.  All  the  facts 
and  circumstances  arc,  however,  to  be  considered  in  order 
to  determine  the  fundamental  question  —  whether  the  neces- 
sary effect  of  the  combination  is  to  restrain  interstate 
commerce.  "2 

§  402.  Parties  Defendant.  —  In  a  suit  in  equity  by  the  gov- 
ernment, under  the  fourth  section  of  the  statute,  to  restrain 
an  alleged  unlawful  unincorporated  association,  it  is  suffi- 
cient that  the  association,  its  officers  and  a  number  of  its 
members,  be  made  parties  defendant.^  This  is  in  accordance 
with  the  rule  that  where  parties  are  numerous  some  of  them 
may  be  cited  in  as  representing  the  whole  number. 

Where,  however,  an  action  is  brought,  under  the  statute, 
against  the  directors  or  trustees  of  such  an  association,  who 

proved.     The  question  is  one  of  law  in  methods  of  doing  business,  as  disclosed 

regard  to  the  meaning  and  effect  of  the  by  the  testimony  in  the  case." 

ogreement    itself ;     namely,     does    the  In    United  States  i>.   Workingmen's 

B.Teement  restrain  trade  or  commerce  Amalgamated    Council,    54     Fed.    994 

in  any  way  so  as  to  be  a  violation  of  the  (1893),  it  was  held  that  in  order  to  sua- 

act  ?     We  have  no  doubt  that  it  does."  tain  the  allegations  of  a  bill  praying  an 

1  United  States  v.  Hopkins,  82  Fed.  injunction    against    a     combination    in 

534    (1897),    (reversed    171    U.    S.    578  restraint  of   interstate    commerce,    the 

(1898),  (19  Sup.  Ct.  Rep.  40)):  "The  complainant  might  offer  in  evidence  the 

first   question,   whether    there    is    any  offici.al  proclamation  of  the  various  gov- 

combiuation   in   restraint   of   trade    or  ernment   officers,   and    also    newspaper 

commerce,  or  a  combination  to  monop-  reports,  su])ported  by  affidavits,  contain- 

olize   any  part   of  trade  or  commerce,  ing  manifestoes  and  declarations  of  the 

on  the  part  of  the  defendant   a.ssocia-  respondents. 

tion.is  to  be  determined,  not  alone  from  ^  Addyston  Pipe,  etc.  Co.  v.  United 

what  appears  upon  the  face  of  its  pre-  States,   175  U.  S.  211   (1899),  (20  Sup. 

amble,  rules  and  by-laws,  but  from  the  Ct.  Rep.  96). 

entire  situation  and  the  practical  work-  '  United    State?    v.    Coal    Dealerg 

ing    and    results   of    the    defendants*  Ass'n,  85  Fed.  260  (1898). 

586 


CHAP.    XL.]  RIGHTS,   REMEDIES   AND   PROCEDURE.  §  404 

manage  and  control  its  affairs,  all  the  directors  or  trustees 
are  necessary  parties.^ 

§  403.  Effect  of  Voluntary  Dissolution  of  Combination  pending 
Proceedings.  —  The  equitable  remedy  afforded  the  government 
to  restrain  combinations  in  violation  of  the  statute  is  for  the 
protection  of  the  rights  of  the  public,  and  the  relief  granted 
should  be  adequate  to  the  occasion.  The  mere  dissolution 
of  the  unlawful  combination  may  not  be  the  most  im{)ortant 
part  of  the  litigation.  The  essential  question  is  the  validity 
of  the  agreement,  and  the  injunction  prayed  for  may  properly 
go  so  far  as  to  enjoin  the  execution  of  similar  agreements  in 
the  future. 

In  such  a  case,  the  dissolution  of  an  unlawful  associa- 
tion, after  judgment  and  pending  appeal,  does  not  deprive 
the  appellate  court  of  jurisdiction. ^ 

§  404.  Limitations  of  Actions.  —  The  right  of  action  for  the 
recovery  of  treble  damages,  under  the  seventh  section  of  the 
statute,  is  granted  as  a  remedy  for  a  private  wrong,  and  is 
compensatory  in  its  purpose  and  effect  —  the  damages  allowed 
in  excess  of  those  actually  sustained  being  regarded  as 
exemplary   damages.^     An  action   based   upon  the   statute, 

1  Greer  v.  Stoller,  77  Fed.  1   (189B).  fore  judj^ment  is  obtained  or  while  the 

^United    States    v.   Traus-Missouri  case  is  on  appeal,  and,  in  any  such  case, 

Freight  Ass'n,  166  U.  S.  309  (1896),  (17  the  court,  being  informed  of  the  facta. 

Sup.    Ct.    Rep.    .')40) :    "  Although  the  will  proceed  no  further  in  the  action, 

general  rule  is  that  equity  does  not  in-  Here,  however,  there  has  been  no  ex- 

terfere   simply   to   restrain   a    possible  tinguishment  of  the   rights    (whatever 

future  violation  of  law,  yet  where  par-  they  are)  of  the  public,  the  enforcement 

ties  have  entered  into  an  illegal  agree-  of  wliich   the  government  has  eudeav- 

meut  and  are  acting  under  it,  and  there  orcd    to  procure   by  a   judgment  of  a 

is  no  adequate  remedy  at  law  and  the  court  under  the  provisions  of  the  act  of 

jurisdiction  of  the  court  has  attached  Congress  above  cited.      The  defendants 

by  the  filing  of  a  bill  to  restrain  .such  cannot  foreclose  those  rights  nor  pre- 

or  any  like  action  under  a  similar  agree-  vent  the  assertion  thereof  by  the  gov- 

ment,   and  a  trial  has  been  had,   and  ernment,  as  a  substantial  trustee  for  the 

judgment  entered,  the  appellate  juris-  public  under  the  act  of  Congress,  by  any 

diction  of  the  court  is  not  ousted  by  a  guch  action  as  has  been  taken  in  this 

simple  dissolution  of  the  association  ef-  case." 

fected  subsequently  to  the  entry  of  See  also  United  States  v.  Working- 
judgment  in  the  suit.  Private  parties  men's  Amalgamated  Council,  54  Fed. 
may  settle   their  controversies  at   any  994  (1893). 

time,  and  rights  which  a  plaintiff  may  ^  cjty    of    Atlanta   v.  Chattanooga 

have  liad  at  the  time  of  the  commence-  Foundry,  etc.  Co.,  101  Fed.  900  (1900). 
ment  of  the  action  may  terminate  be- 

587 


§  405  INTERCORPORATE   RELATIONS.  [PART    V. 

therefore,  being  remedial,  rather  than  penal,  in  its  nature  is 
governed,  as  to  limitation,  by  the  statute  of  the  State  where 
it  is  brought,  and  not  by  the  federal  statute  prescribing  a 
limitation  of  five  years  for  a  "suit  or  prosecution  for  any 
penalty  or  forfeiture,  pecuniary  or  otherwise,  accruing  under 
the  laws- of  the  United  States."^ 


11. 
STATE  ANTI-TRUST  STATUTES. 

CHAPTER   XLI. 

STATE  STATUTES   AND   THEIR    CONSTITUTIONALITY. 

§  405.     Tho  Statutes.     Scope  of  State  Legi.slation. 

§  406.     Power  of  State  to  prohibit  Combinations  of  Quasi-public  Corporations. 

Power  over  Property  devoted  to  Public  Uses. 
§  407.     Power  of  State  to  prohibit  Combinations  of  Corporations  in  Exercise  of 

Reserved  Power. 
§  408.    Validity  of  State  Statutes  tested  by  Fourteenth  Amendment  —  (A)  Right 

to  contract. 
§  409.    Validity  of  State  Statutes  tested  by  Fourteenth  Amendment  —  ( B)  Police 

Power  of  the  State. 
§  410.    Validity  of  State  Statutes  tested  by  Fourteenth  Amendment —  (C)  Class 

Legislation. 

5  405.  The  Statutes.  Scope  of  State  Legislation.  —  A  sum- 
mary of  all  the  State  laws  against  combinations  —  commonly 
called  "anti-trust"  acts  —  is  printed  in  the  subjoined  note.^ 

1  Rev.  Stat.  U.  S.  §  1047.  tity  of  any  article  or  commodity  to  be 

2  Alabama.  Code  1 896,  ch.  196,  art.V.,  produced,  manufactured,  mined,  or  sold 
§5.557  :  "Any  person  or  corporation,  who  in  this  State,  must,  on  conviction,  be 
engages  or  agrees  with  other  persons  or  fined  not  less  than  five  hundred,  nor 
corporations,  or  enters  into,  directly  or  more  than  two  thousand  dollars." 
indirectly,  any  combination,  pool,  trust  lb.  §  5558  :  "  Any  corporation  char- 
or  confederation,  to  regulate  or  fix  the  tered  under  the  laws  of  this  State,  or  any 
price  of  any  article  or  commodity  to  be  ofiicer,  stockholder,  agent,  or  employee 
sold  within  this  State  for  speculation ;  of  any  such  corporation,  which  enters 
or  any  person  or  corporation  who  enters  into  any  combination  with  any  other 
into,  becomes  a  member  of,  or  party  to,  corporation  or  person  with  the  intent 
any  pool,  agreement,  combination,  or  to  place  the  management  or  control  of 
confederation  to  fix  or  limit  the  quan-  any  such  corporation  in  the   hands  of 

688 


CHAP.    XLI.]      STATE    STATUTES  :    CONSTITUTIONALITY. 


These  statutes  are  the  manifestation  of  the  intense  feeling  of 
the  people,  in  many  sections  of  the  country,  against  "trusts." 


another  corporation  or  person,  and 
thereby  limit  or  fix  the  price,  or  re- 
Btrict  or  diminish  the  production,  manu- 
facture, sale,  use,  or  consumption  of 
any  article  of  commerce,  must,  on  con- 
viction, be  fined  not  le?s  tlian  five 
huudred  nor  more  than  two  tliousaud 
dollars." 

Arkansas.  Const.  Art.  IT.  §  19 : 
"  Perpetuities  and  monopolies  are  con- 
trary to  the  jijenius  of  a  republic,  and 
shall  not  be  allowed.  .  .  ." 

Act  of  March  6,  1899:  "  Any  cor- 
poration organized  under  the  laws  of 
tliis  or  any  other  State,  or  country,  and 
transacting  or  conducting  any  kind  of 
business  in  this  State,  or  any  partuersliip 
or  individual,  or  other  associations  or 
persons  whatsoever,  who  sliall  create, 
enter  into,  become  a  member  of,  or 
a  party  to  any  pool,  trust,  agreement, 
combination,  confederation  or  under- 
standing with  any  other  corporation,  part- 
nership, individual  or  any  other  person 
or  association  of  persons,  to  regulate  or 
fix  the  price  of  any  article  of  manu- 
facture, mechanism,  merchandise,  com- 
modity, convenience,  repair,  any  product 
of  mining,  or  any  article  or  thing  what- 
goever,  or  the  price  or  premium  to  be 
paid  for  insuring  property  against  loss 
or  damage  by  fire,  lightning  or  storm, 
or  to  maintain  said  price  when  so 
regulated  or  fixed,  or  shall  enter  into, 
become  a  member  of  or  a  party  to  any 
pool,  agreement,  contract,  combination, 
association  or  confederation  to  fix  or 
limit  the  amount  or  quantity  of  any 
article  of  manufacture,  mechanism, 
merchandise,  commodity,  convenience, 
repair,  any  product  of  mining  or  any 
article  or  thing  whatsoever,  or  the  price 
or  premium  to  be  paid  for  insuring 
property  against  loss  or  damage  by 
fire,  lightning,  storm,  cyclone,  tornado, 
or  any  kind  of  policy  issued  by  any 
corporation,  partnership,  individual  or 
association  of  persons  aforesaid,  shall 
be  deemed  and  adjudged  guilty  of  a 
conspiracy  to  defraud   and  be  subject 


to  the  penalties  as  provided  by  this 
act." 

For  penalties  against  corporations 
and  individuals  see  post,  §§419  h,  420  n. 

California.  Code  1899,  p.  705  (Act 
of  Feb.  27,  189.3),  relates  only  to  com- 
binations to  obstruct  the  sale  of  lire 
stock  in  the  State.  Pom.  Civ.  Code, 
1901,  §§  1673,  1674  and  1675  relate  to 
conventional  contracts  in  restraint  of 
trade. 

Florida.  Laws  1897,  ch.  4534,  relates 
only  to  combinations  to  obstruct  the 
sale  of  meat  or  edible  live  stock  in  the 
State.  For  penalties  against  corpora- 
tions and  individuals  see  post  §§  419  h, 
420  n. 

Georgia.  Supp.  Code  1901,  §  6467  : 
"  From  and  after  the  passage  of  this 
Act,  all  arrangements,  contracts,  agree- 
ments, trusts  or  combmations  between 
persons  or  corporations  made  with  a 
view  to  lessen,  or  which  tend  to  lessen, 
full  and  free  competition  in  the  impor- 
tation or  sale  of  articles  imported  into 
this  State,  or  in  the  manufacture  or  sale 
of  articles  of  domestic  growth  or  of 
domestic  raw  material,  and  all  arrange- 
ments, contracts,  agreements,  trusts 
or  combinations  between  persons  or 
corporations  designed,  or  which  tend  to 
advance,  reduce  or  control  the  price 
or  the  cost  to  the  producer  or  to  the 
consumer  of  any  such  product  or  arti- 
cle, are  hereby  declared  to  be  against 
public  policy,  unlawful  and  void." 

For  Georgia  constitutional  j)rovision. 
Art.  IV.  §  2,  par.  4,  against  agreements 
for  prevention  of  competition,  see  ante, 
§  32  n.  For  exemption  of  agricultural 
products  and  live  stock  see  post,  §  410  n. 
For  penalties  against  corporations  and 
individuals  see  jwst,  §§  419  n,  420  n. 

Illinois.  Meyer's  111.  Stat.  1S93,  ch. 
140  6  (Act  of  Jtily  11,  1891,  as  amended 
by  Laws  1897,  p.  298):  (1)  "If  any 
corporation  organized  under  the  laws 
of  this  or  anj'  other  State  or  country, 
for  transacting  or  conducting  any  kind 
of  business  in  this  State,  or  any  part- 

589 


§405 


INTERCORPORATE   RELATIONS. 


[PAKT    V. 


From  whatever  point  the  combination  may  be  viewed,  there- 
fore,   it   is   to  be   regretted   that    legislatures,    in   enacting 


nership  or  indiridaal  or  other  associa- 
tion of  persons  whatsoever,  shall  create, 
enter  into,  become  a  member  of  or  a 
party  to  any  pool,  trust,  agreement, 
combination,  confederation  or  under- 
standing with  any  other  corporation, 
partnership,  individual,  or  any  other  per- 
son or  association  of  persons,  to  regulate 
or  fix  the  price  of  any  article  of  mer- 
chandise or  commodity,  or  siiall  enter 
into,  become  a  member  of  or  a  party 
to  any  pool,  agreement,  contract, 
combination  or  confederation  to  fix  or 
limit  the  amount  or  quantity  of  any 
article,  commodity  or  merchandise  to 
be  manufactured,  mined,  produced  or 
sold  in  this  State,  such  corporation, 
partnership  or  individual  or  other  associ- 
ation of  persons  shall  bo  deemed  and  ad- 
judged guilty  of  a  conspiracy  to  defraud, 
and  be  subject  to  indictment  and  pun- 
ishment  as  provided  in  this  Act.  .  .  . 

(2)  "  It  shall  not  be  lawful  for  any 
corporation  to  issue  or  to  own  trust 
certificates,  or  for  any  corporati'>n, 
agent,  officer  or  employees,  or  the 
directors  or  stockholders  of  any  cor- 
poration, to  enter  into  any  combination, 
contract  or  agreement  with  any  person 
or  persons,  corporation  or  corporations, 
or  with  any  stockholder  or  director 
thereof,  the  purpose  and  effect  of  which 
combination,  contract  or  agreement 
shall  be  to  place  the  management  or 
control  of  such  combination  or  com- 
binations, or  the  manufactured  product 
thereof,  in  the  hands  of  any  trustee  or 
trustees,  with  the  intent  to  limit  or  fix 
the  price  or  lessen  the  production  and 
sale  of  any  article  of  commerce,  use  or 
consumption,  or  to  prevent,  restrict  or 
diminish  the  manufacture  or  output  of 
any  such  article." 

(3)  All  contracts  or  agreements  in 
violation  of  any  provision  of  this  act 
are  absolutely  void. 

For  exemption  of  combinations  to 
maintain  wages  see  post,  §  410  n. 

For  provision  that  act  may  be  pleaded 
as  a  defence  see  post,  §  418  n. 

590 


For  penalties  against  corporationa 
and  individuals  see  post,  §§  4\'J  ;«.,  421  n. 

Tlie  later  Illinois  anti-trust  act  of 
June  20,  1893  (Starr  and  Curtis  Ann. 
Stot.  ch.  38,  par.  109),  has  been  de- 
clared unconstitutional  by  the  Supreme 
Court  of  tlie  United  States.  See  post, 
§410. 

For  exemption  of  agricultural  prod- 
ucts and  live  stock  from  this  act  sec 
j)ost,  §  410  n. 

Indiana.  Horner's  Anno.  Stat.  1901, 
§  7554  (Act  of  March  5,  1897):  "From 
and  after  the  passage  of  this  act,  all 
arrangements,  contracts,  agreements, 
trusts,  or  combinations  between  persona 
or  corporations  who  control  tlio  output 
of  said  article  of  merchandise,  made 
witii  a  view  to  lessen,  or  wliich  tend  to 
les.sen,  full  and  free  competition  in  the 
importation  or  sale  of  articles  imported 
into  tills  State,  and  all  arrangcnients, 
coiitr.icts,  agreements,  trusts,  or  com- 
binations between  persons  or  corpora- 
tions who  control  the  output  of  said 
article  of  mechandise  de.-^igned,  or 
which  tend  to  advance,  reduce  or  con- 
trol the  price  or  the  cost  to  the  pro- 
ducer or  to  the  consumer  of  any  .euch 
product  or  article,  are  hereby  declared 
to  be  agaiust  public  policy,  unlawful 
and  void. 

lb.  §  7556  :  "  That  any  violations  of 
the  provisions  of  this  act  sliall  be 
deemed  and  is  hereby  declared  to  be 
destructive  of  full  and  free  competition 
and  a  conspiracy  against  trade.  ..." 

lb.  §  7557  :  "  The  persons  designed 
by  this  act  to  be  affected  hereby  are 
those  who  own,  control  or  manufacture 
the  output  of  any  particular  article  of 
merchandise  mentioned  therein .  .  . 
For  exemption  of  agricultural  products 
and  live  stock  see  post,  §  410  n. 

lb.  §  7559  a  (Act  of  March  3,  1899) : 
"  That  any  person,  firm  or  association 
of  persons  who  shall  make  any  con- 
tract or  enter  into  any  agreement  or 
make  any  combination  or  enter  into  any 
arrangement,  directly  or  iudirectly,  to 


CHAP.    XLI.]      STATE    STATUTES:    CONSTITUTIONALITY. 


§405 


these  laws,  have  had  so  little  regard  for  the  fundamental 
principles  upon  which  the  right  of  the  State  to  act  depends. 


induce,  procure  or  prevent  any  whole- 
sale or  retail  dealers  iu  or  manufacturer 
of  merchandise  or  of  supplies  or  of 
material  or  article  intended  for  trade 
or  use  by  any  mechanic,  artisan  or 
dealer  in  the  prosecution  of  his  busi- 
ness from  selling  such  supplies  to  any 
dealer  or  to  any  mechanic  or  artisan ; 
and  that  any  dealer  in  or  manufacturer 
of  such  supplies  or  material  or  article 
of  trade  or  supplies  or  material  to  be 
used  by  any  mechanic,  artisan  or  dealer 
■who  shall  be  a  party,  directly  or  indi- 
rectly, to  any  such  contract,  combina- 
tion or  arrangement,  or  who  shall,  upon 
the  request  of  any  party  to  any  such 
contract,  combination  or  arrangement, 
refuse  to  sell  such  articles  of  trade, 
supplies  or  materials  or  articles  sold  by 
any  dealer  or  used  by  any  mechanic  or 
artisan,  to  any  such  person  or  persons 
who  may  require  them  in  the  prosecu- 
tion of  their  said  business,  for  the  reason 
that  said  dealer,  mechanic  or  artisan  is 
not  a  member  of  a  combination  or 
association  of  persons,  shall  be  guilty 
of  a  conspiracy  against  trade.  And  all 
such  contracts,  agreements,  combina- 
tions or  arrangements  shall  be  void 
and  of  no  effect  whatever  in  law." 

lb.  §  7559/ (Act  of  March  8,  1901) : 
"  That  from  and  after  the  passage  of 
this  act,  all  arrangements,  agreements, 
trusts  or  combinations,  or  any  agree- 
ments or  arrangements  that  are  made 
whereby  a  party  or  corporation  refases 
to  furnish  any  article  or  articles  required 
to  be  used  in  the  manufacture  of  any 
article  of  merchandise  when  the  party 
or  corporation  can  furnish  the  same  or 
by  charging  more  than  the  regular  and 
ordinary  price  for  the  same  or  doing  or 
refusing  to  do  any  act  or  acts  that 
would  cause  such  party  to  cease  to 
manufacture  such  article  or  hinder  such 
person  or  corporation  from  so  doing, 
and  that  all  arrangements,  contracts, 
or  acts  done  or  performed  between  any 
person  or  corpor.ation  engaged  in  the 
business  of  manufacturing  any  article, 


or  compelling  the  same  to  close  down 
or  go  out  of  business,  is  hereby  declared 
to  be  against  public  policy,  unlawful 
and  void." 

For  penalties  against  corporations 
and  individuals  see  post,  §§  419  n., 
420  n. 

Iowa.  McClain's  Anno.  Code  (Supp. 
to  1892),  §  5453  a  :  "  If  any  corporation 
organized  under  the  laws  of  this  or  any 
other  State  or  country,  for  transacting 
or  conducting  any  kind  of  bu.siness  in 
this  State,  or  any  partnership,  or  in- 
dividual, or  other  association  of  per- 
sons whosoever,  who  shall  create,  enter 
into,  or  become  a  member  of,  or  a 
party  to,  any  trust,  agreement,  combi- 
nation, confederation,  or  understanding 
with  any  other  corporation,  partner- 
ship, individual,  or  any  person  or 
association  of  persons,  to  regulate  or 
fix  the  price  of  any  article  of  merchan- 
dise or  commodity,  or  who  shall  enter 
into,  become  a  member  of  or  party  to 
any  pool,  agreement,  contract,  com- 
bination, or  confederation  to  fix  or 
limit  the  amount  or  quantity  of  any 
article,  commodity  or  merchandise  to 
be  manufactured,  mined,  produced  or 
sold  in  this  State,  shall  be  deemed  and 
adjudged  guilty  of  a  conspiracy  to 
defraud."  The  Iowa  statute  also  con- 
tains substantially  the  same  provisions 
as  the  Illinois  statute  {supra)  against 
the  issue  or  ownership  of  trust  certifi- 
cates and  against  agreements  for  the 
purpose  of  placing  the  control  of  cor- 
porations in  the  hands  of  a  trustee. 
For  provision  that  act  may  be  pleaded 
as  a  defence  see  post,  §  418  u.  For 
penalties  against  corporations  and  in- 
dividuals see  post,  §§  419  n,  420  n. 

Kansas.  Rev.  Stat.  1899,  ch.  113  a 
(Act  of  1897) :  "  A  trust  is  a  combina- 
tion of  capital,  skill  or  acts,  by  two 
or  more  persons,  firms,  corporations,  or 
associations  of  persons,  or  cither  two  or 
more  of  them,  for  either,  any  or  all  of 
the  following  purposes  : 

"First.     To  create  or  carry  out  re- 

591 


§405 


INTERCORPORATE   RELATIONS. 


[part  V. 


The  public  have  the  right  to  liave  the  status  of  the  combina- 
tion, in  its  relation  to  the  State,  determined.  Unconstitu- 
tional laws  are  worse  than  no  laws. 


strictions  in  trade  or  commerce  or  aids 
to  commerce,  or  to  carry  out  restrictious 
in  the  lull  and  free  pursuit  of  anv  busi- 
ness authorized  or  permitted  by  the 
laws  of  this  State. 

"  Second.  To  increase  or  reduce  the 
price  of  merrhaiuiise,  produce  or  com- 
modities, or  to  control  the  cost  of  rates 
of  insurance. 

"  Tliiril.  To  prevent  competition  in 
the  manufacture,  making,  transporta- 
tion, sale  or  purchase  of  mercliundise, 
produce  or  commodities,  or  to  prevent 
competition  in  aids  to  commerce. 

"  Fourth.  To  fix  any  standard  or 
figure,  whereby  its  price  to  the  public 
shall  be,  in  any  manner,  controlled  or 
established,  any  article  or  commodity 
of  merchandise,  produce  or  commerce 
intended  for  sale,  use  or  consumption 
in  this  State. 

"  Fifih.  To  make  or  enter  into,  or  to 
execute  orcarry  out, any  contract, obliga- 
tion or  agreement  of  any  kind  or  descrip- 
tion by  which  they  shall  bind  or  have 
to  bind  themselves  not  to  sell,  manu- 
facture, dispo.se  of  or  transport  any  arti- 
cle or  commodity,  or  articles  of  tr.ade, 
nse,  merchandise,  commerce  or  consump- 
tion below  a  common  standard  fi;^ure  or 
by  which  they  shall  agree  in  any  man- 
ner to  keep  the  price  of  such  article, 
commodity  or  transportation  at  a  fixed 
or  graded  figure,  or  by  which  they  shall 
in  any  manner  establish  or  settle  the 
price  of  any  article  or  commodity  or 
transportation  between  them  or  them- 
selves and  others,  to  preclude  a  free 
and  unrestricted  competition  among 
themselves  or  others  in  transportation, 
sale  or  manufacture  of  any  such  article 
or  commodity,  or  by  which  they  shall 
agree  to  pool,  combine  or  unite  any 
interest  they  may  have  in  connection 
with  the  manufacture,  sale  or  transpor- 
tation of  any  such  article  or  commodity, 
that  its  price  may  in  any  manner  be 
affected.     And  anv  such  combinations 

592 


are  hereby  declared  to  be  against  public 
policy,  unlawful  and  void." 

For  provision  that  act  may  be 
pleaded  as  defence  see  jwst,  §  418. 

For  penalties  against  corporations 
and  individuals  see  jtoat,  §§  419  ri., 
420  n. 

Gen.  Stat.  1899,  §  2.390:  "Every 
person,  servant,  agent  or  em])loyee  of 
any  firm  or  corporation  doing  business 
within  the  State  of  Kansas  that  shall 
conspire  or  combine  with  any  other 
persons,  firm  or  corporation,  within  or 
without  the  State,  for  the  purpose  of 
monopolizing  any  line  of  l)usiness,  or 
shall  conspire  or  combine  for  the  jiur- 
pose  of  preventing  the  producer  of 
grain,  seeds  or  live-stock  or  hay,  or  the 
local  buyer  thereof,  from  shipping  or 
marketing  the  same  without  the  agency 
of  any  third  person,  firm  or  corporation, 
shall  be  deemed  guilty  of  a  misde- 
meanor, and,  on  conviction,  shall  \>m 
fined*  in  a  sum  not  less  than  one  thou- 
sand dollars  and  not  to  exceed  five 
thousand  dollars,  for  each  offence." 

Kansas  has  also  another  anti-tru.'»t 
st.atute  (Gen.  Stat.  (1899)  §  2377)  .'•imi- 
lar  in  its  provisions  to  the  North  Dakota 
act  infra  and  the  Indiana  act  .'sujira, 
and  containing  (§  2378)  substantially 
the  same  provision  as  to  trust  certifi- 
cates and  the  placing  of  control  in  the 
hands  of  trustees  as  the  Illinois  statute 
supra. 

Kentuckt/.  Const.  §  198:  "It  .shall 
be  the  duty  of  the  General  Assembly, 
from  time  to  time,  as  necessity  may  re- 
quire, to  enact  such  laws  as  may  be 
necessary  to  prevent  all  trusts,  pools, 
combinations  or  other  organizations, 
from  combining  to  depreciate  below  its 
real  value  any  article,  or  to  enhance  the 
cost  of  any  article  above  its  real  value." 
Carroll's  Stat.  (1899),  ch.  101, 
§  3915  (Act  of  1890)  :  "If  any  corpo- 
ration under  the  laws  of  Kentucky,  or 
under  the  laws  of  any  other  State  or 


CHAP.    XLI.]       STATE   STATUTES  I    CONSTITUTIONALITY. 


§405 


There  are  clear  and  adequate  anti-trust  laws   upon  the 
statute  books,  but  a  very  large  proportion  of  the  acts  furnish 


country,  for  transacting  or  conducting 
any  kind  of  business  in  this  State,  or 
any  partnership,  company,  firm  or  in- 
dividual, or  other  association  of  per- 
sons, shall  create,  establish,  organize  or 
enter  into,  or  become  a  member  of,  or 
a  party  to,  or  in  any  way  interested  in, 
any  pool,  trust,  combine,  agreement, 
confederation  or  understanding  with 
any  other  corporation,  partnership,  in- 
dividual or  person,  or  association  of 
persons,  for  the  purpose  of  regulating 
or  controlling  or  fixing  the  price  of  any 
merchandise,  manufactured  articles  or 
property  of  any  kind,  or  shall  enter 
into,  become  a  member  of,  or  party  to, 
or  in  any  way  interested  in,  a  pool, 
agreement,  contract,  understanding, 
combination  or  confederation,  having 
for  its  object  the  fixing,  or  in  any  way 
limiting,  the  amount  or  quantity  of  any 
article  of  property,  commodity  or  mer- 
chandise to  be  produced  or  manufac- 
tured, mined,  bought  or  sold,  shall  be 
deemed  guilty  of  the  crime  of  con- 
spiracy." The  act  contains  provisions 
similar  to  those  of  the  Illinois  statute, 
supra,  concerning  trust  certificates  and 
trustees,  and  the  invalidity  of  contracts. 
For  provision  that  act  may  be  pleaded 
as  a  defence  see  post,  §  418  n.  For 
penalties  against  corporations  and  in- 
dividuals see  post,  §§  419  n.,  420  n. 

Louisiana.  Const.  Art.  CXC:  "It 
shall  be  unlawful  for  persons  or  corpo- 
raticms,  or  their  legal  representatives, 
to  combine  or  conspire  together,  or  to 
unite  or  pool  their  interests,  for  the 
purpose  of  forcing  up  or  down  the 
price  of  any  agricultural  product  or 
article  of  necessity  for  speculative  pur- 
poses ;  and  the  legislature  shall  pass 
laws  to  suppress  it." 

Rev.  Laws  (Wolff,  1897),  p.  205: 
"After  the  passage  of  this  act,  it  shall 
be  unlawful  for  any  individual,  firm, 
company,  corporation  or  association  to 
enter  into,  continue  or  maintain  any 
combination,  agreement  or  arrange- 
ment of  any  kind,  exjjressed  or  implied, 
38 


with  any  other  individual,  firm,  com- 
pany, association  or  corporation  for  anv 
of  the  following  purposes :  First,  to 
create  or  carry  out  restrictions  in  trade. 
SccuncI,  to  limit  or  reduce  the  produc- 
tion, or  increase  or  reduce  the  price, 
of  merchandise,  produce  or  commod- 
ities. Third,  to  prevent  competition 
in  manufacture,  making,  transporta- 
tion, sale  or  purchase  of  merchandise, 
produce  or  commodities.  Fourth,  to 
fi.x  at  any  standard  or  figure,  whereby 
its  price  shall  be  in  any  manner  con- 
trolled or  established,  any  article  of 
merchandise,  produce,  commodity  or 
commerce  intended  for  consumption 
in  this  State.  Fifth,  to  make  or  enter 
into  or  execute  or  carry  out  any  con- 
tract, obligation  or  agreement  of  any 
kind  or  description  by  which  they  shall 
bind  or  have  bound  themselves  n(jt  to 
sell,  dispose  of  or  transport  any  article 
or  commodity,  or  article  of  trade,  use, 
merchandise,  commerce,  or  consump- 
tion below  a  common  standard  figure, 
or  by  which  they  shall  agree  in  any 
manner  to  keep  the  price  of  such  article 
at  a  fixed  or  graduated  figure,  or  by 
wliich  they  shall,  in  any  manner,  estab- 
lish or  settle  the  price  of  any  article  or 
commodity  or  traus])ortation  between 
tliem,  or  themselves  and  others,  to  j)re- 
clude  a  free  and  unrestricted  competi- 
tion among  themselves  or  others  in  the 
sale  or  transportation  of  any  such 
article  or  commodity,  or  by  which  they 
shall  agree  to  pool,  combine  or  unite 
any  interest  they  may  have  in  connec- 
tion with  the  sale  or  transportation  of 
any  such  article  or  commodity  that 
its  price  might  in  any  manner  be 
affected." 

For  exemption  of  agricultural  prod- 
ucts and  live  stock  see  post,  §  410  n. 

For  penalties  against  corporations 
and  individuals  see  post,  §§419  ».,  420n. 

Louisiana  has  also  another  statute 
directed  against  combinations  in  re- 
straint (jf  domestic  trade  and  commerce 
which  is,  apparentlv,  modelled  after  the 

693 


405 


INTERCORPORATE  RELATIONS. 


[part  V. 


the  most  obvious  examples  of  class  legislation.     Other  stat- 
utes may  be  declared  unconstitutional,  because  —  entirely  uu- 


federal     anti-trust     act     (Rev.     Laws, 
Wolff,  18'J7,  p.  204;  Act  of  1890). 

Maine.  Laws  1889,  ch.  266  :  (1)  "It 
shall  be  unlawful  for  any  firm  or  incor- 
porated company,  or  any  nunilier  of 
firms  or  incorporated  companies,  or  any 
unincorporated  company,  or  association 
of  persons  or  stockholders,  organized 
for  the  purpose  of  manufacturing,  pro- 
ducing, refining  or  mining  any  article 
or  product  which  enters  into  general 
use  and  consumption  by  tiie  people,  to 
form  or  organize  any  trust,  or  to  enter 
into  any  coml)iniition  of  firms,  incorpo- 
rated or  unincorporated  comjianics,  or 
association  of  stockholders,  or  to  dele- 
gate to  any  one  or  more  board  or  boards 
of  trustees  or  directors  the  power  to 
conduct  and  direct  the  business  of  the 
whole  number  of  firms,  corporations, 
companies  or  associations  which  may 
liave,  or  which  may  propose  to  form,  a 
trust,  combination  or  association  incon- 
sistent with  tiie  provisions  of  this  sec- 
tion and  contrary  to  public  policy." 

(2)  "  No  certificate  of  stock,  or  other 
evidence  of  interest,  in  any  tru.st,  com- 
bination or  association,  as  named  in 
se,ct.  1  of  this  act,  shall  have  legal  rec- 
ognition in  any  court  in  this  State,  and 
any  deed  to  real  estate  given  by  any 
person,  firm  or  corporation,  for  the  pur- 
pose of  becoming  interested  in  such 
trust,  combination  or  association,  or 
any  mortgage  given  by  the  latter  to 
the  seller,  as  well  as  all  certificates 
growing  out  of  such  transaction,  shall 
be  void." 

(3)  "Any  incorporated  company 
now  operating  under  the  laws  of  this 
State,  and  which,  at  the  date  of  the  pas- 
sage of  this  act,  may  be  interested  in 
any  trust,  combination  or  association, 
named  in  sect.  1  of  this  act,  or  any 
firm,  incorporated  or  unincorporated 
company  or  association  of  persons  or 
stockholders,  who  shall  enter  into  or 
become  interested  in  such  trust,  com- 
bination or  association,  after  the  pas- 
sage of  this  act,  shall  be  deemed  guiltj 

694 


of  a  misileraeanor,  and  be  subject  to  a 
fine  of  not  less  than  five  nor  more  than 
ten  thousand  dollars." 

Mart/land.  Declaration  of  Rights, 
Art.  XLI :  "  Monopolies  are  odious, 
contrary  to  the  spirit  of  free  government 
and  the  principles  of  commerce,  and 
ought  not  to  be  suffered." 

Mirhifjan.  The  latest  Michigan  stat- 
ute ( Public  Acts  1899,  No.  255)  defines  a 
trust  in  substautially  the  same  language 
as  the  Kansas  statute,  supra.  It  de- 
clares every  trust,  as  so  defined,  uidaw- 
fnl,  against  public  policy  and  void  ;  that 
any  violation  of  the  act  is  "  a  conspiracy 
against  trade,"  and  that  any  person  en- 
gaging in  such  conspiracy  shall  be  pun- 
ished by  a  fine  or  imprisonment,  or  both. 
Charters  of  liomestic  corporations  violat- 
ing the  act  are  subject  to  forfeiture,  and 
foreign  corporations  may  be  excluded 
from  the  State.  The  act  also  contains 
provisions  similar  to  those  in  the  Illinois 
statute  {sit/ira)  concerning  trust  certifi- 
cates, trustees  and  the  invalidity  of 
contracts  in  violation  of  the  act.  For 
further  statement  of  penalties  see  post, 
§§  419  n.,  420  n. 

Michigan  has  also  an  earlier  anti- 
trust statute  (Compiled  Laws  1897, 
§§  11,377-11,382),  which  contains  an 
exemption  of  agricidtural  products  and 
live  stock.     See  post,  §  410  n. 

Minnesota.  Laws  1899,  ch.  359:  (1) 
"Any  con  tract,  agreement,  arrangement 
or  conspiracy,  or  any  combination  in 
the  form  of  a  trust,  or  otherwise,  here- 
after entered  into  which  is  in  restraint 
of  trade  or  commerce  within  this  State, 
or  in  restraint  of  trade  or  commerce 
between  any  of  the  people  of  this  State 
and  any  of  the  people  of  any  other  State 
or  country,  or  which  limits  or  tends  to 
limit  or  control  the  supply  of  any  article, 
commodity  or  utility,  or  the  articles 
which  enter  into  the  manufacture  of 
any  article  of  utility,  or  which  regulates, 
limits  or  controls,  or  raises  or  tends 
to  regulate,  limit,  control  or  raise  the 
market  price  of  any  article,  commodity 


CHAP.    XLI.]       STATE   STATUTES:    CONSTITUTIONALITY. 


§405 


necessarily  —  the  legislatures  have  employed  such  sweeping 
terms  as  to  take  away   the   right  to  contract.     Instead  of 


or  utility,  or  tends  to  limit  or  regulate 
the  production  of  any  such  article,  com- 
modity or  utility,  or  in  any  manner  de- 
stroys, limits  or  interferes  with  ojjen  and 
free  comjietition  in  either  the  production 
of  any  commodity,  article  or  utility, 
is  hereby  prohibited  and  declared  to  be 
unlawful." 

(2)  "  That  when  any  corporation  here- 
tofoie  or  hereafter  created,  organized 
or  existing  under  the  laws  of  this  State, 
whether  general  or  special,  hereafter 
unites  in  any  manner  with  any  other  cor- 
poration wheresoever  created,  or  with 
any  individual,  whereby  such  corpora- 
tion surrenders  or  transfers,  by  sale  or 
otherwise,  in  whole  or  in  part,  its  fran- 
chise, rights  or  privileges  or  the  control 
or  management  of  its  business  to  any 
other  corporations  or  individual,  or 
wliereby  the  business  or  the  manage- 
ment or  control  of  the  business  of  such 
corporation  is  limited,  changed  or  in 
any  manner  affected,  and  the  purpose 
or  effect  of  such  union  or  combination 
is  to  limit,  control  or  destroy  competi- 
tion in  the  manufacture  or  sale  of  any 
article  or  commodity,  or  is  to  limit  or 
control  the  production  of  any  article 
or  commodity,  or  is  to  control  or  fix  the 
price  or  market  value  of  any  article 
or  commodity,  or  the  price  or  market 
value  of  the  material  entering  into  the 
production  of  any  article  or  commodity, 
or  in  case  the  purpose  or  effect  of  such 
union  or  combination  is  to  control  or 
monopolize  in  any  manner  the  trade  or 
commerce,  or  any  part  thereof,  of  this 
State,  or  of  the  several  States,  such 
union,  combination,  agreement,  arrange- 
ment or  contract  is  hereby  prohibited 
and  declared  to  be  unlawful." 

The  act  also  contains  the  following 
provision :  "  Any  person  who  shall 
enter  into  any  correspondence,  nego- 
tiations or  agreement  in  this  State,  or 
who  shall,  being  a  resident  of  this 
State,  go  into  another  State,  Territory 
or  country  for  the  purpose  of  entering 
into    any   negotiations    or    agreemeut 


which  tend  to  the  formation  of  any 
contract  or  combination  forbidden  by 
this  act,  shall  be  guilty  of  felony,  and 
be  subject  to  all  the  penalties  of  this 
act." 

For  penalties  against  corporations 
and  individuals  see  post,  §§  419  «.,  420n. 
Laws  1901,  ch.  24:  "Every  pool, 
trust,  agreement,  combination,  confeder- 
ation, or  understanding,  conspiracy  and 
combination  entered  into  or  created  or 
organized  under  the  laws  of  this  or  any 
other  State,  or  any  partnership  or  indi- 
vidual or  other  association  of  persons 
whatsoever  with  any  other  corporation, 
partnership,  individual  or  any  other 
person  or  association  of  persons  to 
regulate,  control  or  fix  the  price  of  any 
article  or  articles  of  manufacture,  mech- 
anism, merchandise,  commodity,  con- 
venience or  repair,  or  any  product  of 
mining  of  any  kind  or  class,  or  any 
article  or  thing  of  any  class  or  kind 
bought  and  sold,  or  to  maintain  said 
price  or  prices  when  so  regulated,  de- 
termined or  fixed,  and  all  agreements, 
combinations,  confederations  or  conspir- 
acies or  pools,  made,  created,  entered 
into  or  organized  by  anj'  corporation, 
partnership,  individual  or  association  of 
individuals  to  fix  the  amount  or  limit 
the  quantity  of  any  article  or  thing  what- 
soever .  .  .  are  hereby  declared  illegal. 
If  any  two  or  more  persons  or  corpora- 
tions who  are  engaged  in  buying  or  sell- 
ing any  article  .  .  .  sliall  enter  into  any 
pool,  trust,  agreement,  combination,  con- 
federation, association  or  understanding 
to  control  or  limit  tlie  trade  in  any  such 
article  or  thing  ;  or  to  limit  compctiticm 
in  such  trade  by  refusing  to  buy  from 
or  sell  to  any  other  person  or  corpora- 
tion any  such  article  or  thing  aforesaid 
for  the  reason  that  such  other  person  or 
corporation  is  not  a  member  of  or  a 
party  to  such  pool,  trust,  combination, 
confederation,  association  or  understand- 
ing ;  or  shall  boycott  or  threaten  any 
jierson  or  corporation  from  buying  from 
or  selling  to  any  other  person  or  cor- 

595 


§405 


INTERCORPORATE   RELATIONS. 


[I'ART  V. 


providing  definite  remedies  for  definite  evils,   some  of  the 
statutes  merely  furnish  an  assortment  of  words. 


poration  who  is  not  a  member  of  or  a 
party  to  such  pool,  trust,  agreement, 
combination,  confederation,  association 
or  understanding,  any  such  article  or 
thing  aforesaid,  it  shall  be  a  violation 
of  this  act." 

Persons  injured  may  maintaiu  civil 
actions  for  damages. 

Former  auti-trast  acts  are  not  re- 
pealed by  tills  statute. 

Mississippi.  Const.  §  198:  "The 
legislature  shall  enact  laws  to  prevent 
bU  trusts,  combinations,  contracts  and 
agreements  inimical  to  the  public  wel- 
fare." 

Code,  §  4437  :  "  A  trust  and  combine 
is  a  combination,  contract,  understand- 
ing or  agreement,  expressed  or  im- 
plied, between  two  or  more  persons, 
corporations,  or  firnis  or  associations 
of  persons,  or  l)etwcen  one  or  more 
of  either  with  one  or  more  of  the 
others ;  (a)  In  re.straint  of  trade ;  (b) 
to  limit,  increase  or  reduce  the  price 
of  a  commodity  ;  (r)  to  limit,  increase 
or  reduce  the  production  or  output  of 
a  commodity ;  (c/)  intended  to  hinder 
competition  in  the  production,  importa- 
tion, manufacture,  transportation,  sale 
or  purchase  of  a  commodity ;  (*)  to 
engross  or  forestall  a  commodity;  (/") 
to  issue,  own  or  hold  tlio  certificates  of 
stock  of  any  trust  or  combine  ;  (g)  to 
place  the  control,  to  any  extent,  of  busi- 
ness or  of  the  products  or  earnings 
thereof,  in  the  power  of  trustees,  by 
whatever  name  called  ;  (h)  by  which  any 
other  person  than  themselves,  their 
proper  officers,  agents  and  emj)loyees 
shall,  or  shall  have  the  power  to,  dictate 
or  control  the  management  of  business ; 
or  (/)  to  unite  or  pool  interests  in  the 
importation,  manufacture,  production, 
transportation  or  price  of  a  commodity ; 
and  is  inimical  to  the  public  welfare,  un- 
lawful, and  a  criminal  conspiracy."  .  .  . 

The  Code  further  provides  that  all 
contracts  relative  to  the  business  of  the 
combination  shall  be  void. 

For  exemption   of    associations   of 

596 


laborers  and  those  engaged  in  hus- 
bandry see  j'ost,  §  410  H. 

For  peuiiltics  against  corporations 
and  iudividuals  see  post,  §§  419  n., 
420  n. 

Laws  1900,  ch.  88  :  Section  1  contains 
same  provisions  as  section  44.37  of  the 
Code,  omitting  the  provision  e.xcepting 
"  associations  of  those  engaged  iu  hus- 
bandry," etc. 

Sec.  2.  "  Any  corporations,  domestic 
or  foreign,  which  shall  restrain  or  at- 
tem|)t  to  restrain  the  freedom  of  trade 
or  j)roductiou ;  or  wliich  shall  nionopo- 
lize  orattemj)t  to  monopolize  the  produc- 
tion, control  or  sale  of  any  commodity, 
or  the  j)rosecntion,  management  or 
control  of  any  kind,  class  or  description 
of  business;  or  which  shall  engross  or 
forestall  or  attempt  to  engross  or  fore- 
stall any  commodity ;  or  which  shall 
destroy  competition  in  tlie  manufacture 
or  sale  of  a  commodity,  by  oH'ering  the 
same  for  sale  at  a  price  below  the 
normal  cost  of  production,  shall  be 
deemed  a  trust  and  combine  within  the 
meaning  and  purpose  of  this  Act,  shall 
be  liable  to  all  the  pains,  penalties, 
fines,  forfeitures,  judgments  and  recov- 
eries herein  denounced  against  trusts 
or  combines,  and  shall  be  jiroceeded 
against  in  manner  and  form  provided 
in  this  Act  in  case  of  other  trusts  and 
combines." 

Sec.  3.  Contracts  to  enter  into  or 
form  trust,  etc.,  and  contracts  by  an- 
other with  any  trust,  etc.,  or  members 
of  trust  relative  to  business  of  trust,  etc., 
are  void. 

Sec.  4.  Domestic  corporations  vio- 
lating act  forfeit  charters  and  franchises, 
and  foreign  corporations  forfeit  right 
to  do  business  in  the  State.  Individuals 
punished  by  fines  or  imprisonment,  or 
both. 

Sec.  5.  No  corporations  shall  pur- 
chase stock  or  franchises,  plants,  etc., 
of  any  competing  corporations. 

Sec.  6.  Corporations  not  to  engage 
in  business  unauthorized  by  charters. 


CHAP.  XLI.]       STATE   STATUTES  :     CONSTITUTIONALITY. 


All  the  evils  of  the  combination  cannot  be  remedied  by 
legislation.     For  some,  the  working  of  economic  principles 


Sec.  7.  Persons  (l.image<l  by  trust, 
etc.,  may  recover  five  liuiulred  ilullurs 
aud  all  actual  damage. 

Another  section  provides  that  the 
act  shall  be  construed  liberally  to  tiie 
end  tliat  trust.^,  etc.,  may  be  suppressed. 

Missouri.  Kev.  Stat.  1899,  §  89C.5  : 
"  Any  corporation  organized  under  the 
laws  of  this  or  any  other  State  or  coun- 
try for  transacting  or  conducting  any 
kind  of  business  in  this  State,  or  wliich 
does  transact  or  conduct  any  kind  of 
business  in  this  State,  or  any  partner- 
sliip  or  individual  or  other  association 
of  persons  whatsoever,  wlio  shall  create, 
enter  into,  become  a  member  of,  or  a 
party  to,  any  pool,  trust,  agreement, 
combination,  confederation  or  under- 
standing with  any  otlier  corporation, 
partnership,  individual  or  any  other 
person  or  association  of  persons,  to 
regulate  or  fix  the  price  of  any  article 
of  manufacture,  mechanism,  merchan- 
dise, commodity,  convenience,  repair, 
any  product  of  mining,  or  any  article 
or  tiling  whatsoever,  or  tlie  price  or 
premium  to  be  paid  for  insuring  prop- 
erty against  loss  or  damage  by  fire, 
lightning  or  storm,  or  to  maintain  said 
price  when  so  regulated  or  fi.xed,  or 
shall  enter  into,  become  a  member  of, 
or  a  party  to,  any  pool,  agreement, 
contract,  combination  or  confederation 
to  fix  or  limit  the  amount  or  (juantity 
of  any  article  of  manufacture,  mcciian- 
ism,  merchandise,  commodity,  conven- 
ience, repair,  any  product  of  mining 
or  any  article  or  thing  whatsoever,  or 
the  price  or  premium  to  be  paid  for 
insuring  property  against  loss  or  dam- 
age by  fire,  lightning  or  storm,  shall  be 
deemed  and  ailjudged  guilty  of  a  con- 
spiracy to  defraud,  and  be  subject  to 
penalties  as  provided  in  this  article ; 
aud  provided,  that  if  such  insurance 
companies  or  their  agents  or  tlie  board 
of  fire  underwriters  doing  business  in 
any  city  of  this  State  sliall  comi)ine  in 
any  city  of  this  State,  either  directly  or 
indirectly,  or  agree  or  attemj)t  to  agree, 


directly  or  indirectly,  to  fix  or  regulate 
the  price  or  premium  to  be  paid  for 
insuring  pro])erty  located  witliiu  or 
outside  of  such  city  against  loss  or 
damage  by  fire,  lightning  or  storm, 
sucli  comjiauy  so  violating  the  provi- 
sions of  tliis  article,  eitlicr  by  itself,  its 
agents,  or  by  any  such  board  of  under- 
writers, shall  be  taken  and  deemed  to 
have  forfeited  its  right  to  do  business 
in  this  state,  and  sliall  become  liable  to 
all  the  penalties  anil  forfeitures  provided 
for  by  the  ])rovisions  of  this  article." 

]l>.  §  SOCif) :  "  All  arrangements,  con- 
tract.s  agreements  or  combinations  be- 
tween persons  or  corporations,  or 
between  persons  or  any  a.^^sociatii^n  of 
persons  and  corj)orations,  dcsigncil  or 
made  with  a  view  to  lessen,  or  wliich 
tend  to  lessen,  full  and  free  competition 
in  the  im])ortation,  manufacture  or  sale 
of  any  article,  proiluct  or  commodity 
in  this  state,  aud  all  arrangements, 
combinations,  contracts  or  agreements 
whereby,  or  under  the  terms  of  wliich, 
it  is  proposed,  stipulated,  provided, 
agreed  or  understood  that  any  jiersons, 
association  of  ])ersons  or  corporations 
doing  business  in  this  State  siiall  ileal 
in,  sell  or  offer  for  sale  in  tiiis  State, 
any  particular  or  specified  article,  prod- 
uct, or  commodity,  and  shall  not,  during 
the  continuance  or  existence  of  any  such 
arrangement,  combination,  contract  or 
agreement,  deal  in,  sell  or  offer  for  sale 
in  this  State,  any  competing  article, 
product  or  commodity,  are  hereby  de- 
clared to  be  against  public  jwlicy,  un- 
lawful and  void  ;  and  any  person, 
association  of  persons  or  corporation 
becoming  a  party  to  any  sucli  arrange- 
ment, contract,  agreement  or  combina- 
tion sliall  be  deemed  and  adjuilged 
guilty  of  a  conspiracy  to  defrau<i,  and 
be  subject  to  tiie  j)enalties  provided  for 
in  this  article."  The  statute  also  con- 
tains provisions  similar  to  those  of  tlie 
Illinois  statute  supra  conceriiimz  trust 
certificates  and  trustees  (§  89G7),  in- 
validity of  contracts  in  violation  of  act, 

0\)1 


§405 


INTERCORPORATE   RELATIONS. 


[part  V. 


will  afford  relief.     Others  must  be  endured.     But  lei^islation 
can  furnish  remedies  for  many  evils.     The  federal  anti -trust 


and  right  to  plead  the  act  as  a  defence 
(§  8970). 

For   penalties  against   corporations 
and  individuals  see  post,  §§419  n.,  4:20  n. 

A  later  statute  (§  8978)  also  provides : 
"  Every  pool,  trust,  agreement,  combi- 
nation, confederation  or  understanding, 
conspiracy  or  combination  entered  into, 
or  created,  or  organized  by  any  corjjo- 
rations  organized  under  the  laws  of  this 
or  any  other  State,  or  any  jiartnership 
or  individual  or  other  association  of 
persons  whatsoever  with  any  other  cor- 
poration, j)artnership,  individual  or  any 
other  person  or  association  of  persona 
to  regulate,  control  or  fix  the  price  of 
any  article  or  articles  of  manufacture, 
mechanism,  merchandise,  commodity, 
convenience  or  repair,  or  any  product 
of  mining  of  any  kind  or  class,  or  any 
article  or  thing  of  any  class  or  kind 
bouglit  and  sold,  or  the  price  or  jire- 
mium  to  be  paid  for  insuring  property 
against  loss  or  damage  by  fire,  light- 
ning or  storm,  or  to  maintain  said  j)rice 
or  ]irices  when  so  regulated,  determined 
or  fixed,  and  all  agreements,  combina- 
tions, confederations  or  conspiracies  or 
pools  made,  created,  entered  into  or 
organized  by  any  other  corporation, 
partnership,  individual  or  association  pf 
individuals  to  fix  tlie  amount  or  limit 
the  ([uantity  of  any  article  or  thing 
whatsoever,  or  of  any  article  of  manu- 
facture, mechanism,  commodity,  con- 
venience or  repair,  or  any  product  of 
any  class  or  kind  of  mining,  are  hereby 
declared  illegal.  If  any  two  or  more 
persons  or  corporations  who  are  en- 
gaged in  buying  or  selling  any  article 
of  commerce,  manufacture,  mechanism, 
merchandise,  commodity,  convenience, 
repair,  any  product  of  mining,  or  any 
article  or  thing  whatsoever,  shall  enter 
into  any  pool,  trust,  agreement,  combi- 
nation, confederation,  association  or  un- 
derstanding to  control  or  limit  the  trade 
in  any  such  article  or  thing,  or  to  limit 
competition  in  such  trade,  by  refusing 
to  buy  from  or  sell  to  any  other  person 

598 


or  corporation  any  such  article  or  tiling 
aforesaid,  for  the  reason  that  such  other 
person  or  corporation  is  not  a  member 
of  or  party  to  such  pool,  trust,  combi- 
nation, confederation,  association  or 
understanding;  or  shall  boycott  or 
threaten  any  ])er8on  or  corporation  for 
buying  from  or  selling  to  any  other 
person  or  corporation  who  is  not  a  mem- 
ber of  or  a  j)arty  to  such  pool,  trust, 
agreement,  combination,  confederation, 
a.«s()ciation  or  understanding  any  such 
article  or  thing  aforesaid,  it  shall  be  a 
violation  of  this  article."  This  statute 
permits  any  person  injured  in  his  busi- 
ness or  property  by  any  unlawful  com- 
bination to  recover  threefold  damages 
(§8981). 

Montana.  Const.  Codes  and  Stat- 
utes (Sander's),  1895,  §  321:  "Every 
person,  corporation,  stock  company  or 
association  of  persons  in  this  State  who 
shall,  directly  or  indirectly,  combine  or 
form  what  is  known  as  a  trust,  or  make 
any  contract  with  any  person  or  persons, 
corporations  or  stock  companies,  for- 
eign or  domestic,  through  their  stock- 
holders, directors,  officers,  or  in  any 
manner  whatever,  for  the  purpose  of 
fixing  tlie  ])rice  or  regulating  the  pro- 
duction of  any  article  of  commerce,  or 
of  the  product  of  the  soil  forconsumption 
by  the  peojde,  or  to  create  or  carry  out 
any  restriction  in  trade,  to  limit  pro 
ductions,  or  increase  or  reduce  the  price 
of  merchandise  or  commodities,  or  to 
prevent  competition  in  merchandise  or 
commodities,  or  to  fix  a  standard  or 
figure  whereby  the  price  of  any  article 
of  merchandise,  commerce  or  produce, 
intended  for  sale,  use  or  consumption, 
will  be  in  any  way  controlled,  or  to 
create  a  monopoly  in  the  manufacture, 
sale  or  transportation  of  any  such  arti- 
cle, or  to  enter  into  an  obligation  by 
which  they  shall  bind  others  or  them- 
selves not  to  manufacture,  sell  or  trans- 
port any  such  article  below  a  common 
standard  or  figure,  or  by  which  tliey 
agree  to  keep  such  article  or  transpor- 


CHAP.  XLI.]      STATE    STATUTES  :     CONSTITUTIONALITY. 


§40/ 


law  is  an  effective  instrument  for  the  prevention  of  combina- 
tions in  restraint  of  interstate  commerce.     State  legislation 


tation  at  a  fixed  or  graduated  figure,  or 
by  which  they  settle  the  price  of  such 
article,  so  as  to  preclude  unrestricted 
competition,  is  punish.able  by  imprison- 
ment in  the  State  prison  not  exceeding 
five  years,  or  by  fine  not  exceeding  ten 
thousand  dollars,  or  botii." 

For  exemption  of  combinations  of 
laborers  and  of  those  engaged  in  as^ri- 
culture  and  horticulture  se&post,  §  410  n. 
For  penalties  against  corporations  see 
post,  §  420  n. 

A^ebraska.  The  latest  statute  (Comp. 
Stat.  1901,  ch.  91  a,  §5337)  defines  a  trust 
in  substantially  the  same  language  as 
the  Kansas  statute,  fupra,  and  provides : 
"  That  any  and  all  acts  by  any  person 
or  ])ersons  carrying  on,  creating,  or  at- 
tempting to  create,  either  directly  or  in- 
directly, a  trust  as  defined  in  section  one 
of  tliis  act,  are  hereby  declared  to  be  a 
conspiracy  against  trade  and  business 
and  unlawful,  and  any  person  who  may 
be  or  may  become  engaged  in  any  such 
conspiracy,  or  take  part  therein,  or  aid 
or  advise  in  its  commission,  or  who  shall 
as  principal,  manager,  director,  agent, 
servant  or  employee,  or  in  any  other 
capacity,  knowingly  aid  or  advise  or 
attempt  to  carry  out,  or  carry  out  any 
of  tlie  stipulations,  purposes,  prices, 
rates,  orders  thereunder,  or  in  pursu- 
ance thereof,  shall  be  deemed  guilty  of 
a  misdemeanor,  and  upon  conviction 
thereof  shall  be  punished  by  a  fine  of 
not  less  than  twenty-five  dollars  nor 
more  than  five  thousand  dollars."  This 
statute  contains  a  special  provision  con- 
cerning combinations  of  fire  insurance 
companies. 

For  exemptions  of  associations  of 
laboring  men  see  post,  §  410  h.  For 
provision  thjit  act  may  be  pleaded  as  a 
defence  see  post,  §  418  n.  For  penalties 
against  corporations,  and  provisions  for 
the  recovery  of  damages  see  post,  §  420  n. 

New  Mexico.  Comp.  Laws  (1897), 
§  1292  :  "  Every  contract  or  combina- 
tion between  individuals,  associations 
or  corporations,  having  for  its  object,  or 


which  shall  operate,  to  restrict  trade  or 
commerce  or  control  the  quantity,  price 
or  exchtinge  of  any  article  of  manufac- 
ture or  product  of  tiic  soil  or  mine,  is 
hereby  declared  to  be  illegal.  Every 
person,  whetlier  as  individual  or  agent  or 
officer  or  stockliolder  of  any  corporation 
or  association,  who  shall  make  any  such 
contract  or  engage  in  any  such  combi- 
nation, shall  be  deemed  guilty  of  a  mis- 
demeanor, and,  on  conviction  thereof, 
shall  be  punished  by  a  fine  not  exceed- 
ing one  thou.sand  dollars  nor  less  than 
one  hundred  dollars,  and  by  imprison- 
ment at  hard  labor  not  exceeding  one 
year,  or  until  sucii  fine  has  been  paid." 

lb.  §  1293  :  "  Every  person  who  shall 
monopolize  or  attempt  to  monopolize, 
or  combine  or  conspire  with  any  other 
person  or  persons  to  monopolize,  any 
part  of  the  trade  or  commerce  of 
this  territory,  shall  be  deemed  guilty 
of  a  misdemeanor  and  on  conviction 
thereof  shall  be  punished  by  "  fine  and 
imprisonment. 

The  act  further  provides  that  all  con- 
tracts in  violation  of  its  provisions  sh.all 
be  void  and  that  purchasers  of  commodi- 
ties from  persons  or  corporations  violat- 
ing the  act  shall  not  be  liable  therefor. 

New  York.  Birdseye's  K.  S.  1901, 
p.  2405  (Laws  1899,  "ch.  690),  "§  1: 
Every  con  tract,  agreement,  arrangement 
or  combination,  whereby  a  moiioi)oly  in 
the  manufacture,  production  or  sale  in 
this  State  of  any  article  or  commodity 
of  common  use  is  or  may  be  created, 
established  or  maintained,  or  whereby 
competition  in  this  State  in  the  supply 
or  price  of  any  such  article  or  com- 
modity is  or  may  be  restrained  or  pre- 
vented, or  whereby,  for  the  purpose  of 
creating,  establishing  or  maintaining  a 
monopoly  within  this  State  of  the  man- 
ufacture, production  or  srtle  of  any  such 
article  or  commodity,  tlie  free  pursuit  in 
this  State  of  any  lawful  business,  trade 
or  occupation,  is  or  may  be  restricted  or 
prevented,  is  hereby  declared  to  be 
against  public  policv,  illegal  and  void. 

59i) 


INTERCOUrOnATE   RELATIONS. 


[part  V. 


may  reach  similar  combinations  affecting  domestic  trade  and 
commerce. 


"  §  2  :  Evcrj  person  or  corporatiun, 
or  any  officer  or  agent  thereof,  who 
shall  make  or  attempt  to  make  or  enter 
into  any  such  contract,  ai^recnient, 
arrangement  or  coml)ination,  or  who, 
within  this  State,  shall  do  any  act  pur- 
suant thereto,  or  in,  toward  or  for  the 
consummation  thereof,  wherever  the 
same  may  have  been  made,  is  guilty  of  a 
niisdomcanor,  and  on  conviction  thereof 
shall,  if  a  natural  person,  lie  punislied 
l>y  a  fine  not  exceeding  five  thousand 
dollars,  or  by  imprisonment  for  not 
longer  than  one  year,  or  by  both  such 
fine  and  imprisonment ;  and  if  a  corpo- 
ration, by  a  fine  of  not  exceeding  five 
thousand  dollars. 

"  §  3  :  The  .  attorney-general  may 
bring  an  action  in  the  name  and  in  be- 
half of  tlie  people  of  the  State  against 
any  person,  trustee,  director,  manager, 
or  other  officer  or  agent  of  a  corpora- 
tion, or  against  a  corporation,  foreign  or 
domestic,  to  restrain  and  prevent  the 
doing  in  this  State  of  any  act  herein 
declared  to  be  illegal,  or  any  act,  in, 
toward  or  for  the  making  or  consum- 
mation of  any  contract,  agreement, 
arrangement  or  combination  herein  pro- 
hibited wherever  the  same  may  have 
been  made." 

The  remaining  sections  of  the  act 
relate  to  procedure  in  obtaining  testi- 
mony. 

Another  New  York  statute  (Laws 
1897,  ch.  384;  Stock  Corp.  Law,  §  7) 
is  as  follows :  "  No  domestic  stock 
corporation  and  no  foreign  corpora- 
tion doing  business  in  this  State 
shall  combine  with  any  other  corpora- 
tion or  person  for  the  creation  of  a 
monojjoly  or  the  unlawful  restraint  of 
trade  or  for  the  prevention  of  competi- 
tion in  any  necessary  of  life." 

North  Carolina.  Const.  Art.  I  §31  : 
"  Perpetuities  and  monopolies  are  con- 
trary to  the  genius  of  a  free  State,  and 
ought  not  to  be  allowed." 

Laws  1899,  ch.  666  :  "Any  corpora- 
tion organized  under  the  laws  of  this 

600 


or  any  otiier  State  or  country  for 
transacting  or  conducting  any  kind  of 
business  in  this  State,  or  any  partner- 
ship or  individual  or  other  a.s.sfjciation 
of  persons  whatsoever,  who  shall  create, 
enter  into,  become  a  member  of,  or  a 
party  to,  any  pool,  trust,  agreement, 
combination,  confederation  or  umler- 
standing  with  any  other  corjjoratiou, 
partnership,  individual  or  any  other 
person  or  a.ssociation  of  persons  to 
regulate  or  fix  the  price  of  any  article 
of  merchandise  or  commodity,  or  sliall 
enter  into,  become  a  member  of,  or  a 
party  to,  any  jkxjI,  agreement,  contract, 
combination  or  confederation  to  fix  tlie 
amount  or  quantity  of  any  article, 
commodity  or  merchandise  to  bo  manu- 
factured, mined,  produced  or  sold  in 
this  State,  shall  be  deemed  and  adjudged 
guilty  of  a  con.spiracy  to  defraud  iuid  be 
subject  to  the  jieuahies  provided  in  this 
act." 

For  exemptions  under  this  statute 
see  pout,  §  410  n.  For  penalties  against 
corporations  and  individuals  see  })oit, 
§§  419».,  420  n. 

North  Dakota.  Const.  Art.  VI L 
§  146:  "  Any  coml)ination  between  in- 
dividuals, corporations,  associations,  or 
either,  having  for  its  object  or  effect  the 
controlling  of  the  price  of  any  product  of 
the  soil  or  any  article  of  manufacture  or 
commerce,  or  the  cost  of  exchange  or 
transportation,  is  prohibited  and  hereby 
declared  unlawful  and  against  public 
policy,  and  any  and  all  franchises  here- 
tofore granted  or  extended,  or  that  may 
hereafter  be  granted  or  extended  in  this 
State,  whenever  the  owner  or  owners 
thereof  violate  this  article  shall  be 
deemed  annulled  and  become  void." 

Rev.  Code  1899,  §  7484  a:  "All 
arrangements,  contracts,  agreements, 
trusts  or  combinations  between  persons 
or  corporations  made  with  a  view  to 
lessen,  or  tend  to  lessen,  full  and  free 
competition  in  the  importation  or  sale 
of  articles  imported  into  this  State,  or 
in  the  manufacture  or  sale  of  articles 


CHAP.  XLI.]       STATE   STATUTES:    CONSTITUTIONALITY. 


The  early  theory  that  when  the  constitution  was  silent  the 
courts    could  annul  legislation  which   they  considered  con- 


of  domestic  growtli,  or  of  domestic  raw 
material,  aud  all  arraiigemeuts,  con- 
tracts, agreements,  trusts  or  combina- 
tions between  persons  or  corjiorations 
designed,  or  which  tend  to  advance, 
reduce  or  control  the  price  or  the  cost 
to  the  producer  or  to  the  consumer  of 
any  such  product  or  articles,  are 
hereby  declared  to  be  against  public 
policy,  unlawful  and  void." 

For  penalties  against  corporations 
and  individuals  see  i/ost,  §§  419  n.,  420  n. 

l{ev.  Code  (§§  7480-7484)  also  con- 
tains other  provisions  against  com- 
binations. 

0/iio.  Bates'  Anno.  Stat.  (1787- 
1902),  §  4427  :  This  act  defines  a  trust 
in  substantially  the  same  language  as 
the  Kansas  statute  «»/»/«,  and  declares 
every  trust,  as  so  defined,  "  unlawful, 
against  public  policy  aud  void."  Con- 
tracts in  violation  of  the  act  are  void, 
and  persons  injured  may  recover  two- 
fold damages. 

The  act  also  contains  a  provision 
similar  to  that  in  tlie  Illinois  statute, 
Supra,  regarding  trust  certifioatcs  and 
the  placing  of  control  in  the  hands  of 
trustees. 

For  penalties  against  corporations 
and  individuals  see  iiost,  §§  419  »., 
420  n. 

lb.  §  2485 :  An  exclusive  monopoly 
shall  not  be  allowed  to  a  gas  com- 
pany. 

Oklahoma.  Rev.  Stat.  189.3,  ch.  8.'?: 
(1)  "If  any  individual,  firm,  partner- 
ship, or  any  association  of  per.sons 
whatsoever,  shall  create,  enter  into,  be- 
come a  member  of,  or  a  party  to,  any 
pool,  trust,  agreement,  combination  or 
understanding  with  any  other  individ- 
ual, firm,  partnership  or  association  of 
persons  whatsoever,  to  regulate  or  fix 
the  price  of,  or  prevent  or  restrict  the 
competition  in  the  sale  of,  provisions, 
feed,  fuel,  lumber  or  other  building 
materials,  articles  of  merchandise  or 
other  commodity,  [they]  shall  be 
deemed  guilty  of  [a]  misdemeanor,  aud 


upon  conviction  thereof  shall  be  fined 
not  less  than  fifty  nor  more  than  five 
hundred  dollars." 

(2)  "  It  shall  not  be  lawful  fur  any 
corporation  organized  under  the  laws 
of  this  Territory,  or  organized  under 
the  laws  of  any  other  Territory  or  State, 
and  doing  business  in  this  Territory,  to 
enter  into  any  combination,  contract, 
trust,  pool  or  agreement  with  any 
other  corporation  or  corporations,  or 
with  any  individual,  firm,  partnership 
or  association  of  persons  whatsoever, 
for  the  purpo.se  of  regulating  or  fixing 
the  jirice  of,  or  i)reventing  or  restrict- 
ing competition  in  the  sale  of  provi- 
sions, feed,  fuel,  lumber  or  other 
building  materials,  articles  of  mer- 
cliandi.se  or  o;her  commodity,  including 
the  fixing  of  the  rate  of  interest." 

For  provision  that  act  may  be 
pleaded  as  a  defence  see  jtosl.  §  418  n. 
P'or  penalties  against  corporations  see 
jiost,  §§  419  n.,  420  n. 

South  Caiolitia.  Act  of  Mav  25, 
1897,  as  amended  by  Act  of  Feb.  19, 
1898:  "All  arrangements,  contracts, 
agreements,  trusts  or  combinations  be- 
tween two  or  more  persons  as  individ- 
uals, firms  or  corporations,  made  with  a 
view  to  lessen,  or  which  tenil  to  lessen, 
full  and  free  comj)etitiun  in  the  impor- 
tation or  sale  of  articles  imported  into 
this  State,  or  in  the  manufacture  or 
sale  of  articles  of  domestic  growth,  or 
of  domestic  raw  material,  and  all 
arrauizemcnts,  contracts,  agreements, 
trusts  or  combinations  between  persons 
or  corporations,  designed  or  which  tend 
to  advance,  reduce  or  contrid  the  price 
or  the  cost  to  the  producer  or  to  the 
consumer  of  any  such  product  or  ar- 
ticle, and  all  arrangements,  contracts, 
trusts,  syndicates,  associations  or  com- 
binations between  two  or  more  persons 
as  individuals,  firms,  corporations,  syn- 
dicates or  associations,  that  may  lessen 
or  affect  in  any  manner  the  full  and 
free  competition  in  any  tariffs,  rates, 
tolls,  premiums  or  prices,  or  seeks  to  con- 

GUl 


§  405 


INTERCORPORATE   RELATIONS. 


[part  V. 


trary  to  "the  eternal  laws  of  justice  and  right"  is  seldom 
advanced  at  the  present  day ;  but,  as  an  equivalent  for  it,  an 


trol  in  any  way  or  manner  sucli  tariffs, 
rates,  tolls,  proniiiinis  or  prices  in  any 
branch  of  trade,  Imsiuess  or  commerce, 
are  hereby  declared  to  he  against  public 
policy,  unlawful  and  void." 

For  penalties  against  corporations 
and  individuals  see  post,  §§  419  n., 
420  n. 

South  Dnk-ota.  Const.  Art.  XVII. 
par.  20 :  "Monopolies  and  trusts  shall 
never  be  allowed  in  this  State,  and  no  in- 
corporated company,  copartnersliij)  or 
as.sociation  of  persons  in  tills  State 
shall,  directly  or  indirectly,  combine  or 
make  any  contract  with  any  incorpo- 
rated company,  foreign  or  domestic, 
through  their  stockholders  or  the  trus- 
tees or  assigns  of  such  stockholders, 
or  with  any  copartnership  or  a.ssocia- 
tion  of  persons,  or  in  any  manner  what- 
soever to  li.K  the  prices,  limit  the 
producti(jn  or  regulate  the  transpor- 
tation of  any  product  or  commodity  so 
as  to  prevent  competition  in  such 
prices,  production  or  transportation,  or 
to  establish  excessive  prices  tliercfor. 
The  legislature  shall  pass  laws  for  the 
enforcement  of  this  section  by  adequate 
penalties,  and,  in  the  case  of  incorpo- 
rated companies,  if  necessary  for  that 
purpose,  may,  as  a  penalty,  declare  the 
forfeiture  of  their  franchises." 

Stat.  1901,  §  3388:  "Within  the 
meaning  of  this  act,  a  trust  or  a  monop- 
oly is  a  combination  of  capital,  skill, 
or  acts  of  two  or  more  persons,  firms, 
corporations  or  associations  of  persons, 
first,  to  create  or  carry  out  restrictions 
in  trade ;  second,  to  limit  the  produc- 
tion or  to  increase  or  reduce  the  price 
of  commodities  ;  third,  to  prevent  com- 
petition in  the  manufacture,  transpor- 
tation, sale  or  purchase  of  merchandise, 
produce  or  commodities ;  fourth,  to  fix 
any  standard  or  figure  whereby  the 
price  to  the  public  shall  be  in  any 
manner  established  or  controlled  ;  pro- 
vided, that  nothing  in  this  act  shall  be 
construed  so  as  to  include  labor  organ- 
izations." 

602 


lb.  §  3389  :  "  That  it  shall  be  unlaw- 
ful for  any  incorporated  company,  co- 
partnership or  association  of  persons  in 
this  State,  directly  or  otherwise  to  fix 
prices,  limit  the  production  or  regulate 
the  transjxirtation  of  any  product  or 
commodity  so  as  to  obstructor  delay  or 
prevent  competition  in  such  production 
or  transportation  or  limit  transporta- 
tion of  commodities  or  to  fix  prices 
therefor." 

In.  §  3390  :  "  That  it  shall  be  unlaw- 
ful for  any  incorporated  company,  co- 
partnership or  association  of  persons  in 
anotlier  State  to  directly  or  otherwise 
combine  or  make  any  contract  with  any 
incorporated  company,  copartnership, 
association  of  person  or  persons  in  this 
State  to  combine  or  make  any  contract 
to  fix  prices,  limit  the  production  of 
commodity  or  regulate  the  transporta- 
tion, directly  or  otherwise,  of  any  prod- 
uct or  commodity  so  as  to  obstruct  or 
prevent  competition  or  limit  transporta- 
tion or  to  fix  prices  therefor." 

For  penalties  against  corporations 
and  individuals  see  post,  §§  419  h., 
420  ti. 

For  earlier  anti-trust  laws  of  South 
Dakota,  see  Stat.  (1899)  §§  3394-3398. 

Tennessee.  Const.  Art.  I.  §  22 : 
"  That  perpetuities  and  monopolies  are 
contrary  to  tlie  genius  of  a  free  State, 
and  shall  not  be  allowed." 

Laws  1897,  ch.  94:  "All  arrange- 
ments, contracts,  agreements,  trusts 
or  combinations  between  persons  or 
corporations  made  with  a  view  to  les- 
sen, or  which  tend  to  lessen,  full  and 
free  competition  in  the  importation  or 
sale  of  articles  imported  into  this  State, 
or  in  the  manufacture  or  sale  of  articles 
of  domestic  growth,  or  of  domestic  raw 
material,  and  all  arrangements,  con- 
tracts, agreements,  trusts  or  combina- 
tions between  persons  or  corporations 
designed  or  which  tend  to  advance,  re- 
duce or  control  the  price  or  the  cost  to 
the  producer  or  to  the  consumer  of  any 
such  product  or  article,  are  hereby  do- 


CHAP.  XLI.]        STATE   STATUTES:    CONSTITUTIONALITY. 


§405 


inclination  is  sometimes  manifested  to  set  up  the  Fourteenth 
Amendment  as  a  standard  of   "justice  and  right,"  and  to 


clared  to  be  agaiust  public  policy,  un- 
biwftil  and  void." 

Any  person  injured  by  any  unlawful 
combination  or  trust  may  recover  "  the 
full  consideration  or  sum  i)aid  by  him 
or  them  for  any  goods,  wares,  merchan- 
dise, or  articles,  the  sale  of  which  is 
loutrolled  by  such  combiuatiou  of 
trust." 

For  exemption  of  agricultural  prod- 
ucts and  live  stock,  see  post,  §  410  n. 

For  penalties  against  corporations 
and  individuals  see  post,  §§419  n.,  420  n. 

For  earlier  Tennessee  anti-trust  acts, 
see  Code  (IS9G),  §§3185-3191  aud  6622. 

Tptus.  Const.  Art.  I.  §  26  :  "  Per- 
petuities and  monopolies  are  contrary  to 
the  genius  of  a  free  government,  aud 
shall  never  be  allowed." 

The  Texas  act  of  1889  as  amended 
by  the  Act  of  1895  (Sayles'  Stat.  1897, 
title  CVIII.)  contains  a  definition  of  a 
trust  similar  to  that  in  the  Kansas 
statute  supra ;  provides  for  tlie  forfeit- 
ure of  the  charters  of  domestic  corpora- 
tions and  the  exclusion  from  the  State 
of  foreign  corporations  violating  its 
provisions,  and  declares  that  persons  so 
offendin;?  shall  be  fined  not  less  than 
fifty  dollars  nor  more  than  five  thou- 
sand dollars,  or  imprisoned  not  less  than 
one  year  nor  more  than  ten  years,  or 
both.  Each  day's  violation  constitutes 
a  separate  offence. 

It  is  provided,  however,  that  "  this 
act  shall  not  be  held  to  apply  to  live 
stock  and  agricultural  products  in  the 
hands  of  the  producers  or  raisers,  nor 
sliall  it  be  understood  or  construed  to 
prevent  the  organization  of  laborers  for 
tlie  purpose  of  maintaining  any  stand- 
ard of  wages." 

By  reason  of  these  exemptions  the 
act  has  been  held  to  be  unconstitutional 
by  the  Texas  Court  of  Civil  Appeals 
(see  i)ost,  §  410). 

The  later  elaborate  and  most  com- 
prehensive anti-trust  statute  of  1899 
(approved  May  25,  1899),  (Sayles'  Stat. 
1897,    Supp.    1900,    p,    214,    has    also 


been  declared  unconstitutional  for  the 
same  reason.  For  definition  of  word 
"  monopoly "  in  this  act  see  ante, 
§332. 

Utah.  Const.  Art.  XII.  §  20 :  "  Any 
combiuation  by  individuals,  corpora- 
tions or  associations,  having  for  its 
object  or  effect  the  controlling  of  the 
price  of  any  products  of  the  soil,  or  of 
any  article  of  manufacture  or  com- 
merce, or  the  cost  of  exchange  or 
transportation,  is  prohibited,  and  hereby 
declared  unlawful,  and  against  public 
policy.  The  legislature  shall  pass 
laws  for  the  enforcement  of  this  section 
by  adequate  penalties,  aud  in  case  of 
incorporated  companies,  if  necessary  for 
that  purpose,  it  may  declare  a  forfeiture 
of  their  franchises." 

Rev.  Stat.  1898,  §  1752  :  (1)  "  Any 
combination  by  persons  having  for  its 
object  or  effect  the  controlling  of  the 
prices  of  any  professional  services,  any 
products  of  the  soil,  any  article  of 
manufacture  or  commerce,  or  the  cost 
of  exchange  or  transportation,  is  pro- 
hibited aud  declared  unlawful." 

(2)  "Any  person  or  association  of 
persons  who  shall  create,  enter  into,  be- 
come a  member  of,  a  party  to  any  pool, 
trust,  agreement,  combination,  con- 
federation or  understanding  with  any 
other  person  or  persons  to  regulate  or 
fix  the  price  of  any  article  of  merchan- 
dise or  commodity ;  or  shall  enter  into, 
become  a  member  of,  or  a  party  to,  any 
pool,  trust,  agreement,  contract,  com- 
bination or  confederation  to  fix  or  limit 
the  amount  or  quantity  of  any  article, 
commodity  or  merchandise  to  be  manu- 
factured, mined,  produced  or  sold  in  this 
State,  shall  be  deemed  and  adjudged 
guilty  of  a  conspiracy  to  defraud,  and 
be  subject  to  punishment  as  hereinafter 
provided." 

The  statute  also  contains  provisions 
against  trust  certificates  and  trusts. 

For  penalties  against  corporations 
and  individuals,  see  post,  §§  419  n., 
420  n. 

603 


405 


INTERCORPORATE   RELATIONS. 


[part 


measure  the  constitutionality  of  State  laws  by  the  hardships 
they  impose. 

The  grounds  upon  which  federal  courts  may  interfere  with 
State  statutes,  and  the  scope  of  State  legislation,  cannot  be 
more  clearly  stated  than  in  two  extracts  from  oj)inions  of  the 
Supreme  Court  of  the  United  States:  "It  is  hardly  necessary 
to  say  that  the  hardship,  impolicy  or  injustice  of  State  laws 
is  not  necessarily  an  objection  to  their  constitutional  valid- 
ity; and  that  the  remedy  for  evils  of  that  character  is  to 
be  sought  in  the  State  legislatures."^  [The  fundamental 
principle  must  be  recognized]  "that  outside  of  the  field 
directly  occupied  by  the  General  Government,  under  the 
powers  granted  to  it  by  the  Constitution,  all  questions  arising 
within  a  State  that  relate  to  the  internal  order,  or  that  involve 
the  public  convenience  or  the  general  good  are,  j)rimarily,  for 
the  determination  of  the  State,  and  that  its  legislative  en- 
actments relating  to  those  subjects,  and  which  are  not  incon- 


Waahinrjton.  Const.  Art.  XII.  §  22  : 
"  Monopolies  and  trusts  shall  never  he 
allowed  in  tliis  State,  and  no  incor- 
porated company,  copartnership  or  a.s- 
Buciation  of  persons  iu  this  State  shall, 
directly  or  indirectly,  conihine  or  make 
any  contract  with  any  otlier  incorpo 
rated  company,  foreign  or  domestic, 
through  tlieir  stockholders  or  tlie  trus- 
tees or  assignees  of  such  stockholders, 
or  with  any  copartnership  or  associa- 
tion of  persons,  or  in  any  manner  what- 
ever, for  tlie  purpose  of  fixing  the  price 
or  limiting  the  production  or  regulat- 
ing the  transportation  of  any  product 
or  commodity.  The  legislature  shall 
pass  laws  for  the  enforcement  of  this 
section  hy  adequate  penalties,  and,  in 
c;ise  of  incorporated  companies,  if  neces- 
sary for  that  purpose,  may  declare  a 
forfeiture  of  their  franchise." 

Tiie  Washington  statute  (Act  of 
March  21,  189.5)  is  confined  to  combina- 
tions of  commission  merchants. 

Wisconsin.  Stats.  1898,  ch.  86,  §  1791^  ; 
"  Corporations  organized  uu^er  tlie 
laws  of  this  State  are  prohibited  from 
entering  into  any  combination,  con- 
spiracy, trust,  pool,  agreement  or  con- 

604 


tract  intended  ti>  restrain  or  prevent 
competition  in  tlio  supply  or  jirice  of 
any  article  or  commodity  iu  general  u.se 
iu  this  State  or  constituting  a  subject  of 
trade  or  commerce  therein,  or  to  con- 
trol the  price  of  any  such  article  or 
commodity,  to  regulate  or  fix  the  price 
tiiereof,  to  limit  or  fix  the  amount  or 
quantity  thereof  to  be  manufactured, 
mined,  produced  or  sold  in  this  State, 
or  to  fix  any  standard  or  figure  hy 
which  its  price  to  tlie  public  shall  be  in 
any  manner  contndled  or  established." 

Otiier  provisions  of  the  statute  relate 
to  procedure. 

For  penalties  under  the  act  see  post, 
§  420  n. 

Wyoming.  Const.  Art.  I.  §  30: 
"  Perpetuities  and  monopolies  are  con- 
trary to  the  genius  of  a  free  State  and 
shall  not  be  allowed.  Corporations 
being  creatures  of  the  State,  endowed 
for  the  public  good  with  a  portion  of 
its  sovereign  powers,  must  be  subject 
to  its  control." 

1  Missouri  Pac.  R.  Co.  v.  Humes, 
115  U.  S.  520  (1885),  (6  Sup.  Ct.  Rep. 
110). 


CHAP.  XLI.]       STATE   STATUTES  :    CONSTITUTIONALITY.  §  406 

sistent  with  the  State  constitution,  are  to  be  respected  and 
enforced  in  the  Courts  of  tlie  Union,  if  they  do  not,  by  their 
operation,  directly  entrench  upon  the  authority  of  the  United 
States  or  violate  some  right  protected  by  the  National  Consti- 
tution. The  power  here  referred  to  is  —  to  use  the  words  of 
Chief  Justice  Shaw  —  the  power  '  to  make,  ordain  and  estab- 
lish all  manner  of  wholesome  and  reasonable  laws,  statutes  and 
ordinances,  either  with  i)enaltiesor  without,  not  repugnant  to 
the  Constitution,  as  they  judge  to  be  for  the  good  and  welfare 
of  the  Commonwealth  and  of  the  subjects  of  the  same.'  "  ^ 

In  determining  the  constitutionality  of  State  anti-trust 
statutes  the  following  propositions  must  be  taken  into  con- 
sideration : 

(1)  Quasi--puh\ic  corporations,  in  their  relations  with  other 
corporations,  are  subject  to  the  control  of  the  State. 

(2)  Property  devoted  to  public  use  is  subject  to  public 
regulation. 

(3)  Under  its  reserved  power,  the  State  has  greater  power 
over  a  corporation  than  over  an  individual. 

(4)  The  right  to  contract  is  a  natural,  but  not  an  absolute, 
right. 

(5)  The  police  power  of  the  State  may  be  exercised  for  the 
promotion  of  the  public  welfare  —  not  solely  for  the  protec- 
tion of  the  public  health,  morals  and  safety. 

(6)  The  exemption  of  classes  of  persons  and  products 
from  the  operation  of  State  anti-trust  laws  is  in  violation 
of  the  Fourteenth  Amendment  to  the  Constitution  of  the 
United  States. 

§  406.  Power  of  State  to  prohibit  Combinations  of  Quasi- 
public  Corporations.  Po'wer  over  Property  devoted  to  Public 
Uses.  —  ^j^ast-public  corporations,  in  consideration  of  the 
grant  of  public  franchises,  assume  the  performance  of  public 
duties.  Contracts  with  other  corporations  interfering,  in 
any  degree,  with  the  proper  discharge  of  their  obligations, 
are  against  public  policy. 

1  Mr.  Justice  Harlan,  in  Lake  Shore,     wealth   v.  Alger,    7    Cush.    (Mass.)   65 
etc.  R.  Co.  r.  Ohio,  173  U.  S.  28.")  (1899),     (1851). 
(19  Sup.  Ct.  Rep.  465),  citing  Common- 

605 


§  406  INTERCORPORATE   RELATIONS.  [PART    V. 

The  State  may  make  regulations  for  the  control  and  man- 
agement of  ^uasi-public  corporations.^  It  may,  by  statute, 
provide  penalties  for  the  execution  of  agreements  inimical 
to  public  policy,  and  may  control  the  relations  between  such 
corporations.  State  laws,  designed  for  the  promotion  of 
the  public  interests,  prohibiting  combinations  of  quasi- 
public  corporations,  are,  unquestionably,  cunstitutional. 

But  the  power  of  the  State  is  broader  than  its  right  to 
regulate  quasi-imhVic  corporations.  It  is  not  dependent  ui)un 
what  may  be  termed  the  contractual  obligations  of  those  cor- 
porations—  assumed  in  consideration  of  public  grants, — 
but  may  grow  out  of  the  nature  of  the  business  of  any  corpo- 
ration—  ^Ma«i-public  or  private  —  or  individual.  Whenever 
the  nature  of  a  business  ini])lies  a  public  duty,  the  State  has 
power  to  see  that  the  duty  is  performed.  In  the  leading  case 
of  Munn  v.  Illinois,^  the  Supreme  Court  of  the  United  States, 
in  declaring  constitutional  a  law  regulating  charges  at  grain 
elevators,  said:  "  Property  does  become  clothed  with  a  public 
interest  when  used  in  a  manner  to  make  it  of  public  conse- 
quence and  affect  the  community  at  large.  When,  therefore, 
one  devotes  his  property  to  a  use  in  which  the  public  have 
an  interest,  he,  in  effect,  grants  to  the  public  an  interest  in 
that  use  and  must  submit  to  be  controlled  by  the  public  for 
the  common  good  to  the  extent  of  the  interest  he  has  thus 

1  See  Georgia,  etc.  Banking  Co.  v.  large.  When,  therefore,  one  devotes 
Smith,  128  U.  S.  174  (1888),  (9  Sup.  his  property  to  a  u.se  in  which  the 
Ct.  Rep.  47),  as  an  illustrative  ca.se.  public   has   an   interest,    he,   in   effect, 

2  Munn  V.  Illinois,  94  U.  S.  11.3  grants  to  the  public  an  interest  in  that 
(1876).  Mr.  Chief  Justice  Waite,  in  use,  and  must  submit  to  be  controlled 
his  opinion,  said  (p.  12,5) :  "  This  brings  by  the  public  for  the  common  good,  to 
us  to  inquire  as  to  the  principles  upon  the  extent  of  the  interest  he  has  tiius 
which  this  power  of  regulation  rests,  created.  He  may  withdraw  his  grant 
in  order  that  we  may  determine  what  is  by  discontinuing  the  use;  but  so  long 
witliin  and  what  is  without  its  operative  as  he  maintains  the  use,  he  must  submit 
effect.  Looking  then  to  the  common  to  the  control  ...  (p.  130).  But  we 
law  from  whence  came  the  right  which  need  not  go  further.  Enough  has 
the  constitution  protects,  we  find  that  already  been  said  to  show  that,  when 
when  private  property  is '  affected  with  a  property  is  donated  to  a  public  use,  it  is 
public  interest  it  ceases  to  be  juris  prirati  subject  to  public  regulation." 

only.'.  .  .  Property  does  become  clothed  This  doctrine  was  reaffirmed  by  the 

•with  a  public  interest  when  used  in  a  Supreme  Court  in  Budd  v.  New  York, 

manner  to   make   it   of    public   conse-  143  U.  S.  517  (1892),  (12  Sup.  Ct.  Rep. 

quence    and  affect  the  community   at  468). 

606 


CHAP.  XLI.]       STATE   STATUTES  :     CONSTITUTIONALITY,  §  40G 

created.  He  may  withdraw  his  grant  by  discontinuing  the 
use,  but  so  long  as  he  maintains  the  use,  he  must  submit  to 
the  controh" 

This  power  of  the  State  to  exercise  control  over  property 
devoted  to  a  public  use  is  analogous  to  its  police  power,  but 
may  be  more  precisely  defined  as  its  power,  as  trustee  for 
the  public,  to  enforce  trusts  attaching  to  property  or  business 
for  the  public  benefit. 

The  question  is  entitled  to  serious  consideration  whether 
the  exercise  of  this  power  may  not  afford  an  effective  remedy 
for  some  of  the  evils  of  the  combination.  When  a  corporate 
combination  obtains  substantial  control  of  the  market  for 
a  necessary  of  life,  its  business  —  much  more  than  that  of  a 
company  operating  a  grain  elevator  —  is  "clothed  with  a 
public  interest."  Its  property  is  "used  in  a  manner  to 
make  it  of  public  consequence  and  affect  the  community 
at  large."  Upon  the  principles  of  Munn  v.  Illinois^  it  would 
seem  that  the  State  might  regulate  the  charges  of  such  com- 
binations—  within  reasonable  limits  —  and  exercise  super- 
visory control  over  their  management. ^ 

The  corporate  combination,  when  of  controlling  power,  may 
well  be  subjected  to  the  rules  governing  quasi-^whWc  corpo- 
rations. Its  efficiency  lies  in  its  corporate  character.  In 
consideration  of  the  grant  of  powers,  it  should  assume  the 

1  The  language  of  an  old   English  and   he  have  a  monopoly  in  them   for 

case  is  singularly  applicable.     In  Aid-  that  purpose,  if  he  will  take  the  heuetit 

nutt  I'.  Inglis,    12  East  527  (1810),   it  of  that  monopoly,  he  must,  as  an  equiv- 

appeared   that  the   London   Dock   Co.  alent,  perform  the  duty  attached  to  it 

had    acquired    virtual    control   of  the  on  reasonable  terms.  ...  (p.  539).     It 

warehouses  for  the  reception  of  wines  is  enough  that  there  exists  in  the  place 

from  importers,  and  the   question  was  and  for  the  commodity  in  question,  a 

whetlier  it  could  charge  arbitrarj-  rates  virtual   monopoly   of   the   warehousing 

for   storage  or  was   obliged   to   accept  for  this  purpose  on  which  the  i)riuciple3 

reasonable  compensation.     Lord  Ellen-  of   law   attach   as  laid  down  by  Lord 

borough   said    (p.   547) :   "  There  is  no  Hale  in  the  passage  referred  to  [When 

doubt    that    tlie    general    principle    is  private  property   is   "  affected   with   a 

favored,  both  in  law  and  justice,  that  public  intere.st  it  ceases  to  be  >m/)r/ia/i 

every    man    may  fi.K    what    prices    he  only."     "  De  Portibus  Maris "  1   Harg. 

pleases  upon   his  own  property  or  the  Law    Tracts,    78]   whicli    includes    the 

u.se  of  it;  but  if,  for  a  particular  pur-  good   sense  as  well  as  the  law  of  the 

pose,  the  public  have  a  riglit  to  resort  subject." 
to  his  premises  and  make  use  of  them, 

607 


§  407  INTERCORPORATE    RELATIONS.  [PART    V, 

same  ob] illations  to  the  ])iil)lic  in  their  exercise,  that  tlie 
^Masi-public  corj)oratiou  undertakes  in  consideratiou  of  the 
grant  of  franchises. 

§  407.  Power  of  State  to  prohibit  Combinations  of  Corpora- 
tions in  Exercise  of  Reserved  Power.  —  CDTpurations  are  tlie 
creations  of  the  State,  endowed  with  such  faculties  as  it 
best(nvs  and  subject  to  such  conditions  as  it  imposes.  Where 
power  is  reserved  to  modify  their  charters,  the  reservation  is 
a  part  of  the  contract  between  the  corporation  and  the  State, 
and  a  legitimate  exercise  of  the  power  in  no  way  impairs  the 
obi i elation  of  the  contract.^ 

Tlie  power  of  the  State,  under  its  reservation,  to  regulate 
the  contracts  of  corporations,  and  to  control  their  relations 
with  other  cor[)orations,  is  greater  than  its  power  over  indi- 
viduals. An  act  may  be  unconstitutional  as  to  natural 
persons  and  constitutional  as  to  corporations.* 

It  may  be  conceded  that  the  legislature,  under  its  right  to 
amend,  cannot  take  away  from  corporations  the  right  to  con- 
tract, or  affect  vested  rights.  But  the  State  may,  by  laws 
having  a  prospective  application,  regulate  the  right  to  con- 
tract, and  may  prohibit  combinations  when  prejudicial  to  the 
public  interest.     The  determination  of   the  question,   what 

1  St.  Louis,  etc.  R.  Co.  u.  Paul,  173  as  .are  conferred   expressly  or  by  nec- 

U.  S.  408(181)8),  (10  Sup.  Ct.  Ue]).  410).  es.sary  limitation,  and  no  others." 

lu  Shaffer  v.   Union  .Minin;^  Co  ,  55  Comfiare     Braceville     Coal     Co.     v. 

Md.  74  (1880),  the  Supreme  Court  of  People,    147  111.    66    (1893),  (35  N.  E. 

Maryland   said:    "The   acceptance   by  Rep.  62). 

the  corporation  of  a  charter,  with  the  ^  In  Leep  v.  St.  Louis,  etc.  R.  Co- 
reservation  of  the  rigiit  to  alter  and  58  Ark.  407  (1894),  (25  S.  W.  Rep.  75), 
amend,  made  that  provision  a  part  of  an  act  was  held  nnconstitutional  as 
the  contract,  which,  as  between  the  affecting  natural  persons,  but  constitu- 
legislature  and  it  as  a  private  corpora-  tioual  as  to  corporations,  as  an  exercise 
tion,  it  must  be  understood  to  he.  A  of  a  reserved  power  "  to  alter,  rcvr)ke 
corporation  has  no  inherent  or  natural  and  annul  any  charter  of  incorporation." 
rights,  like  a  citizen.  It  has  no  riglits  The  Court  conceded  that  the  legisl.o- 
but  those  which  are  expressly  conferred  tnre,  under  its  reserved  power,  could 
upon  it,  or  are  nece.'ssarily  inferrable  not  take  from  corporations  the  right  to 
from  the  powers  actually  granted,  or  contract,  but  held  that  it  could  regulate 
such  as  may  be  indi.spensable  to  the  that  right  when  demanded  by  the  public 
exercise  of  such  as  may  be  granted.  A  interest,  although  not  to  such  an  extent 
private  corporation  is  only  a  quasi-  as  to  render  the  corporation  unable  to 
individual,  the  pure  creation  of  the  fulfil  the  purposes  of  its  organization, 
legislative  will,  with  just  such  powers 

608 


CHAP.  XL!.]       STATE   STATUTES :     CONSTITUTIONALITY.  §  408 

combinations  are  prejudicial,  is  within  the  province  of  the 
legislature,  and  only  in  the  case  of  gross  perversion  of  power 
could  the  courts  intervene.^ 

§  408.  Validity  of  State  Statutes  tested  by  Fourteenth 
Amendment  — (A)  Right  to  Contract. — The  test  of  the  Consti- 
tutionality of  any  State  anti-trust  statute  may  properly  be 
the  Fourteenth  Amendment  to  the  Constitution  of  the  United 
States.  It  broadly  guarantees  the  right  of  property.  A 
statute  against  combinations  which  does  not  contravene  its 
provisions  does  not  conflict  with  any  provision  of  any  State 
constitution. 

The  Fourteenth  Amendment  provides  that  "no  State  shall 
make  or  enforce  any  law  which  shall  abridge  the  privileges 
or  immunities  of  citizens  of  the  United  States;  nor  shall 
any  State  deprive  any  person  of  life,  liberty  or  property, 
without  due  process  of  law,  nor  deny  to  any  person  within 
its  jurisdiction  the  equal  protection  of  the  laws." 

The  right  of  property  secured  by  the  Amendment  neces- 
sarily includes  the  right  to  contract,  for  it  is  only  by  the 
exercise  of  that  right  that  a  person  can  lawfully  acquire 
property  by  his  own  exertion.  The  right  to  contract  cannot 
be  taken  away  without  "due  process  of  law. "^ 

The  right  to  contract,  however,  is  not  an  absolute  right, 
but  may  be  subjected  to  restraints  demanded  by  the  welfare 
of  the  State.  ^     The  Fourteenth  Amendment  docs  not  conflict 

1  See  United  States  r.  Joint  Traffic  In  re  Grice,  79  Fed.  627  (1897): 
Ass'n,  171  U.  S.  566  (1898),  (19  Sup.  "One  of  the  most  sacred  rijihts  of  lib- 
Ct.  Hep.  25).  ertv  is  the   right  to  contract.      All  of 

2  Leep  V.  St.  Louis,  etc.  R.  Co.,  58  the  rights  of  contract  wliich  are  neces- 
Ark.  407  (1894),  (25  S.  W.    Rep.  75).  sary  for  the  carrying  on  of   ordinary 

Ritchie  v.  People,  155  111.98  (1895),  business   affairs   are  protected    by   the 

(40  N.  E.  Rep.  454):    "This  right   to  constitution    and    are    not   capable  of 

contract  which  is  thus  included  in  the  being  restrained  by  legislative  action." 

fundamental  rights  of  liberty  and  prop-  "  The  third  absolute  right,  inherent 

erty   cannot    be    taken    away  without  in  every  Englishman,  is  that  of  prop- 

'  due  process  of  law.' "  erty,   which   consists    in  the   free   use. 

Commonwealth  v.  Perry,  155  Mass.  enjoyment  an<l  disposal  of  all  his  acqui- 

117  (1891),  (28  N.  E.  Rep.  1126):  "The  sitioue,  without  any  control  or  <iiminu- 

right  to    acquire,   possess   and   protect  tion,  save  only  by  the  laws  of  tlie  land." 

property   includes    the   riglit  to   make  1  Black.  Com.  138. 

reasonable  contracts,   which    shall    be  ^  In    Frisbie    v.   United   States,   157 

under  the  protection  of  the  law."  U.    S.    165    (1895),   (15  Sup.   Ct.  Rep. 

39  609 


§409 


INTERCORPORATE   RELATIONS. 


[part 


with  the  exercise  of  the  State's  police  power. ^  As  said  by 
Mr.  Justice  Field  in  Barhier  v.  Connolly:'^  "Neither  the 
amendment  —  broad  and  comprehensive  as  it  is  —  nor  any 
other  amendment  was  designed  to  interfere  with  the  power 
of  the  State,  sometimes  called  its  police  power,  to  prescribe 
regulations  to  promote  the  health,  peace,  morals,  education 
and  good  order  of  the  people,  and  to  legislate  so  as  to  in- 
crease the  industries  of  the  State,  develop  its  resources  and 
add  to  its  wealth  and  prosperity." 

The  question,  therefore,  whether  a  State  statute  regulating 
the  right  to  combine^  —  a  form  of  the  right  to  contract  — 
contravenes  the  provisions  of  the  Fourteenth  Amendment 
guaranteeing  the  right  of  property,  depends  upon  whether  it 
was  enacted  in  the  legitimate  exercise  of  the  police  power  of 
the  State. 

§  409.  Validity  of  State  Statutes  tested  by  Fourteenth  Amend- 
ment—(B)  Police  Power  of  the  State.  —  The  police  power  of 


580),  Mr.  Justice  Brewer  said  :  "  While 
it  may  be  conceded  that,  generally 
speaking,  among  the  inalienable  rights 
of  the  citizen  is  that  of  the  liberty  of 
contract,  yet  such  liberty  is  not  abso- 
lute and  universal.  It  is  within  the 
undoubted  power  of  government  to  re- 
strain some  individuals  from  all  con- 
tracts, as  well  as  all  individuals  from 
Bome  contracts.  It  may  deny  to  all  the 
right  to  contract  for  the  purcliase  or 
sale  of  lottery  tickets  ;  to  the  minor,  the 
right  to  assume  any  obligations,  except 
for  tlie  necessaries  of  existence  ;  to  tlie 
common  carrier,  the  power  to  make  any 
contract  releasing  himself  from  negli- 
gence, and,  indeed,  may  restrain  all  en- 
gaged in  any  employment  from  any 
contract  in  the  course  of  that  employ- 
ment which  is  against  public  policy." 

See  also  Knoxville  Iron  Co.  v.  Har- 
bison, 183  U.  S.  20  (1901)  ;  St.  Louis, 
etc.  R.  Co.  V.  Paul,  173  U.  S.  408 
(1898),  (19  Sup.  Ct.  Rep.  419);  Orient 
Ins.  Co.  V.  Daggs,  172  U.  S.  565  (1898), 
(19  Sup.  Ct.  Rep.  281)  ;  Hooper  r.  Cali- 
fornia, 155  U.  S.  658  (1895),  (15  Sup.  Ct. 
Rep.  207 ) ;  Leep  v.  St.  Louis,  etc.  R.  Co., 
58  Ark.  407  (1894),  (25  S.  W.  Rep.  75). 

610 


^  Davis  t'.  Massachusetts,  167  U.  S. 
43  (1897),  (17  Sup.  Ct.  Rep.  731); 
Jones  r.  Brim,  165  U.  S.  180  (1897), 
(17  Sup.  Ct.  Rep.  282) ;  Covington,  etc. 
Turnpike  Co.  v.  Sandford,  164  U.  S. 
592  (1896),  (17  Sup.  Ct.  Rep.  198); 
Giozza  V.  Tieruan,  148  U.  S.  657  (1893), 
(13  Sup.  Ct.  Rep.  721);  Mugler  v. 
Kansas,  123  U.  S.  623  (1887),  (8  Sup. 
Ct.  Rep.  273)  ;  Barbier  v.  Connolly,  113 
U.  S.  27  (1885),  (5  Sup.  Ct.  Rep.  .357). 

-  Barbier  v.  Connolly,  113  U.  S.  31 
(18S5),  (5  Sup.  Ct.  Rep' 357). 

^  "  A  man  has  a  constitutional  right 
to  buy  anything,  or  any  quantity,  pro- 
vided he  use  only  fair  means,  and  set 
his  own  price  on  it,  or  refuse  to  sell  it  at 
all.  And  what  one  man  may  do  as  an 
individual,  two  or  more  may  do  wheu 
combined  as  partner:?.  Combination  for 
business  purposes  is  legal.  Combina- 
tions are  beneficial  as  well  as  injurious, 
according  to  the  motives  or  aims  with 
wliich  they  are  formed.  It  is  therefore 
impossible  to  prohibit  all  combinations. 
The  prohibition  must  rest  upon  the 
objectionable  character  of  the  objects 
of  the  combination."  Tiedeman  Lim. 
Police  Power,  244. 


CHAP.  Xtl.]       STATE    STATUTES  :     CONSTITUTIONALITY. 


400 


the  State  may  be  broadly  defined  as  that  inherent  and 
plenary  power  which  enables  it  to  interdict  that  which  i.s 
prejudicial  to  the  welfare  of  society.  It  lias  been  aptly 
termed  "the  law  of  overruling  nccessit}'."  ^ 

The  State,  in  the  exercise  of  its  police  power,  may  enact 
"albsuch  laws  not  in  plain  conflict  with  some  provision  of 
the  State  or  Federal  Constitutions  as  may  riirhtfully  be 
deemed  necessary  or  exjiedient  for  the  safety,  health,  morals, 
comfort  and  welfare  of  the  people. "  ^ 

Laws  against  combinations  for   the    purpose    of    restrict- 

1  Town   of   Lakeview  v.   Kose  Ilill     without,  not  repugnant  to  the  constitu- 


Cemetcry  Co.,  70  111.  191  (IST.*?). 

The  police  power  of  tlic  State  ex- 
tends not  only  over  matter.s  relating  to 
the  health,  morals  and  safety  of  the 
])ul>Iic,  but  over  whatever  relates  to  the 
pulilic  comfort  and  convenieuee.  Lake 
Sliore,  etc.  R.  Co.  v.  Ohio,  173  U.  S.  285 
(1899),  (19  Sup.  Ct.  "Rep.  405). 

"  The   police   of  a  State,  in  a  com- 


tion  as  they  shall  judge  to  he  for  the 
good  and  welfare  of  the  Commonwealth 
and  of  tlie  subjects  of  the  same." 

New  Orleans  Gas  Light  Co.  v.  Hart, 
40  La.  Ann.  474  (1888),  (4  So.  Rep. 
215)  :  "  Police  power  is  the  right  of  the 
State  functionaries  to  prescribe  regula- 
tions for  the  good  order,  jieace,  protec- 
tion,  comfort  and   convenience   of  the 


prehensive  sen.se,    embraces  its   whole     community  which  do  not  encroach  on 


system  of  internal  regulation  by  which 
tlie  State  seeks  not  only  to  preserve  the 
public  order  and  to  prevent  offences 
agaiu.st  the  State,  but  al.so  to  cstaldish, 
for  the  intercourse  of  citizens  with  citi- 
zens?, tliose  rules  of  good  manners  and 
good  neighborhood  wliich  are  calculated 
to  prevent  a  conflict  of  rights,  and  to 
insure  to  each  the  uiiinten"upted  enjoy- 
ment of  his  own  so  far  as  reasonably 
consistent  with  a  like  enjoyment  of 
rights  by  others  "  Cooley's  Const.  Lim. 
(4th  ed.)  713. 

Thorpe  r.  Rutland,  etc  R.  Co.,  27  Vt. 
149  (1855),  (Redfield,  C.  J.):  "The 
police  power  of  the  State  extends  to  the 
protection  of  the  lives,  limbs,  health, 
comfort  and  quiet  of  all  persons,  and  the 
protection  of  all  property  within  the 
State" 

Commonwealth  v.  Alger,  7  Cush. 
(Mass.)  84  (1851),  (Shaw,  C.  J.)  :  "The 
power  we  allude  to  is  rather  the  police 
power;  the  power  vested  in  the  legi.sla- 
ture  by  the  constitution  to  make,  or- 
dain and  establish  all  manner  of  whole- 
some and  reasonable  laws,  statutes  and 
ordinances,    either    with    penalties    or 


the  like  power  vested  in  Congress  by 
the  Federal  Constitution." 

Mayor,  etc.  of  New  York  c.  Miln,  II 
Pet.  (ir.  S.)  139  (1837):  "Every  law 
comes  witliin  this  description  [a  police 
regulation]  which  concerns  the  welfare 
of  the  whole  people  of  the  State,  or 
any  individual  within  it,  whether  it  re- 
lates to  their  rights  or  their  duties ; 
whether  it  respects  them  as  men  or 
citizens  of  the  State,  wiiether  in  their 
public  or  private  relations ;  whether  it 
relates  to  the  rights  of  persons  or  of 
property  of  the  whole  peo])le  of  the 
State,  or  of  any  individual  within  it ; 
and  whose  operation  is  witiiin  the  terri- 
torial limits  of  the  State,  and  upon  the 
persons  and  things  within  its  jurisdic- 
tion." 

2  In  Knoxville  Iron  Co.  v.  Harbison, 
183  U.  S.  20  (1901 ),  the  Supreme  Court 
of  the  United  States  ([uotes  witii  a|v 
proval  the  extract  in  the  text  from  the 
decision  of  the  Supreme  Court  of  Ten- 
nes.see  in  the  same  case,  sub  imm.  Har- 
bison V.  Knoxville  Iron  Co.,  103  Teun. 
421  (1900),  (53  S.  W.  Rep  955). 

611 


§409 


INTERCORPORATE   RELATIONS. 


[part  V. 


ing  production,  maintaining  prices  or  suppressing  competi- 
tion, have  a  relation  to  the  end  of  all  police  regulations 
—  the  comfort,  welfare  or  safety  of  society.  ^  The  preserva- 
tion of  competition  is  clearly  within  the  police  power  of  the 
State. 

In  the  absence  of  statutory  provisions,  the  law  leaves 
combinations  inimical  to  public  policy  as  it  finds  them,  and 
contents  itself  with  declining  to  recognize  or  enforce  them. 
Statutes  re-enforcing  the  common  law,  defining  the  rules  of 
public  policy,  and  making  criminal  illegal  combinations,  are, 
undoubtedly,   valid. 

The  power  of  police,  however,  is  not  confined  to  providing 
additional  penalties  for  forming  combinations  previously  un- 
lawful. Any  statute,  having  for  its  object  the  preservation 
of  competition  and  prohibiting  all  agreements  or  combina- 
tions, the  direct  effect  of  the  operation  of  which  may  be 
the  restriction  of  competition,  is  undoubtedly  constitutional, 
althougrh  it  sroes  much  further  than  the  common  law.^     The 


1  Ritchie  i-.  People,  155  111.  98(1895), 
(40  N.  E.  Kep.  454)  :  "  The  police  power 
of  the  State  is  that  power  which  enables 
it  to  promote  the  health,  comfort,  safety 
and  welfare  of  society.  It  is  very  broad 
and  far-reaching,  but  it  is  not  without 
its  limitations.  Legislative  acts  passed 
in  pursuance  of  it  must  not  be  in  con- 
flict with  the  constitution,  and  must 
have  some  relation  to  the  ends  sought 
to  be  accomplished,  —  that  is  to  say, 
to  the  comfort,  welfare  or  safety  of 
society." 

2  In  the  following  cases  the  anti-trust 
statutes  of  the  several  States  designated 
have  been  held  to  have  been  enacted  in 
the  exercise  of  the  police  power  of  the 
State  and  not  to  unconstitutionally  in- 
fringe the  right  to  contract : 

Missouri.  State  v.  Firemen's  Fund 
Ins.  Co.,  152  Mo.  46  (1899),  (52  S.  W. 
Rep.  595) :  "  There  is  no  such  thing  in 
civilized  society  as  unrestrained  power 
to  contract.  Every  man  surrenders  some 
of  his  individual  rights  when  he  asso- 
ciates with  or  becomes  a  part  of  any 
society  or  government,  and  the  power 

612 


of  the  government  to  legislate  is  coni- 
l)lete,  so  that  while  according  to  every 
man  the  fullest  possible  liberty  to  do 
what  he  pleases  with  his  own,  he  must 
not  interfere  with  the  similar  right  of 
others.  This  ])rinciplc  underlies  and 
runs  through  all  government  and  socie- 
ties, anil  it  is  the  corner-stone  of  the 
police  power  of  the  State." 

Ohio.  State  i'.  Buckeye  Pipe  Line 
Co.,  61  Ohio  State  St.  547  (1900),  (56 
N.  E.  Rep.  464) :  "  The  definite  proposi- 
tion of  counsel  upon  this  point  is  that 
although  the  act  is  an  exercise  of  legis- 
lative power,  it  transcends  the  provi- 
sions of  the  State  and  federal  constitu- 
tions which  render  inviolable  the  rights 
of  liberty  and  property,  which  include 
the  right  to  make  contracts.  It  would 
be  difficult  to  place  too  high  an  estimate 
upon  these  guaranties,  and  include  the 
right  to  make  contracts.  But  it  is  set- 
tled that  these  guaranties  are  them- 
selves limited  by  the  public  welfare  or 
the  exercise  of  the  police  power.  Al- 
though that  power  may  not  be  conclu- 
sively defined,  its  nature  and  attributes 


CHAP,  XLI.]      STATE   STATUTES  :    CONSTITUTIONALITY. 


§409 


wisdom  or  policy  of  its  provisions  is  a  matter  for  legislative 
determination.  1  But  any  statute  which  takes  away  the  right 
to  contract  entirely,  or  which  prohibits  acts  or  agreements 
which  can  have  no  direct  effect  upon  competition,  is  un- 
doubtedly unconstitutional.'-^ 


have  been  the  subject  of  much  investi- 
gation. In  all  considerate  discussions 
of  the  subject  it  is  conceded  that,  in  the 
exercise  of  this  power,  the  legislature 
can  prohibit  only  those  uses  of  property 
which  are  hurtful  to  the  public,  aud  the 
inhibited  use  must  be  hurtful  in  a  legal 
sense.  That  contracts  like  these  are 
hurtful  in  that  sense  lias  been  held  in 
more  ca^es  than  it  would  be  practicable 
to  cite." 

Tennessee.  State  v.  Schlitz  Brewing 
Co.,  104  Tenn.  71.5  (1900),  (59  S.  W. 
Rep.  1039):  "The  riglit  of  contract  is 
confessedly  an  inherent  part  of  both 
the  right  of  '  liberty,'  and  the  right  of 
'property,'  and  deprivation  of  it  is 
therefore  equally  forbidden  by  that 
provision,  but  none  of  them  are  unre- 
stricted rights.  All  are  subject  to  the 
law's  control,  and  may  be  abridged  or 
even  destroyed  within  constitutional 
bounds." 

Texas.  Waters-Pierce  Co.  v.  State, 
19  Tex.  Civ.  App.  1  (1898),  (44  S.  W. 
Rep.  940)  :  "  By  adequate  laws,  looking 
to  the  suppression  of  evil,  the  State, 
through  the  exercise  of  its  police  power, 
must  necessarily  restrain  the  unbridled 
liL'ense  of  the  citizen  in  iiis  conduct  and 
use  of  property,  and  restraints  in  this 
way  have  never  been  held  to  illegally 
impair  his  liberty.  .  .  .  The  objection  to 
the  statutes,  that  they  deprive  the  owner 
of  his  property  without  due  process  of 
law,  is  equally  untenable.  It  was  not 
the  design  of  the  Fourteenth  Amend- 
ment of  the  Constitution  of  the  United 
States  to  interfere  with  a  just  and 
proper  exercise  of  the  police  power  by 
the  States.  ...  If  legislative  authority 
exists  to  restrain  the  conduct  of  owners 
in  a  particular  way  in  the  use  of  prop- 
erty, deemed  injurious  to  the  public 
welfare,  and  the  legislature  having 
acted  in  the  manner  required,  in  passing 


laws,  due  process  of  law  exists,  in  so  far 
as  it  is  necessary  to  find  legal  authority 
for  prohibiting  the  act.  Legal  restraint 
imposed  upon  the  use  of  property  does 
not  deprive  the  owner  of  it  without  due 
process  of  law." 

See  also  Ilouck  v.  Anheuser-Busch 
Brewing  Ass'n,  88  Tex.  184  (1894),  (30 
S.  W.  Rep.  869)  ;  Texas  Brewing  Co. 
V.  Anderson  (Tex.  Civ.  App.  1S97), 
40  S.  W.  Rep.  737;  Texas  Brewing  Co. 
V.  Durram  (Tex.  1898),  46  S.  \V.  Rep. 
880. 

1  Waters-Pierce  Co.  t-.  State,  19 
Tex.  Civ.  App.  1  (1898),  (44  S.  W.  Rep. 
940)  :  "  When  it  is  once  admitted  that 
a  matter  is  a  subject,  of  police  super- 
vision, the  expediency  and  wisdom  of 
the  means  resorted  to  are  subjects  solely 
confided  to  the  legislative  department 
of  the  State,  subject,  however,  to  limita- 
tions imposed  by  the  organic  law  of  the 
nation." 

2  In  In  re  Grice,  79  Fed.  627  (1897), 
Judge  Swain  held  the  Texas  anti-trust 
act  unconstitutional  upon  the  ground, 
among  others,  that  it  abridged  the 
liberty  of  contract.  The  judge  said,  in 
his  opinion  :  "  The  act  also  prohibits 
combinations  which  create  or  carry  out 
restrictions  in  trade.  It  has  never 
been  held  that  all  restrictions  in  trade 
were  illegal  or  contrary  to  public  policy. 
The  rule  is  well  settled  that  when  a 
contract  is  publicly  oppressive,  and  the 
restrictions  broader  than  necessary  for 
the  legitimate  jirotection  of  the  other 
party  to  be  benefited  by  the  contract, 
then  the  contract  is  void  ;  otherwise  it 
is  legal.  The  fault  of  the  act  in  regard 
to  restraint  of  trade  is  tlie  same  in 
regard  to  competition.  It  makes  no 
distinction  between  legal  and  illegal 
combinations  and  agreements  which 
prevent  competition.  Those  wiiicli  have 
alwavs  been  held  lc£:al,  and  which  have 

G13 


§410 


INTERCORPORATE   RELATIONS. 


[part  V. 


The  power  of  Congress,  under  the  Fifth  Amendment,  to 
regulate  the  right  of  contract  is  the  same  as  that  of  a  State, 
under  the  Fourteenth  Amendment,^  The  decisions,  there- 
fore, of  the  Supreme  Court  of  the  United  States,  that  the 
federal  anti-trus't  law  is  constitutional,  although  prohibiting 
all  contracts  and  combinations  in  restraint  of  trade,  whether 
reasonable  or  unreasonable,  would  seem  to  afford  a  safe 
guide  for  State  legislation.^ 

§  410.  Validity  of  State  Statutes  tested  by  Fourteenth 
Ameudment— (C)  Class  Legislation.  — The  Fourteenth  Amend- 
ment, in  its  concluding  clause,  provides  that  no  State  shall 
"deny  to  any  person  within  its  jurisdiction  the  equal  protec- 
tion of  the  laws." 

This  provision  operates  against  arbitrary  class  legislation. 
State  legislatures,  in  the  exercise  of  the  police  power,  may 
enact  laws  applying  to  particular  classes  of  persons,  when 
the  nature  of  their  business  or  occupation  is  such  that  its 
regulation  is  necessary  for  the  protection  of  the  public. 
The  nature  of  the  occupation  is  the  controlling  factor.     Any 


always  been  an  essential  part  of  the 
liberty  of  the  citizen,  are  made  crim- 
inal, equally  with  those  which  the  law 
has  always  condemned." 

In  this  respect,  however,  the  fault 
is  rather  in  the  opinion  than  in  the 
statute,  for  it  is  directly  ojjposed  to 
the  princii)le  of  the  decisions  of  the 
Supreme  Court  of  the  United  States, 
cited  in  a  note  following,  that  the  federal 
anti-trust  statute  prohibits  contracts  in 
restraint  of  trade  not  previously  illegal. 
Tlie  decision  of  Judge  Swain  is  in  line 
witii  the  decisions  of  the  lower  courts 
upon  the  federal  statute,  which  were 
overruled  in  the  cases  referred  to.  The 
order  in  this  case  was  reversed  by  the 
Supreme  Court  in  Baker  v.  Grice,  169 
U.  S.  284  (1898),  (18  Sup.  Ct.  Rep. 
323),  but  the  Court  declined  to  pass 
upon  the  constitutional  questions. 

In  Niagara  Fire  Ins.  Co.  v.  Cornell, 
110  Fed.  817  (1901),  it  was  held  that  the 
Nebraska  anti-trust  statute  was  uncon- 
stitutional, because  it  deprived  persons 
of  the   liberty   to    make    and  enforce 

614 


contracts.  The  reasoning  of  the  Court 
is,  however,  inconclusive. 

^  J'ijlh  Amfndnient :  "No  person 
shall  ...  be  deprived  of  life,  liberty, 
or  property,  without  due  process  of 
law ;  nor  shall  private  property  be 
taken  for  public  use,  without  just 
compensation. 

FourleetUh  Amendment:  "  Nor  shall 
any  State  deprive  any  person  of  life, 
liberty  or  property  without  due  process 
of  law." 

-  Addyston  Pipe,  etc.  Co.  v.  United 
States,  175  U.  S.  226  (1899),  (20  Sup. 
Ct.  Rep.  96);  United  States  v.  Joint 
Traffic  Ass'n,  171  U.  S.  571  (1898), 
(19  Sup.  Ct.  Rep.  2.5);  United  States 
V.  Trans-Missouri  Freight  Ass'n,  166 
U.   S.   328    (1897). 

The  fact  that  Congress  has,  by  the 
Constitution,  power  t(?  regulate  inter- 
state commerce,  cannot  affect  the  prin- 
ciple stated  in  the  text.  The  States 
have  inherent  power  to  regulate  domes- 
tic commerce. 


CHAP.   XLI.]      STATE   STATUTES:    CONSTITUTIONALITY. 


§410 


classification,  however,  must  rest  upon  a  reasonable  basis. 
A  statute  which  arbitrarily  classifies  denies  the  equal  pro- 
tection of  the  laws  to  those  against  whom  it  discriminates. 

In  prescribing  regulations  for  the  conduct  of  domestic 
trade,  the  legislature  cannot  exempt  from  their  operation 
persons  engaged  in  a  particular  branch  of  industry.  A 
statute  distinguishing  INitween  producers  and  dealers— de- 
claring that  the  former  may  combine  and  that  the  latter 
may  not — is  unconstitutional. 

Upon  these  principles,  the  anti-trust  statutes  containing  a 
provision  that  they  "shall  not  apply  to  agricultural  ju-oducts 
or  live  stock  while  in  the  hands  of  the  producer  or  raiser" 
—  or  a  similar  provison  ^  —  are  clearly  invalid.^     As  such  a 


^  The  exemption,  in  the  precise  form 
stated  in  the  text,  or  with  the  word 
"  possession  "  in  place  of  the  word 
"  hands,"  appears  in  the  following 
anti-trust  statutes : 

Georgia  :  Act  of  Dec.  23,  1896  (Sess. 
Laws  1896,  p.  69). 

Illinois:  Act  of  June  20,  189.3. 

Indiana:  Act  of  March  5,  1897 
(Horner's  Anno.  Stat.  1901,  §  73.57). 

Louisiana  :  Act  of  July  7, 1892  (Rev. 
Laws  1897,  p.  205). 

Michigan:  Comp.  Laws  1S97, 
§  11,382. 

Tennessee:  Act  of  April  30,  1897 
(Laws  1897,  ch.  94). 

Texas  :  Act  of  April  30,  1895,  §  12. 

The  Afississippi  act  of  1892  (Code 
1892,  §  4437),  provided  that  "it  should 
not  apply  to  the  associations  of  those  en- 
gaged in  husbandry  in  their  dealings 
with  commodities  in  the  hands  of  the 
producer."  This  provision,  however, 
was  omitted  from  the  later  Mississippi, 
statute. 

The  Montana  Code  (ch.  8,  §  325) 
provides:  "The  provisions  of  this 
chapter  do  not  apjdy  to  .  .  .  persons 
engaged  in  horticulture  or  agriculture 
with  a  view  of  enhancing  the  price  of 
tlieir  products." 

In  Xorlh  Carolina,  the  act  (Laws  1899, 
ch.  666)  exempts  agricultural  products 
in  the  hands  of  producers,  the  lumber 


interests,  cotton  ami  woollen  mills,  the 
fisiiing,  trucking,  and  canning  indus- 
tries, and  merchants  not  interested  in  a 
"trust" — also  "combinations  of  con- 
sumers to  protect  themselves  against 
imposition  in  the  cost  of  articles  for 
their  own  use." 

All  of  the  statutes  containing  these 
exemptions  are,  undoubtedly,  uncon- 
stitutional. 

2  CoimoUy  v.  Union  Sewer  Pipe 
Co.,  184  U.  S.  540  (1002),  affirming  99 
Fed.  354  (1900),  (holding  Illinois  stat- 
ute unconstitutional)  ;  In  re  Grice,  79 
Fed.  627  (1897),  (holding  Texas  statute 
unconstitutional).  See  also  Niagara 
Fire  Ins.  Co.  v.  Cornell,  110  Fed.  816 
(1901).  Also  Merz  Capsule  Co.  i-. 
United  States  Capsule  Co.,  67  Fed.  414 
(1895),  where  the  constitutionality  of  the 
Michigan  anti-trust  statute  was  con- 
sidered, but  not  determined.  Contra  : 
State  r.  Sclilitz  Brewing  Co.,  104  Teun. 
715  (1900),  (59  S.  W.  Rep.  1033,  78  Am. 
St.  Rep.  941),  (holding  Tennos.<eestHtute 
constitutional) ;  Waters-Pierce  ( )il  Co. 
i;.  State,  19  Tex.  Civ.  App.  1  (1898), 
(44  S.  W.  Kep.  943),  (holding  Texas 
statute  constitutional). 

In  State  v.  Shijipcr's  Compress,  etc. 
Co.  (decided  in  April,  1902,  and  not  yet 
reported),  the  Texas  Court  of  Civil 
Appeals,  however,  following  the  de- 
cision in  Connollv  v.  Union  Sewer  Pipe 

615 


§410 


INTERCORPORATE   RELATIONS. 


[part  V. 


provision  is,  essentially,  a  condition  to  the  operation  of  the 
statute  as  a  whole,  its  presence  renders  the  entire  statute 
unconstitutional.  The  condition  could  not  be  stricken  out 
without  rendering  the  statute  operative  against  the  very 
persons  the  legislature  desired  to  exempt.^ 

In  the  very  recent  case  of  Connolly  v.  Union  Sewer  Pipe 
Co.,'^  the  Supreme  Court  of  the  United  States,  in  declaring 
unconstitutional  the  Illinois  anti-trust  statute  of  1893,  be- 
cause it  contained  the  exemption  above  referred  to,  said, 
through  Mr.  Justice  Harlan:  "We  have  seen  that  under  that 
statute  all  except  producers  of  agricultural  commodities  and 
raisers  of  live  stock,  who  combine  their  capital,  skill  or  acts 
for  any  of  the  purposes  named  in  the  act,  may  be  punished 
as  criminals,  while  agriculturists  and  live-stock  raisers,  in 
respect  of  their  products  or  live  stock  in  hand,  are  exemjjted 
from  the  operation  of  the  statute,  and  may  combine  and  do 
that  which,  if  done  by  others,  would  be  a  crime  against  the 
State.     The   statute   so   provides,  notwithstanding,   persons 


Co.  supra,  declared  the  Texas  anti-tmst 
statutes  uucoustitutioual.  The  Court 
said:  "The  effect  of  the  act  of  1899 
was  not  only  to  keep  alive  section  12  of 
the  act  of  1895  but,  in  effect,  also  to 
make  tliat  provision  of  the  law  a  part 
and  parcel  of  the  act  of  1899.  Our  laws 
upon  the  subject  of  trusts,  retaining  as 
a  part  of  their  terms  that  provision  of 
the  statute  which  excepts  from  the 
general  operatiou  of  the  law  producers 
and  raisers  of  livestock,  and  agricul- 
tural products  and  labor  organizations, 
renders  the  entire  law  upon  that  subject 
void  and  unconstitutional.  This  provi- 
sion relieves  from  the  operation  of  the 
law  certain  classes,  wliich  the  Supreme 
Court  of  the  United  States,  in  the  case 
cited,  decided  should  be  included,  in 
order  that  all  provisions  of  the  law 
might  bear  alike  upon  all  who  could  be 
guilty  of  the  acts  denounced.  The  vice 
in  the  statute,  as  illustrated  in  the  case 
cited,  permeates  to  all  of  its  four 
corners ;  and  there  is  no  possible  rule 
known  to  this  court  by  which  any  of 
the  provisions  of  the  anti-trust  statute 

616 


can  be  kept  alive,  so  as  to  relieve  it 
from  the  operation  of  section  1 2  of  the 
act  of  1895.  Therefore,  relying  upon  the 
autliority  cited,  we  must  hold  tlie  statute 
unconstitutional,  and  so  much  of  the 
plaintiff's  action  as  based  thereon  must 
fail." 

1  Connolly  v.  Union  Sewer  Pipe 
Co.,  184  U.  S.  540  (1902),  affirming  99 
Fed.  354  (1900).  In  the  latter  decision 
Judge  Kohlsaat  said  :  "  It  is  urged  that, 
granting  the  unconstitutionality  of  said 
ninth  clause,  yet  it  may  be  declared  void 
witliout  affecting  the  validity  of  the 
remaining  clauses  of  said  act.  If  this 
were  so,  then  by  declaring  said  clause 
void,  the  courts  would  make  the  act 
binding  upon  those  classes  of  persons 
within  the  State  which  the  legislature 
had  especially  exempted  from  its  provi- 
sions. This  would  be  judicial  legisla- 
tion of  the  most  flagrant  character.  In 
my  opinion,  the  said  clause  nine  taints 
the  whole  act,  and  renders  it  all  void." 

2  Connolly  v.  Union  Sewer  Pipe  Co., 
184  U.  S.  556  (1902). 


CHAP.  XLI.]       STATE    STATUTES  :    CONSTITUTIONALITY.  §  410 

engaged  in  trade  or  in  the  sale  of  merchandise  or  commodi- 
ties, within  the  limits  of  a  State,  and  agriculturists  and 
raisers  of  live  stock,  are  all  in  the  same  general  class,  that 
is,  they  are  all  alike  engaged  in  domestic  trade,  which  is,  of 
right,  open  to  all,  subject  to  such  regulations  applicable 
alike  to  all  in  like  conditions,  as  the  State  may  legally 
prescribe.  ...  If  combinations  of  capital,  skill  or  acts, 
in  respect  of  the  sale  or  purchase  of  goods,  merchandise  or 
commodities,  whereby  such  combinations  may,  for  their  ben- 
efit exclusively,  control  or  establish  prices,  are  hurtful  to  the 
public  interests  and  should  be  suppressed,  it  is  impossible 
to  perceive  why  like  combinations  in  respect  of  agricultural 
products  and  live  stock  are  not  also  hurtful.  Two  or  more 
engaged  in  selling  dry  goods,  or  groceries,  or  meats,  or  fuel, 
or  clothing,  or  medicines,  are,  under  the  statute,  criminals, 
and  subject  to  a  fine,  if  they  combine  their  capital,  skill  or 
acts  for  the  purpose  of  establishing,  controlling,  increasing 
or  reducing  prices,  or  of  preventing  free  and  unrestrained 
competition  amongst  themselves  or  others  in  the  sale  of 
their  goods  or  merchandise;  but  their  neighbors,  who  happen 
to  be  agriculturists  and  live-stock  raisers,  may  make  com- 
binations of  that  character  in  reference  to  their  grain  or  live 
stock  without  incurring  the  penalty.  Under  what  rule  of 
permissible  classification  can  such  legislation  be  sustained 
as  consistent  with  the  equal  protection  of  the  laws?  It 
cannot  be  said  that  the  exemption  made  by  the  ninth  section 
of  the  statute  was  of  slight  consequence,  as  affecting  the 
general  public  interested  in  domestic  trade  and  entitled  to 
be  protected  against  combinations  formed  to  control  prices 
for  their  own  benefit;  for  it  cannot  be  disi)utcd  that  agri- 
cultural products  and  live  stock  in  Illinois  constitute  a  very 
large  part  of  the  wealth  and  property  of  that  State.  .  .  .  To 
declare  that  some  of  the  class  engaged  in  domestic  trade  or 
commerce  shall  be  deemed  criminals  if  they  violate  the 
regulations  prescribed  by  the  State  for  the  purpose  of  pro- 
tecting the  public  against  illegal  combinations  formed  to 
destroy  competition  and  to  control  prices,  and  that  others  of 
the  same  class  shall  not  be  bound  to  regard  those  regulations, 

617 


§410 


INTERCORPORATE   RELATIONS. 


[part  V. 


but  may  coml^inc  their  capital,  skill  or  acts  to  destroy  com- 
petition, and  to  control  prices  for  their  sjjecial  benefit,  is  so 
manifestly  a  denial  of  the  equal  protection  of  the  laws  that 
further  argument  .  .  .  [is]  unnecessary.  .  .  .  Looking  at  all 
the  sections  together,  we  must  hold  that  the  legislature 
would  not  have  entered  upon  the  policy  indicated  by  the 
statute  unless  agriculturists  and  live-stock  dealers  were 
excluded  from  its  operation,  and  were  thereby  protected  from 
prosecution.  The  result  is  that  the  statute  must  be  regarded 
as  an  entirety,  and  in  that  view  it  must  be  adjudged  to  be 
unconstitutional,  as  denying  the  equal  protection  of  the  laws 
to  those  within  its  jurisdiction  who  arc  not  embraced  by  the 
ninth  section." 

The  Nebraska  anti -trust  statute  has  also  been  held  to  be 
unconstitutional,  1  upon  the  ground  that,  by  excepting  labor 
organizations  from  its  provisions,  it  denies  the  equal  pro- 
tection of  the  laws  to  all  persons  not  members  of  such 
organizations.'-^ 


1  Niagara  Fire  Ins.  Co.  v.  Cornell, 
110  Fed.  825  (1901):  "The  statute 
expres.sly  excepts  from  its  provisions 
assemblies  or  associations  of  laboring 
men.  By  saying  that  associations  of 
laboring  men  are  exem])t  from  the 
provisions  of  the  statute,  it  is  thereby 
stated,  in  meaning,  that  unorganized 
labor  must  pay  the  penalties  of  a  crim- 
inal statute  for  an  act  done  byamenil)er 
of  an  organization,  and  by  him  done 
with  impunity.  On  one  side,  by  tiiis 
legislation,  we  have  organized  labor. 
Those  men  are  not  amenable  to  the 
statute.  On  the  other  side  we  have 
men  who  do  not  belong  to  organized 
labor,  —  farmers,  merchants,  profes- 
sional men,  laborers,  as  well  as  all 
otliers.  Tliey  are  amenable,  and  by 
this  statute  that  is  called  '  equal  pro- 
tection.'    I  do  not  believe  it." 

2  See  the  following  exemptions  in 
anti-trust  statutes : 

Illinois.  Act  of  June  II,  1891  : 
"  Provided,  however,  that  in  the  mining, 
manufacture,  or  production  of  articles 
of  merchandise,  the   cost  of  which  ia 

618 


mainly  made  up  of  wages,  it  shall  not 
be  unlawful  for  persons,  firms  and  cor- 
porations doing  business  in  tiiis  State 
to  enter  into  joint  arrangement  of  any 
sort,  the  principal  object  or  effect  of 
which  is  to  maintain  or  increase  wages." 

Louisiana.  Act  of  July  7,  1892  : 
"  That  the  provisions  of  the  act  sliall 
not  be  construed  as  to  effect  .  .  .  any 
combination  or  confederation  of  laborers 
for  the  purpose  of  increase  of  their 
wages  or  redress  of  grievances." 

Michigan.  Act  of  July  1,  1889: 
"  Tlie  provisions  of  this  act  shall  not 
apply  to  .  .  .  the  services  of  laborers  or 
artisans  who  are  formed  into  societies 
or  organizations  for  the  benefit  and 
protection  of  their  members." 

Mississippi.  Code  1892  (as  amended), 
§  4437  :  "  But  this  shall  not  apply  to 
.  .  .  societies  of  artisans,  employees,  and 
laborers,  formed  for  the  benefit  and 
protection  of  their  members." 

Montana.  Code  1895,  §  325:  "The 
provisions  of  this  chapter  do  not  apply 
to  any  arrangement,  agreement,  or 
combination    between    laborers    made 


CHAP.  XLII.]       CONSTRUCTION    AND    APPLICATION. 


§412 


CHAPTER   XLII. 

CONSTRUCTION    AND    APPLICATION    OF   STATE   ANTI-TRUST 
STATUTES. 


§  411.  Kule  of  Construction. 

§  412.  Statutes  not  Koguliilioiis  of  Interstate  Commerce. 

§  413.  Application  of  Statutes  to  Insurance  Combinations. 

§  414.  Applicability  of    Statutes   to   Foreign   Corporations   doing  Business  in 

State. 

§  415.  Statutes  have  no  Extraterritorial  Effect. 

§  41G.  Statutes  not  retroactive,  but  apjilv  to  Continuing  Combinations. 

§  417.  Construction  and  Application  of  Miscellaneous  Statutes. 


§  411.  Rule  of  Construction.  —  State  anti-trust  statutes,  be- 
ing penal  in  their  nature,  must  be  strictly  construed.  Their 
meaning  cannot  be  extended  by  implication.  It  must  be 
determined  from  the  language  used.^ 

§  412.  statutes  not  Regulations  of  Interstate  Commerce.  —  It 
has  been  held  that  it  is  neither  the  purpose  nor  the  effect  of 
the  Texas  anti-trust  acts  to  regulate,  in  any  degree,  inter- 


witli  the  object  of  lessening  the  hours 
of  labor  or  increasing  wages." 

NehrasJai.  Act  of  April  8,  1897, 
§  9  :  "  Nothing  herein  contained  shall 
be  construed  to  prevent  any  assemblies 
or  associations  of  laboring  men  from 
passing  and  adopting  such  regulations 
as  they  may  think  proper  in  reference 
to  wages  and  the  compensation  of 
labor." 

South  Dakota.  Act  of  March  1, 
1897:  "Provided  that  nothing  in  this 
act  shall  be  so  construed  as  to  include 
labor  organizations." 

Texas.  Act  of  189.5,  §  12:  "Pro- 
vided .  .  .  this  act  shall  not  be  .  .  . 
understood  or  construed  to  prevent  the 
organization  of  laborers  for  the  jiurpose 
of  maintaining  any  standard  of  wages." 

1  In  State  i».  Lancashire  Fire  Ins. 
Co.,  66  Ark.  472  (1890),  (.51  S.  W.  Hop. 
633),  tlie  Supreme  Court  of  Arkansas 
in  construing  the  anti-trust  statute  of 
that  State  {per  Kiddick, .!.),  said  :  "To 
determine  the  meaning  of  a  statute,  the 


courts  must  look  mainly  to  the  language 
of  tlie  act  itself;  for  that  is  the  final 
expression  of  the  legislative  will,  and 
therein  must  such  will  and  intention  be 
sought.  Whatever  the  legislature  may 
have  intended,  such  intention  can  have 
no  effect  unless  expressed  in  the  statute ; 
for  tliis,  being  a  penal  statute,  cannot  be 
extended  by  implication.  It  would  be 
in  the  highest  degree  unjust  to  punish 
conduct  not  clearly  forbidden  by  the 
law  itself  .  .  and  so,  to  quote  the 
words  of  a  recent  opinion  of  the  Supreme 
Court  of  tlie  United  States,  'we  are  left 
to  determine  the  meaning  of  this  act,  as 
we  determine  the  meaning  of  other  acts, 
from  the  language  used  therein.'  "  Cit- 
ing United  States  v.  Trans-Mi.-Jsouri 
P>eight  As,s'n,  166  U.S.  318  (1897), 
(17  Sup.  Ct.  Rep.  540). 

See  also  State  i\  Associated  Press, 
159  Mo.  410  (1901)  ;  State  v.  Firemen's 
Fund  Ins.  Co.,  152  Mo.  1  (1899),  (52 
S.  W.  Rep.  595). 

619 


§  413  INTERCORPORATE   RELATIONS.  [PART   V. 

state  commerce;  that  they  are  applicable  only  to  domestic 
commerce  aud  affect  articles  imported  into  the  State  only 
after  they  have  been  delivered,  and  have  ceased  to  be  the  sub- 
ject of  interstate  commerce.^ 

These  principles,  undoubtedly,  govern  the  application  of 
the  State  statutes  in  general. 

§  413.  Application  of  Statutes  to  Insurance  Combinations.  — 
The  anti -trust  statutes  of  several  States  include,  in  express 
terms,  combinations  of  insurance  companies  designed  to 
prevent  competition  and  maintain  rates.^  In  other  States, 
the  question  has  been  judicially  considered  whether  such  a 
combination  comes  within  the  general  i)rovisions  of  the 
State  statute. 

An  Iowa  statute  ^  prohibited  the  formation  of  combinations 
to  regulate  or  fix  the  price  of  "oil,  lumber,  coal  ...  or  any 
other  commodity."  The  Supreme  Court  of  Iowa  held  that 
insurance  was  a  "commodity"  within  the  meaning  of  this 
statute,  and  that  a  combination  of  insurance  companies  was 
prohibited  by  its  provisions.*  On  the  other  hand,  the  Supreme 
Court  of  Texas  held  that  the  term  "commodity,"  in  the  Texas 
statute  of  1889,  did  not  include  insurance,  and  that  a  combi- 

1  Waters-Pierce  Co.  v.  State,  19  Tex.  Kansas  (earliest  statute),  Missouri,  Ne- 
Civ.  App.  1  (1898),  (44S.  W.  Rep.  945)  :  bras/ca  "and  Texas  (Act  of  1899),  ex- 
"  It  was  decided  in  the  case  of  Fuqua  r.  pres.sly  include  insurance  combinations. 
Pabst  Brewing  Co.,  90  Tex.  298  (1897),  The  South  Carolina  statute  clearly  re- 
(38  S.  W.  Rep.  29),  that  it  was  not  the  fers  to  them.  See  statutes  collected  in 
purpose  of  these  statutes  to  undertake,  note  to  §  405,  ante. 

in  any  way,  to  regulate  or  to  prohibit  For    construction    of  provisions    of 

transactions  of  interstate  commerce,  and  Missouri  statute  relating  to  insurance 

it  was  clearly  proper  for  the  court  to  companies,  see  State  i:  Firemen's  Fund 

give  to  the  statute  this  application.     If  Ins.  Co.,   152  Mo.  1    (1899),    (52  S.  W. 

the  statute  could  be  applied  to  domestic  Rep.  595). 

commerce,   and   transactions  occurring  *  McClain's  Iowa  Code,  §  5454. 

within  the  limits  of  tliis  State,  the  court  *  Beechley   v.   Mulville,    102    Iowa, 

could  give  it  application,  and  its  iuabil-  602  (1897),  (70  N.  W.  Rep.  107,  63  Am. 

ity  to  extend  it  to  matters  of  interstate  St.  Rep.  479). 

commerce  would  not  affect  its  powers  The  word  "  trade  "  in  the  title  of  an 

in  this  respect."      See  also  decision  of  act  fairly  includes  the  provisions  of  the 

Supreme  Court  of  the  United  States  in  act  concerning  insurance,  and  such  an 

same  case,  177  U.  S.  43  (1900),  (20  Sup.  act  is  valid  in  a  State  where  the  subject 

Ct.  Rep.  518) ;  also  Pasteur  Vaccine  Co.  of  an  act  must  be  clearly  expressed  by 

V.  Burkey,  22Tex.  Civ.  App.  232  (1899)  its   title.     In  re   Pinkney,  47   Kan.  89 

(54  S.  W.  Rep.  804).  (1891),  (27  Pac.  Rep.  179'). 

2  The  anti-trust  statutes  of  .4rA:a;isas, 

620 


CHAP.  XLII.]       CONSTRUCTION   AND   APPLICATION. 


nation  of  fire  insurance  companies  to  establish  uniform  rates 
did  not  contravene  the  act.^  The  decision  in  the  Iowa  case 
cannot  be  regarded  as  sound.  It  ignores  the  ejusdem  generis 
rule  of  construction.  The  term  "commodity,"  in  its  broadest 
sense,  may  include  insurance,  but  it  is  not  a  commodity  of 
the  same  general  class  or  nature  as  those  commodities  pre- 
viously mentioned  in  the  Iowa  statute. 

The  -word  "'property,"  as  used  in  the  Kentucky  anti-trust 
statute,  "does  not  include  the  right  to  enter  into  a  contract 
of  insurance  nor  to  fix  the  terms  upon  which  such  a  contract 
will  be  made."- 

Insurance  is  a  "business,"  the  control  of  which  cannot  be 
placed  in  the  power  of  trustees,  within  the  meaning  of  the 
Mississippi  statute.  ^ 

§  414.  Applicability  of  Statutes  to  Foreign  Corporations  doing 
Business  in  State.  —  A  corporation  created  by  the  laws  of  one 
State  has  no  absolute  right  to  transact  lousiness  beyond  its 
borders.  Its  privileges  in  other  States  arc  permissive  and 
depend  upon  the  comity  between  States.  A  State,  in  admit- 
ting foreign  corporations,  may  impose  any  conditions,  rea- 
sonable or  unreasonable,  which  it  deems  expedient.^ 


1  Queen  Ins.  Co.  v.  State,  86  Tex. 
2.50  (1893),  (24  S.  W.  Eep.  397).  To 
meet  this  decision  the  word  "  husiness  " 
was  inserted  in  the  Tex.as  act  of  1895. 

"  yEtna  Ins.  Co.  v.  Commonwealth, 
21  Ky.  Law  Kep.  503  (1899),  (51  S.  W. 
Rep.  624) :  "  While  it  may  be  admitted 
that  a  contract,  either  for  labor  or  for 
indemnity  against  contingent  loss,  like 
an  insurance  contract,  when  executed, 
becomes  property,  because  it  is  then  a 
chose  in  action,  the  riglit  to  enter  into 
such  contracts,  which  belongs  to  all  per- 
sons capable  of  contracting  —  as  well 
natural  persons  as  artificial  ones  author- 
ized by  their  organic  law  to  make  such 
contracts  —  wouhi  hardly  be  considered 
to  be  included  in  the  word  '  property,' 
unless  that  word  were  used  in  a  much 
broader  sense  than  it  is  customarily  used 
by  lawyers  or  in  statutes." 

8  American  Fire  Ins.  Co.  v.  State,  75 
Miss.  24  (1897),  (22  So.  Rep.  99)  :  "It 


[the  statute]  prohibits  any  trust  the  ob- 
ject of  which  is  to  place  the  control  of 
business  (any  business)  to  any  extent  in 
tlie  power  of  trustees.  The  law-makera 
wisely  refrained  from  any  specification 
of,  or  attempt  to  enumerate,  the  kinds 
of  business  whose  control  should  thus  be 
placed  in  the  power  of  trustees,  for  the 
obvious  reason  that  sucli  kinds  of  busi- 
ness in  modern  life  are  multiform.  It, 
therefore,  prohibited  any  trust  whose 
object  was  to  place  the  control  of  any 
business  in  the  power  of  trustees,  when 
tlic  effect  of  such  trust  should  be  to  in- 
jure tlie  public  or  any  particular  person 
or  corporation  in  this  State.  Such 
legislation  lias  become  very  general  in 
tlie  United  States  owing  to  the  jierni- 
cious  results  of  such  trusts." 

*  Hartford  Fire  Ins.  Co.  v.  Raymond, 
70  Mich.  501  (1888),  (38  N.  W.  Rep. 
474):  "It  lias  been  repeatedly  held, 
.  .  .  that  corporations  of  one  State  have 

621 


§414 


INTERCORPORATE   RELATIONS. 


[part  V. 


A  foreign  corporation  doing  business  in  a  State  is  subject 
to  its  general  laws  and  regulations.  It  cannot  exercise, 
within  the  State,  powers  prohibited  in  the  case  of  corpora- 
tions generally.  Statutes  against  combinations  of  corpora- 
tions ai)ply  to  foreign  as  well  as  domestic  corporations. 
Foreign  corporations  violating  their  provisions  may  be  ousted 
from  the  State.  ^ 

In  Waters-Pierce  Oil  Co.  v.  Texas'^  the  Supreme  Court  of 
the  United  States,  in  holding  that  a  Texas  anti-trust  statute 
applied  to  foreign  corporations,  and  that  their  privilege  of 
transacting  business  within  the  State  might  be  forfeited  for 
disobeying  it,  said:  "The  plaintiff  in  error  is  a  foreign  cor- 
poration, and  what  right  of  contracting  has  it  in  the  State 
of  Texas  ?  This  is  the  only  intpiiry,  and  it  cannot  find  an 
answer  in  the  rights  of  natural  persons.  It  can  only  find  an 
answer  in  the  rights  of  corporations  and  the  power  of  the 
State  over  them.  What  those  rights  are  and  what  \\\wi 
power  is  has  often  been  declared  by  this  court.  A  corj)ora- 
tion  is  the  creature  of  the  law,  and  none  of  its  powers  are 


no  right  to  exercise  their  franchises  in 
another  State  except  upon  the  assent  of 
such  other  State,  and  upon  such  terms 
as  may  be  imposed  by  tlie  State  wliere 
their  business  is  to  be  done.  The  con- 
ditions imposed  may  be  reasonable  or 
unreasonable  ;  tliey  are  absolutely  within 
the  discretion  of  the  legislature." 

1  United  States:  Waters-Pierce  Oil 
Co.  V.  Texas,  177  U.  S.  28  (I'JOO),  (20 
Sup.  Ct.  Rep.  518). 

Illinois :  Harding  v.  American  Glu- 
co.se  Co.,  182  111.  551  (1899),  (55  N.  E. 
Kep.  577,  74  Am.  St.  Rep.  189).  See 
also  Bishop  r.  American  Preservers 
Co.,  157  111.  284  (1895),  (41  N.  E.  Rep. 
765). 

Kcinsns :  State  v.  Pliipps,  50  Kan. 
619  (1893),  (31  Pac.  Rep.  1097)  :  "The 
State  has  power  to  regulate  and  control, 
and  to  provide  penalties  for  the  trans- 
gression of  its  regulating  and  control- 
ling statutes,  the  business  of  a  foreign 
insurance  company  within  its  borders." 

Missouri :  National  Lead  Co.  r.  Grote 
Paint  Store  Co.,  80  Mo.  App.  247  (1899): 

622 


"  Neither  can  the  plaintifl  shut  off  an 
investigation  of  its  corporate  organiza- 
tion and  purpose  upon  the  plea  of  com- 
ity due  it  as  a  foreign  corporation.  The 
doctrine  on  this  subject  is  simple  and 
clear.  It  concedes  no  rights  to  a  corpo- 
ration of  a  sister  State  which  are  denied 
by  law  to  a  domestic  corporation,  or 
which  are  contrary  to  the  laws  or  puiilic 
policy  of  the  State  into  which  the  foreign 
corporation  enters  for  business." 

I'ennessee  :  State  v.  Schlitz  Brewing 
Co.,  104  Tenn.  715  (1900),  (59  S.  W. 
Rep.  1039,  78  Am.  St.  Rep.  941 ). 

Texas :  Waters-Pierce  Oil  Co.  v. 
State,  19  Tex.  Civ.  App.  1  (1898),  (44 
S.  W.  Rep.  936),  affirmed,  Waters- 
Pierce  Oil  Co.   r.  Texas,  supra. 

That  foreign  corporations  may  attack 
constitutionality  of  State  anti-trust  stat- 
ute, see  Niagara  Fire  Ins.  Co.  v.  Cornell, 
110  Fed.  816  (1901). 

2  Waters- Pierce  Oil  Co.  v.  Texas, 
177  U.  S.  43  (1900),  (20  Sup.  Ct.  Rep. 
518). 


CHAP.  XLIL]       construction    AND    APPLICATION.  §  415 

original.  They  are  precisely  what  the  incorporating  act  has 
made  them,  and  can  only  be  exerted  in  the  manner  which 
that  act  authorizes.  In  other  words,  the  State  prescribes 
the  purposes  of  a  corporation  and  the  means  of  executing 
those  purposes.  Purposes  and  means  are  within  the  State's 
control.  This  is  true  as  to  domestic  corporations.  It  lias 
even  a  broader  application  to  foreign  corporations.  Bank 
of  Augusta  v.  EarW^  involved  the  power  of  the  Bank  of 
Augusta,  chartered  by  the  State  of  Georgia,  and  invested  by 
its  charter  with  a  function  of  dealing  in  bills  of  exchange, 
to  exercise  that  function  in  the  State  of  Alabama.  In  pass- 
ing on  the  question  certain  principles  were  declared  which 
have  never  since  been  disturbed.  A  contract  of  the  corpo- 
ration, it  was  declared,  is  the  contract  of  the  legal  entity, 
and  not  of  its  individual  members.  Its  rights  are  those 
given  to  it  in  that  character,  and  not  the  rights  which  belong 
to  its  constituent  citizens.  Its  charter  confers  its  powers 
and  the  means  of  executing  them,  and  such  powers  and 
means  can  only  be  exercised  in  other  States  by  the  permis- 
sion of  the  latter." 

§415.  statutes  have  no  Extraterritorial  Effect.  —  TllC  pcnal 
statutes  of  a  State  have  no  binding  effect  outside  its  borders. 
A  law  attempting  to  make  criminal,  acts  done  without  the 
State  is  void.^  The  State  may,  liowever,  make  criminal  and 
unlawful  the  carrying  into  effect  within  its  limits  of  a  com- 
bination entered  into  without. 

1  Citing  Bank  of  Augusta  v.  Earle,  the  wishes  of  the  legislature  of  Texas. 
13  Pet.  (U.  S.)  519  (1839).  The   State,  in  its  criminal   jurisdiction 

2  In  re  Grice,  79  Fed.  638  (1897)  :  as  to  acts  committed  within  its  own 
"  The  fifth  paragraph  of  the  said  act,  in  boundaries,  and  within  the  limits  pre- 
which  it  is  attempted  to  claim  jurisdic-  scribed  by  the  federal  constitution,  is 
tion  for  offences  committed  outside  of  sovereign,  and  its  process  should  not  he 
the  State  of  Texas,  is  so  absurd  that  a  interfered  with  where  it  does  not  con- 
denial  thereof  is  scarcely  necessary.  .  .  .  travene  the  said  constitution ;  but,  be- 
lt has  been  properly  suggested  that,  yond  the  boundaries  of  the  State,  it  has 
should  this  feature  of  this  act  be  carried  no  more  authority  in  New  York,  Mis- 
out  and  administered,  it  would  be  un-  souri,  or  Ohio  than  it  has  in  (iteat 
necessary  for  any  other  State  or  the  Britain  or  Austria,  and  that  part  of  the 
nation  at  large  to  have  any  other  laws  act  which  proposes  this  extraterritorial 
upon  the  subject,  as  all  persons  witliin  jurisdiction  is  absolutely  null  and  void." 
the  limits  of  tiie  United  States  could  be  See  also  State  r.  Associated  Press, 
regulated  in  their  dealings  and  in  the  159  Mo.  410  (1901). 

conduct  of  their  business  according  to 

623 


§  417  INTERCORPORATE   RELATIONS.  [PART  V. 

In  the  construction  of  an  anti-trust  statute,  it  will  be 
presumed  that  the  legislature  recognized  these  elementary 
principles,  and  intended  "that  its  statutes  should  not  apply 
to  acts  or  contracts  done  or  effected  beyond  the  limits  of  the 
State,  and  having  no  reference  to  or  effect  upon  persons  or 
property  in  this  State."  ^ 

§  41G.  Statutes  not  retroactive,  but  apply  to  Continuing 
Combinations.  —  An  act^  making  it  unlawful  for  a  corporation 
to  enter  a  combination  for  certain  purposes,  and  imposing 
penalties  for  its  violation,  is  not  retroactive  and  does  not 
deprive  a  corporation,  infringing  its  provisions,  of  the  right 
to  enforce  its  antecedent  contracts. ^ 

The  object  of  anti-trust  statutes,  however,  is  to  prevent 
the  existence  of  combinations  of  the  nature  prohibited,  and, 
while  not  retroactive,  the  effect  of  their  enactment,  as  a 
general  rule,  is  to  prevent  the  continuance  of  existing,  and 
the  formation  of  new,  combinations  in  contravention  of  their 
provisions.* 

§  417.  Construction  and  Application  of  Miscellaneous  Stat- 
utes.—  A  corporation  organized  for  the  purpose  of  acquiring 
patents  and  granting  licenses  thereunder,  and  which  has 
acquired  nearly  all  the  patents  covering  a  particular  article, 
but  which  does  not  bind  its  licensees  as  to  prices  or  output, 
is  not  in  contravention  of  the  Illinois  anti-trust  statute.^ 
This  statute  is,  however,  api)licable  to  a  corporation  formed 
for  the  purpose  of  carrying  out  an  illegal  combination  of  its 
stockholders.^ 

A  Nebraska  statute''  forbidding  combinations  entered  into 

1  State  V.  Lancashire  Fire  Ins.  Co.,  ^  Columbia  Wire  Cloth  Co.  v.  Free- 
66  Ark.  472  (1899),  (51  S.  W.  Rep.  man  Wire  Co.,  71  Fed.  302  (1895).  See 
633),  (per  Riddick,  J.).  also  Clark  v.  Cline  Woven  Wire  Fence 

2  See  Indiana  statute  in  no^eto  §  405,  Co.  (Tex.  1899),  54  S.  W.  Rep.  392. 
ante :  "  TTie   Statutes.     Scope   of  State  Compare    National    Harrow   Co.   v. 
Legislation."  Bement,  21  App.  Div.  (N.  Y.)  290  ( 1 897), 

3  Sterling  Remedy  Co.  v.  Wyckoff,  (47  N.  Y.  Supp.  462).  And  see  ante, 
154  Ind.  437  (1900),  (56  N.  E.  Rep.  §361:  "Associations  of  Manufacturers 
911).  owning  Patents." 

*  Matter  of  Davies,   168  N.  Y.  89  «  Ford   v.   Chicago  Milk   Shippers' 

(1901).     See  also  ante,  %  395  :  "Statute  Ass'n,   155  111.   166  (1895),   (39  N.  E. 

[federal]    not  retroactive,   but  applies  to  Rep.  651). 
Continuing  Combinations."  ''  Nebraska:  Sess.  Laws  1889,  ch.  69. 

624 


CHAP.  XLII.]      CONSTRUCTION    AND   APPLICATION. 


§417 


by  persons  "engaged  in  manufacturing,  selling  or  dealing 
in  the  same  or  any  like  manufactured  or  natural  products," 
does  not  apply  to  persons  engaged  in  the  laundry  business.^ 

The  New  York  statute  of  1897 '-^  against  coml)ination3  is 
disjunctive,  and  prohibits  corporations  from  combining  to 
accomplish  three  things:  (1)  The  "creation  of  a  monopoly;" 
(2)  "the  unlawful  restraint  of  trade;"  and  (3)  "the  preven- 
tion of  competition  in  any  necessary  of  life. "^ 

Decisions,  other  than  those  already  cited,  construing  anti- 
trust statutes  of  different  States,  are  collected  in  the  foot- 
note and  are  arranged  under  the  names  of  the  respective 
States.^ 


1  Downing  r.  Lewis,  56  Neb.  386 
(1898),  (74  N.  W.  Rep.  900). 

2  iVe«;  York:  Laws  1897,  ch.  384, 
§7. 

'  National  Harrow  Co.  v.  Eement, 
21  App.  Div.  (N.  Y.)  290  (1897),  (47 
N.  Y.  Supp.  462).  Regarding  the  con- 
Btructiou  and  validity  of  the  New  York 
statute  of  1899  the  New  York  Court  of 
Appeals  said  in  Matter  of  Davies,  168 
N.  Y.  101  (1901):  "The  general  pur- 
pose of  the  act  is  expressed  in  its  first 
section.  Its  object  is  to  destroy  mo- 
nopolies in  the  manufacture,  production 
and  .«ale  in  this  State  of  commodities  in 
common  use,  to  j)reveut  combinations 
in  restraint  of  competition  in  tlie  supply 
or  price  of  such  commodities,  or  in  re- 
straint of  the  free  pursuit  of  any  lawful 
business,  trade  or  occupation.  The  act 
in  this  respect  is  little  more  than  a  cod- 
ification of  the  common  law  upou  the 
subject,  and  its  validity,  to  tliis  ex- 
tent, is  not  and  cahnot  be  successfully 


questioned  in  view  of  a  long  line  of 
authorities." 

♦  Arkansas :  State  v.  .^tna  Fire  Ins. 
Co.,  66  Ark.  480  (1899),  (51  S.  W.  Rep. 
638). 

Kansas  :  Barton  v.  Mulvane,  59  Kan. 
313  (1898),  (52  I'ac.  Rep.  883). 

Mississippi :  Ilouck  V.  Wright,  77 
Miss.  476  (1900),  (27  So.  Rep.  6lV,). 

New  York:  Walsh  v.  I) wight,  40 
App.  Div.  513  (1899),  (58  N.  Y.  Supp. 
91). 

Tennessee  :  Bailey  v.  Master  Plumb- 
ers' Ass'n,  103  Tenn.  99  (1900),  (52 
S.  W.  Rep.  853V 

Texas :  San  Antonio  Gas  Co.  v. 
State,  22  Tex.  Civ.  App.  118  (1899),  (54 
S.  W.  Rep.  289)  ;  Columbia  Carriage 
Co.  r.  Hatch.  19  Tex.  Civ.  App.  120 
(1898),(47S.W.  Rep  288);  Patterson  i;. 
Crabb,  51  S.  W.  Rep.  870(1899) ;  Comer 
V.  Burton,  etc.  Co.,  58  S.  W.  Rep.  969 
(1900). 


40 


G25 


§  418  INTERCORPORATE  RELATIONS.  [PAET   V. 


CHAPTER   XLIII. 

RIGHTS,    REMEDIES   AND   PROCEDURE   UNDER   STATE   ANTI-TRUST 

STATUTES. 

§  418.  Invalidity  under  State  Statutes  as  a  Grouud  of  Collateral  Attack. 

§419.  Criminal  Proceedings. 

§  420.  Civil  Hemcdies. 

§  421.  Evidence. 

§  422.  Statutes  of  Limitation. 

§  423.  Conclusion. 

§  418.  Invalidity  uuder  State  Statutes  as  a  Ground  of  Col- 
lateral Attack.  —  Upon  principles  considered  with  respect  to 
illegal  combinations  in  general,^  and  combinations  in  viola- 
tion of  the  federal  statute, ^  the  fact  that  one  of  the  parties 
to  an  independent  contract  is  a  member  of,  or  is,  itself,  a 
coml)ination  in  violation  of  a  State  anti-trust  statute,  cannot 
be  set  up  as  a  defence  to  an  action  brought  upon  the  contract. 
In  the  absence  of  an  express  statutory  provision,  the  validity  of 
a  combination  must  be  tested  in  direct  proceedings.  Buyers 
from  a  combination  cannot  avoid  paying  their  debts  by 
showing  its  illegality  unless  a  statute  authorizes  such 
procedure.  • 

In  several  States,  however,  the  anti-trust  statutes  provide 
that  purchasers  of  goods  from  a  combination,  formed  in 
violation  of  their  provisions,  shall  not  be  liable  for  the  pur- 
chase price,  and  may  plead  the  statute  as  a  defence  to  any 
action  therefor.'    The  difficulties  attending  the  application 

1  See  ante,  §  369  :  "  Collateral  Attack  sections  of  this  act  shall  not  be  liable  for 
upon  Combination.  Remedies  upon  Inde-  the  price  or  payment  of  such  article  or 
pendent  Contracts."  commodity  and  may  plead  this  act  as  a 

2  See  ante,  §  396  :  "  Invalidity  under  defence  to  any  suit  for  such  price  or 
Federal  Statute  as  a  Ground  of  Collateral  payment." 

Attack."  Iowa.     Code  1891,  §5064:    Similar 

8  Illinois.      Act   of  June    11,  1891 :  to  Illinois  statute,  supra. 

"  Any  purchaser  of  any  article  or  com-  Kansas.     Act  of  March  8,  1897,  §  7  : 

modity  from  any  individual,  company  "  When  any  civil  action  shall  be  com- 

or  corporation  transacting  business  con-  menced  in  any  court  of  this  State,  it 

trary  to  any  provision  of  the  preceding  shall  be  lawful  to  plead,   in   defence 

626 


CHAP.  XLIII.]       RIGHTS,   REMEDIES   AND   PROCEDURE. 


of  such  statutes  and  the  possibility  of  conliicting  adjudica- 
tions are  obvious;  but  it  is  not  perceived  upon  what  ground 
they  can  be  declared  unconstitutional.^  Certainly,  the  ob- 
stacles in  the  way  of  the  practical  working  of  such  a  statute 
furnish  no  ground  for  the  conclusion  reached  by  the  federal 
court,  in  a  recent  case,  that  the  illegality  of  a  plaintiff 
organization  can  only  be  pleaded,  under  such  a  statute, 
when  it  has  been  previously  established  in  direct  proceed- 
ings.2     This  is  merely  judicial  annulment  hy  construction. 


thereof,  that  the  plaintiff,  or  any  other 
person  interested  in  the  prosecution  of 
the  cases,  is  at  the  time  or  has  been, 
within  one  year  next  preceding  tlie 
date  of  the  commencement  of  any  such 
action,  guilty,  either  as  a  principal 
agent,  representative  or  consignee,  di- 
rectly or  indirectly,  of  a  violation  of  any 
of  the  provisions  of  this  act,  or  that  the 
cause  of  action  grows  out  of  any  busi- 
ness transaction  in  violation  of  this  act." 

For  construction  of  earlier  statutory 
provision  (Kansas  Laws  18S9,  ch.  257, 
§  5),  tiiat  the  defendant  might  plead  in 
bar  or  abatenieut  tiiat  tlie  i)laintiff  was 
a  member  of  an  unlawful  combination 
or  trust,  see  Barton  v.  Mulvane,  59  Kan. 
313  (1898),  (52  Pac.  Eep.  883). 

Kentucky.  Stat.  1899,  §  3918  (Act 
of  May  20,  1890).  Similar  to  Illinois 
statute,  supra. 

Missouri.  R.  S.  1899,  §  8970.  Simi- 
lar to  Illinois  statute,  supra. 

Nebraska.  Act  of  April  8,  1897, 
§  10.     Similar  to  Illinois  statute,  su])ra. 

Oklahoma.  Act  of  December  25, 
1890,  §  3.  Similar  to  Illinois  statute, 
supra. 

Tennessee.  Code  1806.  §  3189: 
"  When  an  action  at  law  or  suit  in  equity 
shall  be  commenced  in  any  court  of  this 
State  it  shall  be  lawful,  in  the  defence 
thereof,  to  plcail  in  i)ar  or  abatement  of 
the  action  that  the  plaintiff  or  any  other 
person  or  corporation  interested  in  the 
prosecution  of  the  action  is  a  member  or 
connected  with,  and  the  cause  of  action 
gro^vs  out  of  some  business  or  transac- 
tion with,  such  trust,  pool,  contract, 
agreement,  or  combination  asdescribe  J." 


Texas.  Act  of  May  2."),  1899.  Simi- 
lar to  Illinois  statute,  but  includes  sales 
by  agents,  etc. 

1  The  statutes  have  been  pleaded  and 
the  defences  sustained  in  National  Lead 
Co.  V.  Grote  Paint  Store  Co..  80  Mo. 
App.  247  (1899) ;  Ford  v.  Chicago  .Milk 
Shippers'  Ass'u,  135  III  166  (1895), 
(.39  N.  E.  Rep.  651,  27  L.  R.  A.  298). 
See  also  American  Strawboard  Co.  r. 
Peoria  Strawboard  Co.,  65  111.  App.  502 
(1895).  Compare,  Wylie  v.  National 
Wall  Paper  Co.,  70111.  App.  543  (1896). 

■^  Lafayette  Bridge  Co.  r.  City  of 
Streator,  105  Fed.  731  (1900):  "'Xhe 
defendant  is,  in  this  suit,  attempting  to 
avail  itself  in  a  collateral  proceeding  of 
a  defence  based  on  a  fact  which  should 
be  determined  in  a  direct  proceeding. 
In  other  words,  before  a  defendant  can 
evade  the  payment  of  the  purchase 
price  of  commodities,  actually  received, 
on  the  ground  that  the  seller  is  a  trust 
or  combination,  in  restraint  of  trade,  in 
contravention  of  the  statute,  there  should 
be  an  adjudication  of  a  competent  tri- 
bun.ll,  in  a  direct  proceeding  instituted 
for  that  purpose,  determining  that  such 
seller  is  a  trust  or  comi)inatiou  in  the 
sense  contemplated  by  the  statute. 
This  is  in  accord  with  the  onlinary 
rules  of  statutory  construction.  The 
pr.actical  working  of  any  other  rule 
could  not  fail  to  emplLi-size  the  justice 
and  necessity  of  so  holding  in  ca-ses 
similar  to  the  one  at  bar.  It  cannot 
be  insisted  that  the  decision  in  one  case 
would  be  binding  or  even  pcrsu.i.sivc  in 
any  other  case.  Each  suit  to  recover 
purchase  money,  in  whicli|tiie  statute  is 

627 


§  418  INTERCORPORATE   RELATIONS,  [PART    V. 

In  National  Lead  Co.  v.  Grote  Paint  Store  Co.^  the  Court, 
in  holding  that  the  Missouri  anti-trust  statute  might  be 
pleaded,  and  the  illegality  of  the  {ihiintiff  organization  —  a 
corporate  combination  —  established,  as  a  defence  to  an 
action  of  debt,  said:  ''It  is  quite  true,  as  a  general  rule, 
that  questions  affecting  the  right  of  a  corporation  to  enjoy 
its  franchise  to  be  a  corporation,  or  its  legal  entity  as  such, 
can  only  be  raised  in  a  direct  proceeding  to  annul  or  forfeit 
the  grant,  to  which  the  State  granting  the  charter  is  a  party, 
for  the  reason  that,  as  to  third  parties,  the  legality  of  the  cor- 
poration is  avouched  by  its  charter  from  the  State,  which 
reserves  to  itself  the  power  to  withdraw  the  franchises  be- 
stowed, upon  evidence  of  fraudulent  obtensions  or  subsequent 
abuse.  But  the  existence  of  this  rule  of  procedure  cannot 
deprive  the  legislature  of  the  power  of  enacting  that  in- 
quiries affecting  the  validity  of  the  charter  of  a  corporation 
may  be  made  in  other  proceedings  than  by  an  action  in  the 
name  of  the  State,  and  this  is  just  what  was  done  when  the 
anti -trust  act  pleaded  in  defendant's  answer  became  the  law 
of  this  State.  ...  As  it  thus  appears  that  the  Act,  in  express 
terms,  permits  a  violation  of  any  of  its  provisions  to  be 
pleaded  by  a  private  person  in  a  suit  against  him  for  the 
price  of  goods  purchased  of  a  corporation  transacting  busi- 
ness contrary  to  the  statute,  it  must  follow  that  the  right  to 

pleaded  by  way  of  defence,  would  call  111.  166  (1895),  (.39  N.  E.  Rep.  651,  27 

for  a  separate  and  distinct  determination  L.  R.  A.  298)  the  Supreme   Court   of 

of    the   legal    status   of    the    plaintiff,  Illinois    permitted    the    defendant    to 

thereby  making  the  claim  for  purchase  interpose  this  defence  in  collateral  ])ro- 

inoney  merely  an  incidental  issue.    This  ceedings.     The  point  last  above  stated 

would  be  true  even  if  the  amount  in-  does  not  appear  to  have  been  consid- 

volved  were   but   five  dollars,  and   the  ercd  by  that  court.     The  only  conten- 

case  were  before  a  justice  of  the  peace,  tion  was  as  to  whether  or  not  the  statute 

The  result  would  depend  upon  the  vary,  of  1891  constituted  a  valid  defence  to 

ing  conditions  of  each  case  as  affected  that  action.     But   the    Illinois   statute 

by   the   skill   of  lawyers,    the   bias   of  is  silent  as  to  the  method  to  be  pursued 

jurors,   and    otiier   attendant    c.ircum-  in  determining   whether   a  corporation 

stances.     This  would  inevitably  lead  to  seeking  to  enforce  a  claim  comes  within 

such  confusion  as  would  force  federal  the  prohibition  of  the  act,  nor  has  there 

courts  to  so  construe  the  statutes  as  to  been  any  long  established  usage  in  the 

protect  tlie  due  and  regular  admiuistra-  premises." 

tion  of  justice  from  unconscionable  pro-  i  National  Lead  Co.  v.  Grote  Paint 

lixity  and  irreconcilable  adjudications.  Store  Co.,  80  Mo.  App.  264  (1899). 
In  the  case  of  Ford  v.  Association,  155 

628 


CHAP.  XLin.]       RIGHTS,    REMEDIES   AND   PROCEDURE. 


plead  such  a  defence  entitles  the  party  so  authorized  by  the 
legislature  to  prove  what  he  has  pleaded. " 

§419.  Criminal  Proceedings. — State  anti-trust  statutes 
create  statutory  offences  and  prescribe  penalties  to  be  im- 
posed upon  those  who  commit  them.^  Combinations  in 
violation  of  their  provisions  are  made  criminal  conspiracies. 
They  are  generally  declared  to  be  "conspiracies  to  defraud," 
or  "conspiracies  against  trade."  While,  in  exceptional 
instances,  a  penalty  in  the  form  of  a  forfeiture  is  prescribed, 
generally  the  penalty  is  a  fine  for  offending  corporations,  and 
fine  or  imprisonment  for  individuals,  including  olTicers  and 
agents  of  corporations.^ 


1  State  V.  Buckeye  Pipe  Liifc  Co., 
61  Ohio  St.  5-15  (1900),  (56  N.  E.  Rep. 
464). 

-  The  followinj^  penalties  are  pre- 
scribed in  the  latest  anti-trust  statutes 
of  tlie  several  States  for  violating  tlieir 
provi.sions.  For  (references  to  statutes 
see  ttote  to  §  405,  ante)  : 

Alabama.  Fine  of  not  less  than 
•?500  nor  more  than  $2000  to  be 
imposed  upon  any  "  person  or  cor jjo ra- 
tion." 

Arkansas.  Forfeiture  of  not  less 
than  $200  nor  more  tlian  $5000  for 
each  offence — each  day  constituting  a 
separate  offence.     Act  aj)plies  to  pe 


cers,  agents  and  individuals  may  be 
fined  not  less  than  5200  not  more  than 
$1000  or  imprisoned  for  not  more  than 
one  year,  or  both. 

Indiana.  Fine  of  not  le.<s  than  SlOO 
nor  more  than  $5000,  or  imprisonment 
for  not  less  than  one  nor  more  than  ten 
years,  or  both.  Applies  to  any  person 
as  principal,  manager,  director  or  agent 
engaging  in.  or  knowingly  carrying  out, 
purposes  of  conspiracy. 

loiva.  "  Corporation,  company,  firm 
or  association "  may  be  fined  not  less 
than  one  nor  more  than  twenty  per 
cent  of  capital  stock  or  money  invested. 
Officers,  agents  or  individuals  are  pun- 


sons,    partnerships,   and    corporations,  lishable  l)y  fine  of  not  less  than  S500  nor 


their  officers  and  agents. 

Florida.  Fine  of  not  more  than 
?5000  or  imprisonment  for  not  more 
than  one  year  or  both.  Applies  to  any 
person  as  principal,  manager,  director 
or  agent. 

Georgia.  Fine  of  not  less  than 
§100  nor  more  than  $5000,  or  imprison- 
ment for  not  less  than  one,  nor  more 
than  ten  years  or  both.  Apjdies  to 
any  person  as  princijial,  manager, 
director  or  agent  engaging  in,  or  know- 
ingly carrying  out,  purposes  of  (Con- 
spiracy. 

Illinois.  "  Corporations,  com])anics, 
firms  and  associations"  ])unisliable  by 
fine  of  not  less  than  $500  nor  more 
than  S2,000  for  first  offence.  Addition.il 
penalties  for  subsequent  offences.     Offi- 


more  than  $5000,  or  by  imprisonment 
for  not  more  than  one  year  or  both. 

Kansas.  Fine  not  less  than  $100 
nor  more  than  §1000  and  imprison- 
ment for  not  less  than  thirty  days  nor 
more  than  six  months.  Also  forfeiture 
of  $100  for  each  day's  violation.  Applies 
to  "  all  persons,  companies  and  corpo- 
rations, tlieir  officers,  agents,  repre- 
sentatives or  consignees." 

Kentucky.  "  Corjioration,  company, 
firm,  partnership  or  person  or  associa- 
tion of  persons  "  m.ay  be  fined  not  less 
than  $500  nor  more  than  SSOOO. 

Any  officer,  agent  or  any  intlivi.lnal 
may  be  fined  not  less  than  S.">0(),  nor 
more  than  .?5000,  or  impri.soned  for 
not  less  than  six  nor  more  than  twelve 
months  or  both. 

629 


§419 


INTERCORPORATE   RELATIONS. 


[I'AUT    V. 


Of  the  purpose  of  these  statutes  in  prescribing  penalties, 
to  be  imposed,  not  only    upon  corporations  but  upon  their 


Louisinnn.  Fine  of  not  less  than 
$100,  nor  more  than  SIOOO,  or  impris- 
onment for  nut  Icsa  than  six  mouths, 
nor  muro  tlian  one  year,  or  both.  Ap- 
plies to  any  ])orson  who,  as  "  principal, 
nianaj»er,  director  or  agent,"  engaj^es 
in,  or  knowingly  carries  out  purposes  of, 
conspiracy. 

Maine.  "Any  person,  incorporated 
or  uuincorj)orated  company,  or  associa- 
tion of  persons  or  stockholders  "  enter- 
ing into  an  unlawful  comhination,  may 
he  fined  not  less  than  S5U0U,  nor  more 
than  SI 0,000. 

Michi'inn.  Fine  of  not  less  than 
$30,  nor  more  than  $5000,  or  imprison- 
ment for  not  loss  than  si.\  mi^uths,  nor 
more  than  one  year,  or  both.  Applies 
to  any  person  engaging  in  or  carrying 
out  consj)iracy  iis  "  principal,  manager, 
director,  agent,  servant  or  employer,  or 
in  any  other  capacity."  The  penalties 
prescribed  in  the  earlier  Michigan  stat- 
ute are  less  severe. 

Minnesota.  Fine  of  not  lc.<is  than 
S")00  nor  more  than  $.")000,  or  impri.xon- 
meut  for  not  less  than  three  nor  mure 
than  five  years. 

Missiasipjtl.  Fine  of  not  less  than 
$100  nor  more  than  $.')000,  or  imprison- 
ment for  not  less  than  three  nor  more 
than  twelve  months,  or  both.  Applies 
to  any  person  as  "  principal,  director, 
manager,  agent,  or  in  any  other  capac- 
ity," engaging  in  or  knowingly  carry- 
ing ont  purposes  of  conspiracy.  The 
minimum  fine  under  another  statute  is 
larger.  See  American  Fire  Ins.  Co.  r. 
State,  75  Miss.  24  (1897),  (22  So.  Rep. 
99). 

Missouri.  "  Any  corporation  or  com- 
pany, individual,  firm  or  association 
violating  any  of  the  provisions  of  this 
act,  shall  forfeit  not  less  than  §5  nor 
more  than  $100  for  each  day  it  shall 
continue  to  do  so." 

Montana.  "  Every  person,  corpora- 
tion, stock  company  or  as.'^ociation  of 
persons "  violating  act,  is  punishable 
by    imprisonment    for    not   exceeding 

630 


five    years,   or   by  fine   not  exceeiiing 
$10,000,  or  both. 

\ehiaska.  Any  person  or  [wrsons 
carrying  on,  creating  or  attempting  to 
create  a  "  trust,"  is  guilty  of  a  misde- 
meanor, punishable  by  tine  of  not  Ic-o 
than  $25  nor  more  than  §5000. 

A'«w  Merico.  Fine  not  exceeding 
$1000  nor  less  than  $100,  and  imprison- 
ment not  exceeding  one  year,  or  until 
fine  is  paid.  Ap|)lies  to  every  person, 
whether  individual,  agent,  officer  or 
stockholder  violating  act. 

\iw  York.  Fine  not  exceeding 
$5000  or  imprisonment  for  not  longer 
than  one  year,  or  both.  Applies  to 
every  person  making  contract  or  engag- 
ing in  combination  in  violation  of  act. 

\urth  Carolina.  Forfeiture  of  $100 
for  each  day  of  continued  .  violation. 
Applies  to  corporations,  associations 
and  individuals. 

Xnrlh  Ihtkota.  Fine  of  not  less  than 
$100  nor  more  than  .$5,000,  or  imprison- 
ment for  not  less  than  one  nor  more 
than  ten  years.  Apjdies  to  any  person 
engaging  in  or  "  as  principal,  man.igcr, 
director  or  agent,  or  in  any  other  ca- 
pacity," carrying  out  j)urposcs  of  con- 
sjtiracy. 

Oliio.  Fine  of  not  less  than  .?50 
nor  more  than  $5,000,  or  imprisonment 
for  not  less  than  si.x  months  nor  more 
than  one  year,  or  both.  Applies  to  any 
person  engaging  in,  or  "  as  principal, 
manager,  director,  agent,  servant  or 
employer,  or  in  any  other  capacity," 
carrying  out  purposes  of  conspiracy. 
Each  d.ay's  violation  constitutes  a  sepa- 
rate ofTonce. 

Oklalioma.  Fine  of  not  less  than 
$50  nor  more  than  •'?500.  Applies  to 
"any  individual,  firm,  partnership  or 
any  association  of  persons." 

South  Carolina.  Fine  of  not  less  tlian 
$100  nor  more  than  $.5,000,  or  imprison- 
ment for  not  less  than  six  months  nor 
more  than  ten  years,  or  both.  Applies 
to  any  person  engaging  in,  or  as  "  prin- 
cipal, manager,  director  or  agent,  or  in 


CHAP.  XLIII.]      RIGHTS,    REMEDIES   AND    PROCEDURE.  §  419 

officers  and  agents,  the  Supreme  Court  of  Kentucky  in 
Commonwealth  v.  Grinstead^  said:  "It  seems  manifest  that 
the  object  of  the  statute  was,  in  the  first  part,  to  impose 
punishment  upon  the  corporate  entities  which  might  violate 
the  statute,  and  this  could  be  done  only  by  a  fine ;  and  that 
the  intention  in  the  second  part  was  to  impose  punisliment 
upon  the  officers  of  such  corporate  entities  or  associations, 
and  punish  individuals  who  might  be  guilty  of  the  same 
offence ;  and  that  in  the  case  of  natural  persons,  as  it  was 
possible  to  impose  an  additional  penalty  of  imprisonment, 
it  was  imposed,  in  order  the  more  effectively  to  deter  them 
from  committing,  or  permitting  the  corporations  which  they 
represent  to  commit,  the  offences  denounced  by  the  statute. " 
It  is  not  necessary  to  constitute  a  conspiracy  within  the 
provisions  of  an  anti-trust  statute,  in  a  common  form,  that 
the  combination  should  actually  have  an  effect  upon  comi)eti- 
tion  or  prices.  Entering  into  a  combination  designed  to 
affect  competition  or  prices,  constitutes  a  complete  offence. ^ 
An  indictment  charging  the  offence  of  conspiracy  in  the  lan- 
guage of  the  statute  is,  as  a  general  rule,  sufficient.^ 

any  other  capacity,"  knowingly  carry-  more   than   $5000   for   every   such   of- 

ing  out  purposes  of  conspiracy.  fence."     Each  day  of  continued  viola- 

Soulh  Dakota.  Fine  of  not  less  than  tion  constitutes  a  separate  offence. 
$1,000  nor  more  than  $5,000.  Addi-  Utah.  Corporations,  firms  and  asso- 
tional  penalties  for  second  offence,  ciations  may  be  fined  not  less  than 
Applies  to  "any  person  or  persons,  $100  nor  more  than  $2000  for  first 
officers  or  .servants  of  any  company,  offence.  Additional  penalties  for  sub- 
co-partnership  or  association  of  per-  sequent  offences.  Oflicers,  agents  and 
sons  "  violating  provisions  of  act.  individuals  may  be  fined  not  less  than 

Tennessee.     Fine   of    not   le.ss  than  $100  nor  more  than  $1000,  or  iniprison- 

$100  nor  more  than  $5,000,  or  imprison-  ment  for  not  more  than  one  year,  or 

ment   for  not  less  than  one  year  nor  both. 

more  than  ten  years,  or  both.     Applies  ^  Commonwealth    v.   Grinstead,   21 

to  any  person  engaging  in,  or  "as  prin-  Ky.   L.    Kep.   1444   (1900),  (55   S.  W. 

cipal,  manager,  director  or  agent,  or  in  Rep.  720). 

any  other  capacity,"  knowingly  carry-  -  American  Handle  Co.  v.  Standard 

ing  out  purposes  of  conspiracy.  Handle   Co.    (Tenn.    1900),    (59  S.  W. 

Texas.  "Any  person,  partnership.  Hep.  709);  Commonwealth  v.  Grin- 
firm  or  association,  or  any  representa-  stead,  21  Ky.  L.  Kep.  1444  (1900),  (55 
tive    or    agent    thereof,    or    any    cor-  S.  W.  Kep.  720). 

poration   or   company,   or  any   officer,  ^  Commonwealth   v    Grinstead,    21 

representative  or  agent  thereof,  violat-  Ky.    L.    Kep.    1444    (1900),  (55  S.  W. 

ing  any  of  the  provisions  of  this  act,  Kep.    720).     As    to    procedure    under 

shall    forfeit  not  less  than  $200   nor  New  York  statute  of  1899,  for  the  pur- 

631 


§  420  INTERCORPOrtATE   RELATIONS.  [PART    V, 

§  420.  Civil  Remedies.  —  In  addition  to  the  penalties  pro- 
vided in  the  statutes  for  the  formation  of  combinations,  — 
regarded  as  criminal  offences,  — the  acts,  as  a  general  rule, 
prescribe  other  penalties,  enforceable  through  the  civil  courts. 
These  provisions  usually  take  substantially  the  following 
forms : 

(1)  "Any  corporation  chartered  under  the  laws  of  this 
State  which  shall  violate  any  of  the  provisions  of  this  act 
shall  thereby  forfeit  its  charter  and  franchise,  and  its  corpo- 
rate existence  shall  thereupon  expire  and  terminate."^ 

(2)  "Every  foreign  corporation  which  shall  violate  any  of 
the  provisions  of  this  act  is  hereby  denied  the  right  to  do, 
and  is  prohibited  from  doing,  business  in  this  State. "^ 

(3)  "Any  person  or  persons  or  corporations  that  maybe 
injured  or  damaged  by  any  such  arrangement,  contract, 
agreement,  trust  or  combination,  .  .  .  may  sue  for  and 
recover,  in  any  court  of  competent  jurisdiction  in  this  State, 
of  any  person,  persons  or  corporation  operating  such  trust  or 
combination,  the  full  consideration  or  sum  paid  by  him  or 
them  for  any  goods,  wares,  merchandise  or  articles,  the  sale 
of  which  is  controlled  by  such  combination  or  trust,"  ^ 

or 
"  Any  person,  fi>ra,  company  or  corporation  that  may  be 
damaged  by  any  such  agreements,  trusts  or  combinations 
described  in  .  .  .  this  act  may  sue  for  and  recover  in  any 
court  of  competent  Jurisdiction  in  this  State  such  damages  as 
they  have  sustained,  together  with  a  reasonable  attorney  fee. "  * 

pose    of    obtaining    testimony    before  §  2.     Similar  provisions  appear  in  the 

instituting  proceedings,  see  Slatter  of  antitrust  statutes  of  Arkansas,  Florida, 

Da  vies,  168  N.  Y.  89  (1901).  Illinois,  Indiana,   Louisiana,   Michigan, 

1  Georgia.  Act  of  Dec.  23,  1896,  Minnesota,  Mississippi,  Missouri,  Mon- 
§  2.  Similar  provisions  appear  in  the  tana,  A'ehraska,  North  Dakota,  Ohio, 
anti-trust  statutes  of  Arkansas,  Flor-  Tennessee  and  Texas.  See  statutes 
ida,  Indiana,  Iowa,  Kansas,  Kentucky/,  collected  in  note  to  §  405,  ante. 
Louisiana,  Michigan,  Minnesota,  Missis-  ^  Georgia.  Act  of  Dec.  2.3,  1896, 
sippi,  Missouri,  Montana,  Nebraska,  §  5.  Similar  provisions  appear  in  the 
North  Dakota,  North  Carolina,  Ohio,  anti-trust  statutes  of  Arkansas,  Indiana, 
Oklahoma,  South  Carolina,  Tennessee,  North  Dakota,  South  Carolina  and  Ten- 
Texas,  Utah,  aniWisconsin.  See  stat-  nessee  (Act  of  1879).  See  statutes  col- 
ntes  collected  in  note  to  §  405,  ante.  lected  in  note  to  §  405,  ante. 

2  Georgia.     Act  of  Dec.   23,    1896,  *  Kansas.     Act  of  March,  1897,  §  8. 

632 


CHAP.  XLIII.]       RIGHTS,   REMEDIES   A\D   PROCEDURE.  §  420 

The  penalties  and  forfeitures  prescribed  in  these  provi- 
sions are  entirely  independent  of  otlier  penalties  stated  in  the 
statutes.  An  antecedent  conviction  of  a  violation  of  a  stat- 
ute—  as  a  criminal  offence  —  is  not  necessary  to  enforce  a 
civil  liability.  "Any  court  having  jurisdiction  to  enforce 
any  penalty  or  remedy  provided  for  in  the  act,  was,  obviously, 
intended  to  have,  and  manifestly  has,  jurisdiction,  also,  to 
first  adjudge  the  fact  of  violation,  on  which  the  enforcement 
must  ultimately  find  its  support  and  justification."^ 

Proceedings  against  domestic  corporations  to  enforce  the 
forfeiture  of  their  charters  must  be  by  quo  warranto.  Quo 
warranto  proceedings  may  also  be  instituted  against  foreign 
corporations  to  oust  them  from  the  State  for  violating  these 
statutes,^  or  the  attorney  general  may  maintain  a  suit  for  an 
injunction  to  restrain  them  from  further  doing  business. ^ 

While  the  statutory  provision  that  persons  injured  by  a 
combination  may  recover  the  "full  consideration  or  sum 
paid  "  manifestly  prescribes  a  penalty,  it  has  been  said  by 
the  Supreme  Court  of  Tennessee  that  the  amount  recover- 
able may  also  be  designated  as  "damages."*  The  Court 
said:  "It  cannot  be  affirmed  with  any  degree  of  certainty 
that  the  measure  of  recovery  prescribed  in  the  act  is  not  in 
fact  within  the  bounds  of  actual  damages,  for  it  is  a  matter 

Similar  provisions  appear  in  the  auti-  (1898),  (44  S.  W.  Rep.  9.36);  State  v. 

trust  statutes  of  Nebraska,  Oklahoma,  Schlitz   Brewing    Co.,    104    Tenn.    715 

and  South  Dakota.     In  Michigan,  Mis-  (1900),  (59  S.  W.  Rep.   1041).     As  to 

sissippi,   Ohio  and    Tennessee   (Act   of  lialiility,  under  anti-trust   statutes,   of 

1891),  c?0!/6/e  damages  are  recoverable,  agents  of  foreign  corporations,  see  State 

and  in  Missouri  and   Utah,  treble  dam-  v.  Phipps,  50  Kan.  609  (1893),  (.'31  Pac. 

ages.     See  statutes  collected  in  note  to  Rep.    1097).      Also    State    v.    Schlitz 

§  405,  ante.  Brewing  Co.,  supra. 

1  State  V.  Schlitz  Brewing  Co.,  104  s  gtate  v.  Schlitz  Brewing  Co.,  104 
Tenn.  715  (1900),  (59  S.  W.  Rep.  1041).  Tenn.  715  (1900),  (59  S.  W.  Rop.  1041). 

2  State  V.  Firemen's  Fund  Ins.  Co.,  See  also  Hartford  Ins.  Co.  v.  Raymond, 
152  Mo.  1  (1899),  (.52  S.  W.  Rep.  595);  70  Mich.  485  (18S8),  (38  N.  W.  Rep. 
State  V.  Standard  Oil  Co.  (Neb.  1901),  474). 

84  N.  W.  Rep.  413.  See  also  Waters-  *  State  v.  Schlitz  Brewing  Co.,  104 
Pierce  Oil  Co.  v.  State,  19  Tex.  Civ.  Tenn.  715  (1900),  (59  S  W.  Rep. 
App.  1  (1898),  (44  S.  W.  Rep.  936).  1041).  As  to  recovery  of  douhle  dam- 
That  foreign  corporations  may  be  ousted  ages  under  Tennessee  statute  of  1891, 
from  the  State  for  acts  of  their  agents  see  American  Handle  Co.  i-.  St.andard 
within  the  State,  see  Waters-Pierce  Handle  Co.  (Tenn.  1900),  59  S.  W.  Kep. 
on  Co.  V.  State,  19  Tex.  Civ.  App.  1  709. 

633 


§  421  INTERCORPORATE    RELATIONS.  [PART  V. 

of  common  knowledge  that  men  who,  in  their  ))usiness, 
become  the  injured  victims  of  trusts  or  combinations  often 
suffer  not  only  a  depreciation  in  the  salable  value  of  their 
commodities  then  on  hand,  but  also  a  complete  destruction 
of  their  business  for  the  future;  the  aggregate  losses  so  sus- 
tained in  many  instances  greatly  exceed  the  prices  they 
originally  paid  for  the  commodities  in  question." 

§  421.  Evidence.  — For  reasons  already  considered  in  refer- 
ence to  illegal  combinations  generally,  it  is  not  necessary, 
in  order  to  establish  a  violation  of  an  anti-trust  statute,  to 
show,  by  direct  evidence,  that  an  unlawful  comliination  has 
been  formed. ^  The  facts  and  circumstances  attending  the 
acts  of  the  parties  may  clearly  show  their  unlawful  pur- 
pose and  may  constitute  the  best  evidence.  Illegal  com- 
binations are  not,  as  a  general  rule,  evidenced  by  written 
agreements  stating  a  purpose  forbidden  by  law. 

In  State  v.  Firemen^ s  Fund  Ins.  Go."^  the  Supreme  Court 
of  Missouri  said:  "Of  course  there  was  no  written  agree- 
ment forming  the  trust,  for  that  was  '  inexpedient,  and 
might  make  the  members  liable  to  prosecution  under  the 
trust  laws,'  as  the  president  of  the  club  well  and  wisely 
remarked  when  the  club  was  formed.  When  peo])le  set  out 
to  do  acts  that  are  either  -mala  in  se  or  mala  prohihita,  they 
do  not  put  up  a  sign  over  the  door  or  a  stamp  on  the  act 
declaring  their  purposes  and  intent.  Concealment  is  gen- 
erally their  prime  object.  But  as  such  matters  exist  with- 
out agreements  and  rest  upon  common  understanding  and 
practice,  so  the  proof  of  their  existence  may  be  of  the  same 
character,-  and  while  such  laws  are  penal  in  their  natqre 
and  should  be  strictly  construed,  .  .  .  nevertheless  a  pool 
or  trust  may  be  as  conclusively  proved  by  facts  and  circum- 
stances as  by  direct  written  evidence,  for  in  this  regard 
they  are  like  all  other  frauds." 

1  State  V.  Firemen's  Fund  Ins.  Co.,  §  375:    "Evidence;"  ante,  §  401  :  " In- 

152  Mo.  1  (1899),  (52  S    W  Rep.  595) ;  validity  of  Combination  must  be  shown. 

Waters-Pierce  Oil  Co.  v.  State,  19  Tex.  Evidence.'' 

Civ.   App.   1    (1898),   (44   S    W    Rep.  ^  State  v.  Firemen's  Fnnd  Ins.  Co., 

936).     See  also  American  Handle  Co.  152   Mo.   40   (1899),    (52   S.  W.   Eep. 

V.  Standard  Handle  Co.  (Tenn.  1900),  595),  (per  Marshall,  J.). 
59   S.   W.   Rep.   709.     And   see   ante, 

634 


CHAP.  XLIII.]       RIGHTS,   REMEDIES   AND    PROCEDURE.  §  423 

§  422.  Statutes  of  Limitation.  —  Upon  the  principle  that 
every  overt  act  is  a  renewal  of  the  original  conspiracy,  a 
prosecution  for  a  violation  of  a  State  anti-trust  statute  mak- 
ing combinations  criminal  conspiracies  may  be  maintained 
against  a  continuing  combination,  although  the  statutory 
period  has  elapsed  between  the  formation  of  the  combination 
and  the  finding  of  the  indictment.^ 

§  423.  Conclusion.  —  The  foregoing  examination  of  State 
anti-trust  statutes  clearly  demonstrates  that  many  statutes 
are  unconstitutional  and  many  wholly  inadequate.  Effective 
legislation  can  be  the  result  only  of  radical  changes. 

The  statement  often  made  at  the  present  time,  however, 
that  statutes  cannot  afford  effective  relief  from  the  evils  of 
the  modern  combination,  because  they  interfere  with  the 
w^orking  of  economic  principles,  is  only  half  true.  It  maybe 
that  "  the  laws  of  trade  are  stronger  than  the  laws  of  man. " 
But  when  the  laws  of  trade  require  for  their  operation  the 
laws  of  man,  a  comparison  is  impossible. 

It  may  be  that  the  law  cannot  prevent  men  from  co-oper- 
ating in  business.  But  when  a  corporate  combination  is 
formed,  the  aid  of  the  law  is  necessary  to  make  the  combina- 
tion effective.  There  is  a  distinction  between  sufferance  and 
participation  —  between  permitting  co-operation  and  creating 
a  combination.  So  far  as  the  evils  of  a  corporate  combination 
result  from  its  corporate  character  —  and  many  evils  so  result 
—  they  are  the  direct  consequence  of  legislative  action. 

The  evils  resulting  from  legislation  may  be  remedied  by 
legislation.  The  State  granting  a  charter  to  a  corporate 
combination  may,  as  a  general  rule,  take  it  away.  Other 
States  may  decline  to  admit  it  or  may  expel  it.  They  may 
forbid  foreign  corporations  holding  shares  in  domestic  com- 
panies or  owning  other  property  within  the  State. 

Public  sentiment,  undoubtedly,  does  not  demand  any  such 
radical  legislation.  It  is  idle,  however,  to  say  that  the  State 
cannot  provide  some  relief  from  the  evils  of  the  corporate 
combination  when  relief  is  demanded. 

1  American  Fire  Ins.  Co.  v.  State,  75  Miss.  24  (1897),  (22  So.  Rep.  99). 

685 


INDEX. 

(References  are  to  sections.    Letter  "n  "  refers  to  note.) 


A. 

ABSORPTION.     (See  Mergkr.) 
ACCOUNTING,  after  attempted  consolidation,  97. 
ACQUIESCENCE, 

of  stockholders  in  consolidation,  45. 

implied  sanction  of  sale,  116. 

implied  sanction  of  sale  of  railroad,  150. 

of  stockholders  in  lease  of  railroad,  192. 

of  stockholders  in  ultra  vires  stockholding,  293. 
(See  also  Estoppel.) 
ACTIONS.     (See  Pending  Suits  ;  Remedies.) 
ADMISSIONS, 

consolidated  corporation  bound  by,  of  constituents  regarding  obli- 
gations, 86. 

(See  also  Evidence;  Procedure.) 
ADOPTION   OF   RAILROAD   LEASES, 

acknowledgment,  witnesses,  etc.,  195. 

allegation  and  proof  of  proper,  195  n. 

authority  of  officers  or  agents,  195. 

construction  of  statutes  prescribing  method  of,  194. 

estoppel  to  allege  irregular,  196. 

formalities  attending,  195. 

place  of  execution,  195. 

seals,  195. 

statutes  prescribing  method  of,  193. 
AGREEMENT   FOR  LEASE,  power  to  make,  184. 
ALABAMA, 

(a)  Consolidation. 

statute  authorizing  consolidation  of  business  corporations,  23  n. 
statute  authorizing  consolidation  of  railroads,  22  n. 
statutes  prescribing  method  of  consolidating,  52  n. 

(b)  Sales. 

statutes  authorizing  sales  of  railroads,  145  n. 

statute  prescribing  method  of  authorizing  sale  of  railroad,  148  n. 

637 


INDEX. 

ALABAMA  —  continued, 

(c)  Leases. 

statute  authorizing  railroad  leases,  145  n,  180  n. 

statute  i)rescribing  method  of  adopting  railroad  lease,  193  n. 

(d)  Stockholding. 

statute  authorizing  corporate  stockholding,  271  n. 

(e)  Coruhinations. 

anti-trust  statutes,  405  n. 
ALLEGATION   OF   CONSOLIDATION,  how  made,  91. 

(See  also  Pleadings.) 
ALLI.ANCE.     (See  Confkdekatio.n.) 
AMALGAMATION, 

compared  with  consolidation,  12. 

English  statute  authorizing,  12  n. 

remarks  of  English  judges  concerning,  12. 

uncertain  meaning  of  term,  12. 
AMERICAN   BISCUIT  COMBINATION, 

formation  and  purposes  of,  ;M9. 
ANTI-TRUST   LE(;iSLATION. 

(See  Fkdi.kai,  Anti-tkust  Statute  ;  State  A.nti-trust  Statutes.) 
APrRAlS.U., 

of  stock  of  dissenting  stockholders  in  case  of  exchange,  121. 

of  stock  of  dis.senting  stockholders  ujK)n  con.solidation,  57. 

statutory  provisions  for,  of  stock,  57. 

whether  court  of  equity  can  make,  without  .statute,  121. 

whether  stock  can  be  appraised  in  aid  of  lease,  1G7. 

ARIZONA, 

(a)   Consolidation. 

statute  authorizing  consolidation  of  railroads,  22  n. 

statute  prescribing  method  of  consolidating,  52  n. 
(h)  Sales. 

statutes  authorizing  sales  of  railroads,  145  n. 

statute  prescribing  method  of  authorizing  sale  of  railroad,  148  n. 
(c)  Leases. 

statutes  authorizing  railroad  lea.ses,  145  n,  180  n. 

statute  prescribing  method  of  adopting  railroad  lease,  193  n. 
(rf)  Stockholding. 

statutes  authorizing  corporate  stockholding,  271  n. 
ARKANSAS, 

(a)   Consolidation. 

constitutional    provision    against    consolidation     of    competing 
corporations,  32  n. 

statutes  authorizing  consolidation  of  railroads,  22  n. 

statutes  prescribing  method  of  consolidating,  52  n. 
(6)  Sales. 

statutes  authorizing  sales  of  railroads,  145  n. 

statute  prescribing  method  of  authorizing  sale  of  railroad,  148  n. 
638 


INDEX. 

ARK  ANS  AS  —  continued, 

(c)  Leases. 

statute  authorizing  lessee  to  exercise  right  of  eminent  domain, 

210  n. 
statute  authorizing  raih'oad  leases,  1-15  n,  180  n. 
statute  concerning  taxation  of  leased  railroad,  224  n. 
statute  prescribing  method  of  adopting  railroad  lease,  193  n. 
statute   providing    that  lessor    corporation   shall    be   liable    for 

damages,  216  n. 
statute  relating  to  foreign  lessee  corporations,  254  n. 

(d)  Stockholding. 

statutes  authorizing  corporate  stockholding,  271  n. 

(e)  Combinations. 

anti-trust  statute,  405  n. 

constitutional  provision  against  monopolies,  405  u. 
ARTICLES   OF   ASSOCIATION, 

effect  of  assumption  of  power  to  hold  stock  in,  270. 
ASSENT   OF  STOCKHOLDERS.     (See  Stockholders.) 
ASSESSMENTS, 

corporation  liable  for,  upon  intra  vires  holdings,  287. 

covenant  to  pay,  in  railroad  leases,  205. 

liability  for,  upon  ultra  vires  holdings,  289. 
(See  also  Taxks.) 
ASSIGNEES, 

of  illegal  combination,  rights  and  remedies  of,  308. 
ASSIGNMENT, 

covenant  not  to  make,  of  leases,  206. 

of  trackage  contracts,  258. 

•what  constitutes,  of  lease,  206. 
ASSOCIATIONS, 

application  of  rule  of  public  policy  to,  of  carrier  corporations,  365. 

application  of  rule  of  public  policy  to,  of  dealers,  362. 

application  of  rule  of  jDublic  policy  to,  of  gas  companies,  365. 

application  of  rule  of  public  policy  to,  of  manufacturers,  360. 

application  of  rule   of   public  policy   to,  of   manufacturers  owning 
patents,  361. 

application  of  rule  of  public  policy  to,  of  producers,  360, 

definition,  303. 

formation  of,  308. 

forms  of  industrial,  308. 

legality  of,  not  generally  a  question  of  corporation  law,  312. 

nature  of  pools,  308,  364. 
ASSOCIATIONS   OF   RAILROAD   COMPANIES, 

pools,  308,  364. 

traffic  contracts  of  competing  lines,  364. 

traffic  contracts  of  connecting  lines,  363. 
ASSUMPTION, 

of  power  to  hold  stock  in  articles  of  association,  270. 

by  vendee  corporation  of  debts  of  vendor,  123. 

639 


INDEX. 


B. 


BONDS, 

power  of  consolidated  corporation  to  issuo  mortgage,  75. 
when  guarantee  of,  by  competing  corporation  amounts  to  consolida- 
tion, ;i5. 

(See  also  Konduolders.) 
BONDHOLDERS, 

election  of,  in  case  of  convertible  bonds,  81. 

obligations  of  consolidated  corporation  to,  of  constituents,  fil. 

of  de  facto  consolidated  corporation  estopped  to  deny  regularity  of 

consolidation,  90. 
when,  cannot  be  deprived  of  riglit  to  convert  bonds  into  stock  of 
consolidated  cor{X)ration,  b\. 
BRIDGE   COMTANIES, 

constitutional  prohibitions  against  consolidation  of  competing,  39. 
BUSINESS   CORrOR.VTIONS, 

consolidation  of,  statutory  provisions,  23. 

construction  of  statutes  authorizing  consolidation  of,  30. 


c. 

CALIFORNIA, 
(a)   Consolidation. 

statute  authorizing  consolidation  of  raining  companies,  23  n. 
statute  authorizing  consolidation  of  railroads,  22  n. 
statutes  prescribing  method  of  consolidating,  52  n. 
(1))  Sales. 

statute  authorizing  sales  of  railroads,  115  n. 

statute  prescribing  method  of  authorizing  sale  of  railioad,  148  n. 
(c)  Leases. 

statute  authorizing  railroad  leases,  180  n. 
((/)   Combinations. 

anti-trust  statutes,  405  n. 
CALLS, 

apply  to  all  subscriptions,  69. 

how  consolidated  corporation  may  apply  amount  received  on,  77. 
on  subscriptions  made  pending  consolidation,  continue  in  force,  69. 
CANAL   COMPANIES, 

constitutional  prohibitions  against  consolidation  of  competing,  39. 
CARRIERS, 

combination  of,  violates  federal  anti-trust  statute,  392. 
constitutional  provisions  against  consolidation  of  competing,  39. 
CHARTER.     (See  Corporatiox.) 

CHICAGO   GAS   TRUST,  nature  and  formation  of,  346. 
CHOSES   IN    ACTION, 

of  constituents  pass,  upon  consolidation,  to  consolidated  company,  67. 

640 


INDEX. 

CITIZENSHIP, 

of  corporation,  101  n. 

of  interstate  consolidated  corporation,  106. 
CIVIL   REMEDIES.     (See  Remkdiks.) 
CLAIMS.     (See  Obligations.) 
CLASSIFICATION,  of  intercorporate  relations,  1. 
CLASS   LEGISLATION, 

State  anti-trust  statutes  as  constituting:,  410. 

(See  also  Fourtkkntu  Amendment.) 
COLLATERAL,  incidental  power  to  take  stock  as,  278. 
COLLATERAL   ATTACK, 

invalidity  under  federal  anti-trust  statutes  as  a  ground  of,  '-^OO. 
invalidity  under  State  anti-trust  statutes  as  a  ground  of,  418. 
upon  combination,  3G9. 

upon  dc  facto  consolidated  corporation,  9.3,  94,  9."). 
upon  unlawful  consolidated  corporation,  93. 
COLLATERAL   CONTRACTS,  to  ultra  vires  stockholding  invalid,  290. 
COLORADO, 

(a)   Consolidation. 

constitutional  provision  against  consolidation  of  competing  cor- 
porations, 32  n. 
statute  authorizing  consolidation  of  business  corporations,  23  n. 
statute  authorizing  consolidation  of  railroads,  22  n. 
statutes  prescribing  method  of  consolidating,  52  n. 
(h)    Sales. 

statutes  authorizing  sales  of  railroads,  115  n. 
(c)   Leases. 

statute  authorizing  railroad  leases,  145  n,  ISO  n. 
statute  prescribing  method  of  adopting  railroad  lease,  193  n. 
(c?)   Stockholding. 

statutes  authorizing  corporate  stockholding,  271  n. 
COMBINATIONS, 

analysis  of  principles  determining  legality  of,  311. 
analysis  of  rules  of  public  policy  governing,  351-359. 
application  of  rules  of  public  policy  to  particular  classes  of,  360-3G5. 
basis  of  rules  of  public  policy  concerning,  in  judicial  decisions,  341. 
by  means  of  holding  stock,  292. 
collateral  attack  upon,  .'JfiO. 

connection  between  contracts  in  restraint  of  trade  and,  335. 
control  of  the  market,  35G. 

corporate,  by  means  of  holding  coiporation,  323. 
corporate,  by  means  of  purchasing  corporation,  in  general,  318 
definition  of  phrase  "cor])orate  combination,"  306. 
definition  of  term  "association,"  303. 
definition  of  term  "  combination,"  302. 
definition  oi  term  "  trust,"  304. 

difficulty  of  formulating  rules  of  public  policy  concerning,  340. 
distinction  between,  and  consolidation,  16. 
41  641 


INDEX. 

COMBINATIONS  —  continued, 
evidence,  375. 
evolution  of,  6,  307. 
formation  of  associations,  308. 
formation  of  corporate,  310. 
formation  of  trusts,  309. 
form  of,  immaterial,  354. 
forms  of  industrial  associations,  308. 
forms  of  pools,  308. 

illi'gality  of,  no  defence  to  creditors'  actions,  .370. 
in  forniatidii  of  trust,  State  regards  acts  of  stockholders  as  acts  of 

corporation,  313. 
issue  of  stock  for  good-will  in  formation  of  corporate,  320. 
issue  of  stock  for  property  in  formation  of  corporate,  319. 
legality  of  association  not  generally  a  question  of  corporation  law, 

312. 
members  of  illegal,  cannot  recover  argreement  upon  366. 
moilern,  of  capital  seldom  conspiracies,  328. 
modern  use  of  t>"rm  monopoly,  332. 
nature  of  pools,  308. 
objects  and  tendencies  of,  355. 
of  carriers  violate  federal  anti-trust  statute,  392. 
of  railroads  violate  fedt-ral  anti-trust  statute,  392. 
over- valuation  of  property  acquired  by  issue  of  stock,  321. 
popular  use  of  word  "  trust,"  305. 

power  of  Congress  to  prohil)it,  of  competing  railroads,  380. 
power  of  vendor  corporations  to  sell  property  for  stock,  322. 
power  of  State  to  prohibit,  in  exercise  of  police  power,  409. 
power  of  State  to  prohibit,  in  exercise  of  reserved  power,  407. 
primary  meaning  of  term  monopoly,  329. 
(]ito  warranlo  against  combining  corporations,  373. 
<]itn  ivnrranto  against  corporate,  372. 
remedies  of  members  of  illegal,  3GfJ. 
rights  and  liabilities  growing  out  of  trusts,  317. 
rights  and  remedies  between  illegal,  and  members,  3G7. 
rights  and  remedies  of  stockholders  of  combining  corporations,  371. 
rights  of  debtors  to  attack  legality  of,  369. 
rights  of  members  of  illegal,  366. 
rights  of  receivers  and  assignees  of  illegal,  368. 
rights  of,  to  allege  its  own  illegality,  370. 
rules  of  public  policy  regarding,  352. 
sketch  of  growth  of,  6. 
test  of  right  of  member  to  recover,  366. 
test  of  validity  of,  not  whether  in  restraint  of  trade,  337. 
test  of  validity  of,  not  whether  monopolies,  333. 
trust  invalid  as  delegating  powers,  315. 
trust  invalid  as  involving  partnership  of  corporations,  314. 
trust  invalid  as  involving  practical  consolidation,  316. 
what,  are  conspiracies,  327. 
642 


INDEX. 

COMMERCE, 

distinction  between,  and  manufacture.  389. 
interstate,  a  matter  of  federal  regulation,  380. 
State,  a  matter  of  State  control,  o89. 

(See  also  Interstatk  Commerce.) 
COMMUNITY   OF   INTEREST,  meaning  of  phrase,  5,  296. 

COMPETING   OR   PARALLEL   RAILROADS, 

(a)  Con.tolidalion. 

constitutional  and  statutory  provisions  against  consolidation  of,  32. 

construction  of  provisions  again.st  consolidation  of,  33-^^7. 

popular  view  regarding  consolidation  of,  31. 

public  policy  concerning  consolidation  of,  3L 

stockholder  may  restrain  consolidation  of,  40. 

State  may  prevent  consolidation  of,  40. 

what  are,  37. 

(b)  Sales. 

constitutional  and  statutory  provisions  against  purchase  of,  147. 

(c)  Leases. 

constitutional  and  statutory  provisions  against  leases  of,  186. 

COMPETITION, 

distinction  between  restriction  of,  and  control  of  the  market,  35C. 
lease  of  railroad  for  purpose  of  suppressing,  against  public  policy,  249. 
holding  stock  to  prevent,  292. 
public  policy  regarding,  356.  • 

CONDEMNATION   OF   STOCK,  for  purposes  of  consolidation,  51. 

(See  also  Appraisal.) 
CONDITIONAL   SUBSCRIPTIONS.      (See  Subscriptions.) 

CONFEDERATION, 

consolidation  in  form  of,  8. 

exemplified  in  interstate  consolidations,  8. 

CONGRESS, 

cannot  regulate  combinations  of  manufacturers,  6,  389. 

can  only  regulate  or  prohibit  combinations  affecting  interstate 
commerce,  386-391. 

limitations  upon  powers  of,  6,  386. 

power  of,  to  prohibit  combinations  of  competing  railroads,  380. 

power  of,  to  legislate  concerning  private  contracts  affecting  inter- 
state commerce,  379. 

CONNECTICUT, 
(a)   Consolidation. 

statute  authorizing  consolidation  of  business  corporations,  23  n. 

statute  authorizing  consolidation  of  railroads,  22  n. 

statute  concerning  evidence  of  consolidation,  91  n. 

statutes  prescribing  method  of  consolidating,  52  n. 
(6)  Leases. 

statute  authorizing  railroad  leases,  180  n. 

statute  prescribing  method  of  adopting  railroad  lease,  193  n. 

643 


INDEX. 

CONNECTICUT— corj^nuc7, 
(c)  Stockholding. 

statute  authorizing  corporate  stockholdinp^,  271  n. 
CONNFXTING  OR   CONTINUOUS   RAILROADS, 

construction  of  statutes  authorizing  consolidation  of,  29. 
construction  of  statutes  authorizing  leases  of,  1^5. 
what  are,  29. 
whether  connection  may  be  by  leased  road,  29. 

COXSI  DERATION, 

for  fraudulent  sale,  may  be  reached  by  creditors,  125. 

for  lease  of  railroad,  19S. 
CONSOLIDATED   CORPORATION, 

acquires  real  t-state  and  rights  in  streets  of  constituents,  66. 

act  creating,  contravenes  constitutional  provision    against    creating 
corporations  by  special  act,  19. 

choses  in  action  of  constituent  corporations  pass  to,  67. 

entitled  to  municipal  aid  voted  to  constituents,  70. 

legislative  recognition  of,  validates  organization,  20. 

liability  of,  for  debts  upon  consolidation  after  foreclosure  salo.  83. 

liability  of,  for  torts  of  constituents,  82. 

liability  of,  general  rule  of,  79. 

liens,  takes  property  of  constituents  subject  to,  84. 

may  be  organized  for  full  statutory  period,  19. 

miscellaneous  powers  of,  77. 

not  jiurchaser  for  value  without  notice,  87. 

obligation  of,  to  perform  public  duties  of  constituents,  80. 

obligations  of,  determined  by  constitutional  limitations,  78. 

obligations  of,  to  bond  holders  and  preferred  stockholders  of  constitu- 
ents, 81. 

powers  of ,  in  general,  74. 

power  of,  to  issue  mortgage  bonds,  75. 

remedies  upon  subscription  contracts,  69. 

right  of  eminent  domain,  76. 

rule  as  to  transmission  of  property  and  franchises  to,  65. 

special  privileges  and  immunities  passing  to,  73. 

takes  property  subject  to  equitable  liens,  85. 

terms  of  existence  of  constituent  corporations  do  not  affect,  19. 

when,  takes  subject  to  constitutional  limitations,  71. 

whether  entitled  to  exemptions  from  taxation  of  constituents,  72. 
CONSOLIDATING  CORPORATIONS. 

(See  CoNSTiTUKNT  Corporations.) 
CONSOLIDATION, 

absorption,  process  of  in,  8. 

accounting  after  attempted,  97. 

after  foreclosure,  consolidated  corporation  not  liable  for  debts,  83. 

allegation  and  proof  of,  91. 

analogy  in  civil  law,  10. 

appraisal  of  stock  in,  statutory  provisions  for,  57. 
644 


INDEX. 

CONSOLIDATION  —  continued, 

arrangements  amounting  to,  within  constitutional  prohibitions,  35. 

as  a  result  and  process,  9. 

assent  of  stockliolders  to,  how  manifested,  45 

attempted,  92. 

choses  in  action  of  constituents  pass  upon,  to  consolidated  cor- 
poration, 67. 

citizenship  of  interstate  consolidated  corporation,  106. 

condemnation  of  stock  for  purposes  of,  51. 

consolidated  corporation  takes /jer  universitatem,  10. 

constitutional  limitations  affecting  result  of,  71. 

constitutional  prohibitions  of,  not  regulations  of  interstate  com- 
merce, 38. 

constitutional  provisions  against,  of  carrier  corporations  other  than 
railroads,  39. 

constitutional  provisions  against,  of  competing  railroads,  32. 

construction  of  constitutional  prohibitions  against,  33,  34. 

construction  of  particular  statutes  authorizing,  28. 

construction  of  statutes  authorizing,  of  business  corporations,  30. 

construction  of  statutes  authorizing,  of  corporations  of  different 
States,  100. 

construction  of  statutes  authorizing,  of  railroads,  29. 

construction  of  statutes  creating  distinct  corporation,  62. 

construction  of  statutes  showing  merger  as  result  of,  63. 

construction  of  statutes  prescribing  method  of,  54. 

conventional  and  statutory  liens,  effect  of,  upon,  84. 

court  will  not  take  judicial  notice  of,  91. 

definitions  of,  7  n. 

description  of,  9. 

distinction  between,  and  combination,  16. 

distinction  between,  and  control,  15. 

distinction  between,  and  lease,  14. 

distinction  between,  and  sale,  13. 

distinction  between  irregular  and  invalid,  92. 

distinction  between  use  of  term  in  authorizations  and  prohibi- 
tions, 7. 

duties  of  interstate  consolidated  corporation,  105. 

effect  of,  as  a  general  rule,  is  creation  of  distinct  corporation,  60. 

effect  of,  depends  upon  terms  of  consolidation  act,  7,  59. 

effect  of,  in  general,  58. 

effect  of  interstate,  upon  status  of  constituent  corporations,  102. 

effect  of  irregular,  94. 

effect  of  unlawful,  93. 

effect  of,  upon  stockholders  of  constituent  corporations,  64. 

enforcement  of  conditional  subscriptions,  09. 

enforcement  of  provisions  against,  40. 

enforcement  of  8ul)scriptions  by  consolidated  corporation,  69. 

equitable  liens,  effect  of,  upon,  85. 

estoppel  to  deny  regularity  of,  96. 

645 


INDEX. 

CONSOLIDATION  —  continued, 

exemptions  from  taxation,  whether  pass  to  consolidated  corporation, 

72. 
extreme  development  of  idea  of  combination,  16. 
foreclosure  of  mortgage  of  interstate  consolidated  corporation,  107. 
formal  statutory  requisites  for,  52. 
fraud  in  consolidation  agreements,  98. 
fusion,  process  of,  8. 

incidental  power  to  acquire  stock  in  connection  with,  279. 
includes  merger,  11. 
in  form  of  confederation,  8. 
interstate,  how  authorized,  99. 
invalid,  a  nullity,  93. 

laches  of  stockholders  in  restraining  invalid,  49. 
lease  is  not,  34. 

legislative  sanction  of,  how  expressed,  20. 
legislative  ratification  of,  equivalent  to  authorization,  20. 
liability  of  consolidated  corporation,  general  rule  of,  79. 
management  of  interstate  consolidated  corporation,  103. 
meaning  of  term,  in  constitutional  prohibitions,  33. 
merger  and  continued  existence  as  result  of,  61. 
miscellaneous  powers  of  consolidated  corporation,  77. 
municipal  aid  voted  to  constituent  passes  to  consolidated  corporation 

upon, 70. 
not  dependent  upon  considerations  of  public  policy,  16. 
obligations  of  consolidated  corporation  determined  by  constitutional 

limitations,  78. 
obligations  of  consolidated  corporation,  in  general,  79. 
obligations  of  consolidated  corporation  to  perform  public  duties  of 

constituents,  80. 
obligations  of  consolidated  corporation  upon  special  contracts  of  con- 
stituents, 81. 
of  business  corporations,  statutory  provisions,  23. 
of  railroads,  sketch  of,  2. 
outstanding  contract  does  not  prevent  legislature  from  authorizing, 

19. 
pending  suits,  effect  of,  upon,  89. 
powers  of  consolidated  corporation,  in  general,  74. 
power  of  consolidated  corporation  to  issue  mortgage  bonds,  75. 
power  of  legislature,  in  absence  of  reserved  power,  to  withdraw  right 

to  consolidate,  24. 
power  of  legislature  to  authorize,  19. 
power  of  legislature  to  compel,  44. 
power  of  legislature  to  withdraw  right  to  consolidate  in  exercise  of 

police  power,  26. 
power  of  legislature  to  withdraw  right  to  consolidate  in  exercise  of 

resei"ved  power,  25. 
power  to  consolidate  a  license,  24. 
power  to  consolidate  not  a  vested  right,  24. 

646 


INDEX. 

CONSOLIDATION  -  continued, 

procedure  in  stockholders'  actions  to  restrain,  43. 

procedure  regarding  pending  suits,  90. 

public  policy  regarding,  of  competing  railroads,  31. 

public  policy  regarding,  of  non-coiupetiug  railroads,  21. 

remedies  at  law  of  creditors  of  constituent  corporations,  86. 

remedies  in  equity  of  creditors  of  constituent  corjiorations,  87. 

remedies  of  dissenting  subscriber  in  ca.<e  of  invalid,  17. 

remedy  of  creditors  against  constituent  corporation,  if  not  dissolved,  88. 

requisite  number  of  stockholders  whose  assent  is  necf.ssary,  41,  42, 43. 

rights  and  powers  of  interstate  consolidated  corporation,  104. 

rights  and  remedies  of  dissenting  stockholders,  4G. 

rule  as  to  transfer  of  property  and  franchises  by,  G5. 

rules  of  construction  of  statutes  authorizing,  27. 

special  privileges  and  immunities  pass  to  consolidated  corporation,  73. 

status  of  interstate  consolidated  corporation,  101. 

statutes  authorizing,  not  regulations  of  interstate  commerce,  19. 

statutes  showing  merger  as  result  of,  62. 

subscriptions  pass  upon,  to  consolidated  corporation,  68. 

taxation  of  interstate  consolidated  corporation,  105. 

torts  of  constituents,  liability  of  consolidated  corporation  for,  82. 

transmission  of  real  estate  and  rights  in  streets  upon,  06. 

trust  invalid  as  involving  practical,  316. 

uncertain  meaning  of  term,  7. 

uses  of  term  distinguished,  8. 

what  are  competing  or  parallel  lines,  37. 

what  railroads  may  consolidate,  statutory  provisions,  22. 

what  statutory  provisions  conditions  precedent  to,  55. 

what  statutory  provisions  not  conditions  precedent  to,  50. 

when  consolidation  is  effected,  53. 

when  guarantee  of  bonds  of  competing  corporation  amounts  to,  35. 

whether  control  through  holding  corporation  amounts  to,  36. 

whether  lease  amounts  to,  34. 

whether  majority  can  effect,  upon  giving  security,  50. 

whether  right  of  eminent  domain  passes  upon,  76. 

who  may  attack  irregular,  95. 

without  legislative  authority,  against  public  policy,  18. 

without  legislative  authority,  ultra  vires,  17. 
CONSPIRACIES, 

applicability  of  law  of,  to  corporations,  326. 

classification  of,  324. 

criminal  and  civil,  distinguished,  325. 

damage  essential  to  civil,  325. 

definitions  of,  324. 

definition  of  civil,  324. 

definition  of  criminal,  324. 

gist  of  criminal,  is  the  combination.  325. 

modern  combinations  of  capital  seldom,  328. 

what  combinations  are,  327. 

647 


INDEX. 

CONSTITUENT   CORPORATIONS, 

choses  in  action  of,  pass,  upon  consolidation,  to  consolidated  company, 
67. 

effect  of  consolidation  upon,  58-63. 

effect  of  consolidatiou  upon  suits  pending  by  or  against,  80. 

effect  of  interstate  consolidation  upon  stalus  of,  lO'J. 

estoppel  of,  of  de  facto  consolidated  corporation,  to  deny  regularity 
of  organization,  96. 

liability  of  consolidated  corporation  for  torts  of,  82. 

liens  upon  property  of,  not  affected  by  consolidation,  84,  85. 

municipal  aid  voted  to,  passes  to  consolidated  corporation,  70. 

obligations  of,  assumed  by  consolidated  corporation,  79. 

obligation  of  consolidated  corporation  to  perform  public  duties  of,  80, 

obligations  of  consolidated  corporation  to  preferred  stockholders  and 
bondholders  of,  81. 

real  estate  and  rights  in  streets  of,  pass  to  consolidated  corporation, 
66. 

remedies  at  law  of  creditors  of,  86. 

remedies  in  equity  of  creditors  of,  87. 

remedies  of  consolidated  corporation  to  enforce  subscriptions  to,  69. 

remedies  of  creditors  against,  if  not  dissolved,  i-iS. 

rule  as  to  transmission  of  property  of,  upon  consolidation,  65. 

stockholders  of,  effect  of  consolidation  upon,  61. 

special  contracts  of,  assumed  by  consolidated  corporation,  81. 

subscriptions  to,  pass  to  consolidated  corporation,  68. 

terms  of  existence  of,  do  not  affect  consolidated  corporation,  19. 

■whether  exemptions  from   taxation  of,  pass   to   consolidated   com- 
pany, 72. 

whether  special  privileges  and  immunities  of,  pass  to  consolidated 
corporation,  73. 
CONSTITUTIONAL  PROVISIONS, 

against  consolidation,  not  regulations  of  interstate  commerce,  38. 

against  consolidation  of  carrier  corporations  other  than  railroads,  39. 

against  consolidation  of  competing  railroads,  32. 

against  leases  of  competing  or  parallel  railroads,  186. 

against  purchase  of  competing  or  parallel  railroads,  147. 

against  trusts  and  monopolies,  405  n. 

arrangements  amounting  to  consolidation  within,  35. 

construction  of,  against  consolidation,  33-37. 

construction  of,  against  corporate  stockholding,  274. 

defining  status  of  interstate  consolidated  corporations,  101  n. 

enforcement  of,  against  consolidation,  40. 

imposing  limitations  upon  grants  of  privileges  and  immunities,  71. 

imposing  limitations  upon  grants  of  special  privileges,  78. 

meaning  of  term  "consolidation"  in,  33. 

what  are  competing  or  parallel  lines  within  meaning  of,  37. 

whether  control  through  holding  corporation  amounts  to  consolida- 
tion, 30. 

whether  lease  amounts  to  consolidation,  34. 
648 


INDEX. 

COXSTRUCTION   OF    STATUTES, 
(a)   Consolidation. 

authorizing  consolidation  of  railroads,  29. 
authorizing  consolidation  of  bu.siuess  cori>oration3,  30. 
authorizing  consolidation,  when  enabling  act,  12. 
authorizing  consolidation,  when  an  impairment  of  contract,  42. 
consolidation  statutes  receive  strict   but   not   unrea^^onable  con- 
struction, 27. 
general  statutes  authorizing  consolidation  not  retroactive,  20. 
of  interstate  consolidation  statutes,  10(t. 
of  Minnesota,  concerning  consolidation,  04. 
particular  consolidation  statiitcs,  28. 
power  to  connect  does  not  authorize  consolidation,  28. 
prescribing  method  of  consolidation,  54. 
rules  of  construction  of  consolidation  statutes,  27. 
showing  distinct  corporation  as  a  result  of  consolidation,  02. 
showing  merger  as  result  of  consolidation,  M. 
what  is  a  connecting  or  continuous  line,  29. 

what  statutory  provisions  conditions  precedent  to  consolidation,  55. 
what  statutory  provisions  not  conditions  precedent  to  consolida- 
tion, 56. 
whether   authority   to   consolidate   must   be  expressly  conferred 

upon  all  consolidating  corporations,  27. 
whether  continuous  line  may  be  formed  by  leased  road,  29. 
whether  power  to  consolidate  gives  power  to  sell  and  vice  versa_  28. 
(6)   Sales. 

relating  to  sales  of  railroads,  14G. 
(c)  Leases. 

authorizing  lease  to  foreign  corporation,  253. 
authorizing  railroad  leases,  181. 
concerning  leases  of  connecting  lines,  185. 
not  authorizing  railroad  leases,  183. 
power  to  lease  unfinished  road,  184. 
power  to  make  agreement  for  lease,  181. 
prescribing  method  of  adopting  railroad  leases,  194. 
rule  of,  authorizing  railroad  leases,  181. 
id)    Stockholding. 

authorizing  corporate  stockholding,  273. 
(e)   Combinations, 

federal  anti-trust  statute,  382-395. 
Statt'  anti-trust  statutes,  411-417. 
CONTRACT, 

charter,  between  State  and  corporators,  17. 
grant  of  power  to  consolidate  is  not,  21. 
liability  of  lessor  upon,  of  lessee,  222. 

outstanding,  does  not  prevent  legislature  from  authorizing  consolida- 
tion, 19. 
special,  of  constituent  corporation  assumed  by  consolidated  corpo- 
ration, 81. 

649 


INDEX. 

CONTRACTS  DT  RESTRAINT   OF   TRADE, 

connection  between,  and  combinations,  335. 

conventional,  are  ancillary  agreements,  334. 

definition  of,  334. 

development  of  law  of,  335. 

do  not  furnish  direct  test  of  validity  of  combination,  337. 

modern  use  of  phrase,  33G. 

nature  of,  334. 

test  of  rea.sonableness  of,  335. 

use  of  phrase,  in  federal  anti-trust  statute,  383. 
CONTROL, 

definition  of,  294. 

distinction  between,  and  community  of  interest,  296. 

distinction  between  and  consolidation,  15,  297. 

distinction  between,  of  corporation  and,  of  property,  295. 

nature  of,  5. 

no  implied  power  to  purchase  stock  for,  298. 

phases  of,  294. 

power  to  purchase  stock  to  obtain,  298. 

remedies  of  minority  stockholders  of  controlled  corporation,  301. 

status  of  corporation  as  controlling  stockholder,  299. 

trust  relation  of  controlling  corporation  to  minority  stockholders,  300. 
CONTROLLING  CORPORATION.     (See  Control.) 
CONTROL  OF  THE  MARKET, 

distinction  between,  and  restriction  of  competition,  356. 

meaning  of  phrase,  356. 

no  limit  of  territory  prescribed,  357. 

rule  of  public  policy  concerning,  352. 

use  of  phrase,  350. 

what  are  "  useful  commodities,"  358. 
CONVERTIBLE   BONDS, 

rights  of  holder  of,  upon  consolidation,  81. 
COPYRIGHTS,  are  ^uasi-monopolies,  331. 
CORPORATE   COMBINATIONS, 

by  means  of  holding  corporations,  310,  323. 

by  means  of  purchasing  corporation,  310,  318. 

definition  of  phrase,  306. 

formation  of,  310. 

injunction  not  substitute  for  quo  icarranto  against,  374. 

issue  of  stock  for  good-will  in  formation  of,  320. 

issue  of  stock  for  property  in  formation  of,  319. 

over-valuation  of  property  acquired  by  issue  of  stock,  321. 

power  of  vendor  corporations  to  sell  property  for  stock,  322. 

quo  warranto  against,  372. 
CORPORATE   PROPERTY, 

effect  of  sale  of  entire,  117. 

exchange  of,  for  stock  in  another  corporation,  118-122,  281. 

lease  of  entire,  of  losing  corporation,  167. 

650 


INDEX. 

CORPORATE   PROPERTY  — confmuerf, 

lease  of  entire,  of  prospL-rous  corporation,  166. 
sale  of  entire,  by  directors,  ll'J. 
sale  of  entire,  by  unanimous  consent,  109. 
sale  of  entire,  of  losing  corporation  by  majority  vote,  111. 
sale  of  entire,  of  prosperous  corporation,  by  majority  vote,  110. 
(See  also  CourouATiux.) 

CORPORATE   STOCKHOLDING, 

construction  of  constitutional  prohibitions  against,  274. 

construction  of  statutes  autliori/.ing,  273. 

corporation  has  right  to  vote  stock,  287. 

corporation  liable  for  assessments  upon  intra  vires  holdings,  287. 

distinction  between  control  and  community  of  interest,  2!iG. 

distinction  between  control  of  corporation  and  control  of  property 

295. 
English  rule  as  to  necessity  for  statutory  authority,  265. 
expediency  of  purchase  immaterial,  209. 
incidental  power  to  acquire  stocks,  in  general,  275. 
incidental  power  to  invest  in  stocks,  276. 
incidental  power  to  take  stock  as  collateral,  278. 
incidental  power  to  take  stock  for  debt,  277. 
incidental  power  to  take  stock  in  connection  with  consolidation  or 

purchase,  279. 
incidental  power  to  take  stock  in  exchange  for  corporate  assets,  281. 
incidental  power  to  take  stock  upon  reorganization,  280. 
incidents  of  ownership  attach  to  intra  vires  holdings,  287. 
liability  for  assessments  upon  ultra  vires  holdings,  269. 
meaning  of  term  "control,"  294. 

mere  assumption  of  power  to  hold  stocks  of  no  effect,  270. 
miscellaneous  instances  of  incidental  power,  262. 
nature  of  holding  corporations,  285. 

necessity  for  statutory  authority  to  purchase  stock,  264,  265. 
necessity  for  statutory  authority  to  subscribe  for  stock,  266. 
outline  of,  5. 
phases  of  control,  294. 

power  to  purchase  stock  to  obtain  control,  298. 
power  to  subscribe  for  stock  in  foreign  corporation,  272. 
presumption  of  power  to  hold  stock,  283 . 
purchases  through  trustees  or  agents,  267. 
remedies  in  case  of  ultra  vires,  293. 

remedies  of  minority  stockholders  of  controlled  corporation,  301. 
rights  of  foreign  corporation  as  stockholder,  286. 
rule  requiring  statutory  authority  cannot  be  evaded  by  indirection, 

267. 
similar  nature  of  corporations  immaterial,  268. 
status  of  corporation  as  controlling  stockholder,  299. 
status  of  corporation  holding  stock,  284. 
statutes  authorizing,  271. 

651 


INDEX. 

CORPORATE   STOCKHOLDING  —  con/muerf, 

statutory  authority  necessary  to  purchase  stock,  264,  2G5. 

subscriptions  tlu'ough  trustees  or  agents,  267. 

to  prevent  competition,  292. 

trust  relation  of  controlling  corporation  to  minority,  300. 

ultra  vires  contracts  for  purchase  of  stock,  290. 

validity  of  collateral  contracts,  290. 

validity  of  independent  contracts,  291. 

what  incidents  of  ownership  attach  to  ultra  I'ircs  holdings,  288. 

CORPORATION, 

applicability  of  law  of  conspiracies  to,  320. 

charter  of,  measure  of  powers,  17. 

citizenship  of,  101  n. 

definition,  1. 

distinction  between  acts  ultra  rircs  the,  and  acts  ultra  vires  the  ma- 
jority, 151. 

distinction  between  control  of,  and  control  of  property,  295. 

distinction  between  rules  of  i)ublic  policy  applicable  to  private  and 
7ti05(-public,  351. 

in  formation  of  trust,  State  regards  acts  of  stockholders  as  acts  of, 
313. 

lease  for  longer  term  than  existence  of,  may  be  valid,  201. 

may  exist  without  property,  117. 

nature  of  relations  of,  1-0. 

powers  and  privileges  of,  in  foreig)i  State,  101  n. 

similar  nature  of,  does  not  affect  power  to  hold  stock,  208. 

status  of,  as  controlling  stockholder,  299. 

status  of,  as  stockholder,  284. 

status  of,  created  by  action  of  different  States,  101  n. 

status  of  foreign,  101. 

trust  invalid  as  involving  partnership  of,  31-1. 

trust  relation  of,  as  controlling  stocikholder,  300. 

trustee  of  pi'operty  for  creditors,  87. 

violating  State  anti-trust  statutes  forfeits  charter,  420. 

when  receiver  may  be  appointed  to  follow  assets  of,  125. 

(See  also  Consolidation;  Foreign  Cokporation;  Interstate 
Consolidation;  Sales  of  Railroads;  Leases  of  Railroads; 
Corporate  Stockholding  ;  Combinations.) 

COVENANTS   IN   RAILROAD   LEASES, 

assumption  of  interest  payments,  204. 

dependent  and  independent  contracts,  203. 

miscellaneous,  209. 

not  to  as.sign,  206. 

to  keep  property  insured,  209. 

to  maintain  and  increase  business,  209. 

to  make  repairs,  207. 

to  pay  assessments,  205. 

to  pay  damages  and  defend  suits,  208. 

652 


INDEX. 

COVENANTS   IN  RAILROAD   LEASES  — continued, 
to  pay  rent,  204. 
to  pay  taxes,  205. 

to  pay  taxes,  for  sole  benefit  of  lessor,  205. 
what  constitutes  breach  of  covenant  not  to  assign,  206. 
what  constitutes  necessary  repairs  within  covenant,  207. 
(See  also  Leases  ok  Kailkoads.) 
CREDITORS, 
(a)    Consnlidnlion. 

consolidated  corporation  directly  liable  to,  of  constituents,  79-82. 
corporation  trustee  of  property  for  benefit  of,  87. 
estoppel  of,  to  deny  regularity  of  consolidation,  96. 
remedies  at  law  of,  of  constituent  corporations,  80. 
remedies  in  equity  of,  of  constituent  corporations,  87. 
remedy  of,  against  constituent  corporation,  if  not  dissolved,  88. 
rights  of,  not  impaired  by  consolidation,  19. 

rights  of,  of  constituent  corporations  not  impaired  by  stipulations 
in  consolidation  agreement,  79. 
(5)  Sales. 

actions  at  law  of,  in  case  of  fraudulent  sale,  125. 

equitable  remedies  of,  in  case  of  fraudulent  sale,  125. 

may  sue  directly  vendee  upon  assumption  clause,  123. 

mortgage  by  vendee  takes  priority  over  claims  of,  of  vendor,  120. 

of  vendor,  cannot  look  to  vendee  unless  debts  are  assumed  or 

imposed  by  statute,  163. 
remedies  of,  against  consideration  for  fraudulent  sale,  125. 
remedies  of,  in  case  of  fraudulent  conveyances,  125. 
remedies  of,  upon  assumption  clause,  in  contract  of  sale,  125. 
vendee  generally  not  liable  for  debts  of  vendor,  123. 
when,  entitled  to  appointment  of  receiver  to  follow  corporate 

assets,  125. 
when,  may  charge  stockholders  of  vendor  corporation,  125. 
(c)   Combinations. 

illegality  of  combination  no  defence  to  actions  by,  370. 
(See  also  Obligations;   Pending  Suits;    Remedies.) 
CRIMINAL   PROCEEDINGS, 

under  federal  anti-trust  statutes,  399. 
under  State  anti-trust  statutes,  419. 


D. 

DAMAGES, 

covenant  to  pay,  in  railroad  leases,  208. 

recoverable  under  federal  anti-trust  statute,  400. 
DEALERS,  application  of  rule  of  public  policy  to  associations  of,  302. 
DEBT, 

incidental  power  to  take  stock  as  security  for,  278. 

incidental  power  to  take  stock  in  satisfaction  of,  277. 

053 


INDEX. 

DEBTS.     (See  Obligations.) 

DE  FACTO   CORPORATION, 

can  only  exist  where  de  jure  corporation  might  be  created,  17,  92. 
elements  necessary  to  form,  92. 

DE   FACTO   CONSOLIDATED   CORPORATION, 

as  a  result  of  an  irregular  consolidation,  94. 

creditors  of,  estopped  from  attacking  regularity  of  organization,  96. 

estoppel  to  deny  regularity  of  organization,  96. 

existence  generally  cannot  be  collaterally  attacked,  94. 

under  Ohio  statute,  29. 

who  may  attack  existence  of,  .95. 

DEFENCES. 

(See  Acquiescence;  Estoppel;  Proceduue;  Remedies;  Stock- 
holders.) 
DEFINITIONS, 

(a)  Consolidation. 

"  consolidation,"  7  n. 

"  corporation,"  1. 

"  merger,"  11. 

"  universitatis  juris,"  10. 

(b)  Sales. 

"  corporate  franchises,"  13-3. 

"  franchise,"  130. 

"franchise  of  corporate  existence,"  131. 

"  franchises  of  railroad  company,"  133. 

(c)  Leases, 

"perpetuity,"  187. 
"  railroad  lease,"  175. 
"  trackage  contract,"  255. 

(d)  Corporate  Stockholding. 

"  community  of  interest,"  296. 

"  control,"  294. 

"  holding  corporation,"  285. 

(e)  Combinations. 

"  association,"  303. 

"  civil  conspiracy,"  324. 

"  combination,"  302.  ' 

"  commerce,"  389. 

"conspiracy,"  324. 

"  contract  in  restraint  of  trade,"  334. 

"  contract  in  restraint  of  trade  "  (in  modern  use),  336. 

"  control  of  the  market,"  356. 

"corporate  combination,"  306. 

"criminal  conspiracy,"  324. 

"  engrossing,"  358  n. 

"  forestalling,"  358  n. 

"  good-will,"  320. 

"  manufacture,"  389. 

654 


INDEX. 

DEFINITIONS  —  continued, 

"monopolize,"  384. 

"  monopoly,"  329, 

"  monopoly  "  (in  modern  use),  332. 

"  police  power,"  409. 

"pools,"  308. 

"public  policy,"  338. 

"regrating,"  358  n. 

"right  to  contract,"  408. 

"trade  or  commerce  among  the  several  States,"  385. 

"  trust,"  304. 
DELAWARE, 

(a)  Consolidation. 

consolidation  appraisal  statute,  57. 

statute  authorizing  consolidation  of  business  corporations,  23  n. 

statute  authorizing  consolidation  of  railroads,  22  n. 

statutes  prescribing  method  of  consolidating,  52  n. 

(b)  Corporate  Stockholding. 

statutes  authorizing  corporate  stockholding,  271  n. 
DELEGATION   OF  POWERS, 

consolidation  without  legislative  authority,  involves  unlawful,  18. 

trust  invalid,  as  involving,  315. 

unauthorized  sale  of  franchise  involves  unlawful,  138. 
DEPENDENT   AND   INDEPENDENT   CONTRACTS, 

in  connection  with  railroad  leases,  203. 
DIAMOND   MATCH   COMPANY,  formation  and  purposes  of,  347. 

DIRECTORS, 
(a)   Consolidation. 

not  liable  to  dissenting  stockholder  in  case  of  illegal  consolida- 
tion, 46. 
(6)  Sales. 

have  no  power  to  authorize  sale  of  railroad,  149. 

have  no  power  to  sell  entire  property  of  corporation  not  insolvent, 

112. 
have  power  to  assign  property  of  insolvent  corporation,  112. 
ratification  by  stockholders  of  sale  by,  113. 

when  same,  in  vendor  and   vendee  companies,  sale  prima  facie 
fraudulent,  124. 
(e)  Leases. 

cannot  lease  railroad  unless  expressly  authorized,  188. 
lease  by  directors  may  be  voidable,  168. 

lease  by,  to  corporation  in  which,  are  interested  voidable,  248. 
DISSENTING   STOCKHOLDERS.     (See  Stockholders.) 
DISSOLUTION, 

sale  of  entire  property  does  not  effect,  of  corporation,  117. 
sale   of   railroad  and  franchises   does   not   effect,  of  railroad   com- 
pany, 152. 

655 


INDEX. 

DISSOLUTIOX  —  continued, 

sale  of  railroad  and  franchises,  including  franchise  of  corporate  ex- 
istence, may  effect,  15'J. 
DIVIDENDS, 

liability  of   consolidated  corporation    for,   upon   preferred   stock   of 

constituents,  81. 
whether  consolidated  corporation  can  declare,  out  of  earnings  of  con- 
stituent before  consolidation,  77. 


E. 

EFFECT   OF    CONSOLIDATION, 

as  general  rule,  creation  of  distinct  corporation,  60. 
cases  of  absorption  or  merper,  03. 
cases  showing  creation  of  distinct  corporation,  62. 
depends  upon  consolidation  act,  5!). 
fusion,  merger  or  continued  existence,  58. 
interstate  upon  status  of  constituent  corjiorations,  102. 
merger  and  continuance  of  corporatiuns,  01. 
of  unlawful,  93. 
upon  pending  suits,  89. 

upon  stnckholders  of  constituent  companies,  64. 
(See  also  Co.nsolidation;  Consulidated  Corpouation;  Pending 

Suits.) 

EMINENT    DOMAIN, 

lessor  corporation  retains  right  of,  210. 
power  of  consolidated  corporation  to  exercise  right  of,  76. 
whether  right   of,  passes   to   vendee  corporation  upon  sale  of  rail- 
road, 1.59. 
when  may  be  exercised  by  lessee,  210. 
EMPLOYEES, 

lessor  liable  to,  of  lessee  for  breach  of  statutory  or  primary  obliga- 
tions, 220. 
of  lessee  corporation  generally  cannot  look  to  lessor,  220. 
of  lessee  corporation,  must  look  to  it  for  damages,  220. 
remedies  of,  against  licensee  company  under  trackage  contract,  263. 
remedies  of,  against  proprietary  company  under  ti-ackage  contract, 
263. 
(See  also  Leases  of  Railroads;    Lessee  Corporation;  Lessor 
Corporation.) 
ENGLAND, 

amalgamation  statute,  12. 

appraisal  statute  applicable  in  case  of  transfer  for  stock,  121  n. 
statute  concerning  issue  of  stock  for  property,  319  n. 
statute  concerning  railroad  leases,  180  n. 
ENGROSSING,  definition  of,  358  n. 
EQUITABLE  LIENS.     (See  Liens.) 
656 


INDEX. 

EQUITABLE  REMEDIES.     (See  Remedies.) 
EQUITY   RULE, 

of  federal  courts  imposing  conditions  upon  plaintiff  stockholder,  115. 

ESTOPPEL, 

against  de  facto  consolidated  corporation,  96. 

defence  of,  involves  both  knovsrledge  and  delay,  116. 

when  a  defence  to  stockholder's  action  to  prevent  consolidation,  45. 

when  a  defence  to  stockholder's  action  to  prevent  sale  of  corporate 

pi-operty,  116. 
when  a  defence  to  stockholder's  action  to  preventsale  of  railroad,  150. 
when,  operates  against  subscriber  of  constituent  corporation,  96. 
when,  operates  against  constituent  corporations,  96. 

(See  also  Acquiescence  ;   Remedies  ;  Stockholders.) 
EVIDENCE, 

(a)   Consolidation. 

consolidated  corporation,  bound  by  admissions  of  constituents 

regarding  obligations,  86. 
consolidation,  how  proved,  91. 

existence  of  competition,  must  be  established  by,  37. 
necessary  to  dissolve  injunction  granted  dissenting  stockholder,  48. 
of  consolidation,  statutory  provision,  91  u. 
(6)   Combinations. 

in  proceedings  under  federal  anti-trust  statute,  401. 
in  proceedings  under  State  anti-trust  statutes,  421. 
of  unlawful  combination,  375. 
EXCHANGE  OF  CORPORATE   PROPERTY  FOR  STOCK, 
appraisal  of  stock  of  dissenting  stockholders,  121. 
distinction  between,  and  sale,  118. 
incidental  power  to  take  stock  upon,  281. 
infringement  of  rights  of  dissenting  stockholders,  120. 
objection  of  ultra  vires  obviated  by  distribution  of  stock  to  stock- 
holders, 119. 
payment  for  shares  of  dissenting  stockholders,  121. 
stock  received  belongs  primarily  to  corporation,  122. 
transfer  of  entire  corporate  property  without  unanimous  consent  re- 
quires monetary  consideration,  118. 
whether  stock  having  established  market  value  can  be  taken,  120. 
without  legislative  authority  ultra  vires,  119. 
EXCLUSIVE   PRIVILEGE, 

charters  do  not  confei',  unless  clearly  expressed,  133. 
for  selling  gas,  passes  to  consolidated  corporation,  73. 
(See  also  Franchises.) 
EXECUTION, 

indispensable  property  of  ^uasj-public  corporation  cannot  be  taken 

on,  127. 
of  trackage  contracts,  257. 
EXECUTION   OF   RAILROAD   LEASES. 

(See  Adoption  of  Railroad  Leases.) 
42  657 


INDEX. 

EXEMPTION, 

from  jury,  road  and  military  duty  passes  to  consolidated  corpora- 
tion, 73. 

invalidity  of,  in  State  anti-trust  statutes,  410. 

necessary  to  relieve  lessor  from  primary  ol)ligations,  217. 

necessary  to  relieve  lessor  from  statutory  obligations,  216. 

whether  necessary  to  relieve  lessor  under  authorized  lease,  219. 
EXEMPTIONS   FROM   TAXATION, 

improvements  and  betterments  follow  property,  72. 

term  "  immunities  "  generally  includes,  IGO. 

what  language  carries,  upon  sale  of  railroad,  160. 

whether,  pass  to  consolidated  corporation,  72. 

whether,  pass  to  vendee  corporation  upon  purchase  of  railroad,  160. 
EXPRESS   COMPANIES, 

constitutional  prohibitions  against  consolidation  of  competing,  39. 


F. 

FACILITIES  FOR    COMMERCE, 

combination  imposing  restraint  upon,  not  in  violation  of  federal  anti- 
trust statute,  390. 
FEDERAL   ANTI-TRUST   STATUTE, 

actions  at  law  by  private  persons  under,  400. 

analysis  of,  377. 

applies  only  to  restraints  upon  interstate  commerce,  386. 

applies  to  combinations  of  carriers,  392. 

applies  to  continuing  combinations,  395. 

applies  to  railroad  combinations,  392. 

combination  controlling  disposition  and  distribution  violates,  389. 

combination  must  have  direct  effect  upon  interstate  commerce,  388. 

combination  of  distributors  violates,  389. 

combination  of  manufacturers  not  in  violation  of,  389. 

constitutionality  of,  379-381. 

construction  of,  382-395. 

criminal  proceedings  under,  399. 

damages  recoverable  under,  400. 

device  of  holding  corporation  may  be  illegal  under,  393. 

distinction  between  manufacture  and  commerce,  389. 

effect  of  voluntary  dissolution  pending  proceedings,  403. 

enforcement  of  forfeitures  by  government,  398. 

evidence  in  proceedings  under,  401. 

exchanges  not  in  violation  of,  391. 

form  of  combination  immaterial,  393. 

illegality  of  combination  must  be  shown,  401. 

inapplicable  to  monopoly  under  patent,  394. 

inapplicable  to  State's  monopoly,  394. 

indictments  under,  399. 

658 


INDEX. 

FEDERAL   ANTI-TRUST   ST ATVE  — continued, 

injunctive  relief  under,  remedy  of  government  only,  397. 

invalidity  under,  as  a  ground  of  collateral  attack,  396. 

is  constitutional,  381. 

limitations  of  actions,  404. 

meaning  of  phrase  "  trade  or  commerce  among  the  several  States," 

385. 
meaning  of  term  "  monopolize,"  384. 
not  in  conflict  with  interstate  commerce  act,  392. 
not  retroactive,  395. 
object  of,  378. 

parties  to  proceedings  under,  402. 
previous  legality  of  combination  immaterial,  387. 
reasonableness  of  restraint  imposed  by  combination  immaterial,  387. 
remedies  under,  396-400. 

restraints  upon  facilities  for  commerce  not  in  violation  of,  390. 
statute,  376. 
title  of,  382. 

use  of  phrase,  contract  in  restraint  of  trade,  383. 
voluntary  associations  for  mutual  benefit  not  in  violation  of,  391. 

FEDERAL   CONTROL   OVER   COMBINATIONS,  Umitations  of,  6. 
FEDERAL  COURTS,  equity  rule  of,  applicable  in  stockholders'  actions, 
115. 

(See  also  Citizenship.) 

FIFTH   AMENDMENT,  provisions  of,  409  n. 

FLORIDA, 

(a)  Consolidation. 

statute  authorizing  consolidation  of  competing  lines,  32  n. 
statute  authorizing  consolidation  of  railroads,  22  n. 

(b)  Sales. 

statute  authorizing  sales  of  railroads,  145  n. 

(c)  Leases. 

statute  authorizing  railroad  leases,  145  n,  180  n. 

(d)  Stockholding. 

statutes  authorizing  corporate  stockholding,  271  n. 

(e)  Combinations. 

anti-trust  statute,  405  n. 

FORECLOSURE, 

extinguishes  claims  of  general  creditors,  83. 

of  mortgage  executed  by  interstate  consolidated  corporation,  107. 

FOREIGN  CORPORATION, 

(a)  Consolidation. 

consolidation  with,  when  authorized,  99. 

construction  of  statutes  authorizing  consolidation  with,  100. 

status  of,  101  n. 

(b)  Sales. 

purchasing  railroad,  status  of,  164. 

659 


INDEX. 

FOREIGN   CORPORATION  —  continued, 

remedies  of  State  against,  ia  case  of  unauthorized  purchase  of 
railroad,  156. 
(c)  Leases. 

authority  to  lease  to,  252. 

railroad  lease  to,  must   be  authorized   by  State  where  road  is 
located,  252. 

status  of,  leasing  railroad,  254. 
(rf)   Stockholding. 

power  to  subscribe  for  stock  in,  272. 
rights  of,  as  stockholder  in  domestic  corporation,  286. 
right  of,  to  acquire  stock  in  domestic  corporation,  286. 
(e)   Combinations. 

applicability  of  State  anti-trust  statutes  to,  414. 
violating  State  anti-trust  statutes  ousted  from  State,  420. 
FORESTALLING,  definition  of,  358  n. 
FORFEITURES, 

enforcement  of,  under  federal  anti-trust  statute,  398. 
under  State  anti-trust  statutes,  420. 
FORM  OF   LEASE, 
habendum,  197. 
premises,  197. 
reddendum,  197. 
term,  197. 

(See  also  Leases  of  Railroads.) 

FOURTEENTH   AMENDMENT, 

does  not  conflict  with  police  power,  409. 

guarantees  right  to  contract,  408. 

provisions  of,  409  n. 

State  anti-trust  statutes  as  class  legislation,  410. 

validity  of  State  anti-trust  statutes  tested  by,  408-410. 
FRANCHISE   OF   CORPORATE  EXISTENCE, 

belongs  to  stockholders,  131. 

nature  of,  131. 

transferability  of,  132. 
FRANCHISES, 

definition  of,  130. 

distinction  between  sale  of,  and  sale  of  railroad,  142. 

essential,  pass  to  lessee  corporation,  225. 

essential,  pass  upon  sale  of  railroad,  157. 

essential  elements  of,  130. 

exclusive,  are  ^uasi- monopolies,  331. 

franchise  of  corporate  existence,  131. 

kinds  of,  130. 

leases  of,  173. 

legislative  authority  essential  to  purchase  of,  139. 

legislative  authority  essential  to  sale  of,  135. 

municipality  cannot  grant,  133. 
660 


INDEX. 

FRANCHISES  —  continued, 

of  7t/asj-public  corporations,  133. 

of  railroad  companies,  i;33. 

to  construct  and  operate  street  railway,  133. 

transferability  of  cor[)orate,  134. 

transferability  of  franchise  of  corporate  existence,  132. 

unauthorized  sale  of,  against  public  policy,  137. 

unauthorized  sale  of,  ultra  vires,  136. 

unauthorized  sale  of,  unlawful  delegation  of  powers,  138. 
FRANCHISES   OF   CORPORATIONS, 

distinction  between,  and  powers,  133. 

distinction  between,  and  privileges,  133. 

fundamental  nature  of  transfer  of,  134. 

nature  of,  133. 

transferability  of,  134. 

(See  also  Franchises.) 
FRAUD, 

exchange  of  property  for  stock,  constructively  fraudulent,  124. 

in  consolidation  agreements,  98. 

in  sales  of  property  of  private  corporation,  124. 

remedies  of  creditors  in  case  of,  125. 

sale  in  which  directors  are  personally  interested  prima  facie  fraudu- 
lent, 124. 

what  tranfers  of  corporate  property  are  fraudulent,  124. 
FUSION, 

of  corporations,  as  a  result  of  consolidation,  8,  58. 
(See  also  Consolidation.) 


GEORGIA, 

(a)  Consolidation. 

constitutional  provision  against  consolidation  construed,  35. 
constitutional  provision  against  consolidation  of  competing  corpo- 
rations, 32  n. 
statutes  authorizing  consolidation  of  railroads,  22  n. 

(b)  Sales. 

statutes  authorizing  sales  of  railroads,  145  n. 

(c)  Leases. 

statute  authorizing  railroad  leases,  145  n.,  180  n. 
statute  concerning  terms  of  railroad  leases,  193  n. 
statute  imposing  liability  upon  lessee  corporation,  230  n. 

(d)  Stockholding. 

statutes  authorizing  corporate  stockholding,  271  n. 

(e)  Combinations. 

anti-trust  statute,  405  n. 
exemptions  in  anti-trust  statute,  410  n. 
GLUCOSE    COMBINATION,  nature  and  formation  of,  348. 

661 


INDEX. 

GOOD-WILL, 

definition  of,  320. 

issue  of  stock  for,  in  formation  of  corporate  combination,  320. 
GUARANTEE, 

of  ultra  vires  lease  void,  247. 

(See  also  Leases  of  Railroads.) 


H. 

HOLDING  CORPORATION, 

as  a  device  to  form  combination  may  contravene  federal  anti-trust 

statute,  '.i93. 
corporate  combination  by  means  of,  310,  323. 
nature  of,  a,  285. 
peculiar  value  of,  5,  285. 
rights  of  foreign,  286. 
yrhether  control  through,  amounts  to  consolidation,  3G. 


I. 

IDAHO, 

(a)  Conitolirlation. 

constitutional  provision  deGning  status  of  interstate  consolidated 

corporation,  101  n. 
statute  authorizing  consolidation  of  railroads,  22  n. 
statutes  prescribing  method  of  consolidating,  52  n. 

(b)  Sales. 

statutes  authorizing  sales  of  railroads,  145  n. 

(c)  Leases. 

statutes  authorizing  leases  of  railroads,  145  n. 

(d)  Stockholding. 

statutes  authorizing  corporate  stockholding,  271  n. 
ILLINOIS, 

(a)   Consolidation. 

constitutional    provision    against    consolidation    of    competing 

corporations,  32  n. 
public  policy  of,  regarding  consolidation  of  domestic  and  foreign 

railroads,  21. 
public    policy  regarding    consolidation   of    non-competing   rail- 
road, 21. 
statute  authorizing  consolidation  of  business  corporations,  23  n. 
statute  authorizing  consolidation  of  railroads,  22  n. 
statute  providing  that   consolidated  corporation  cannot  change 

location  of  railroad,  77  n. 
statute  prescribing  method  of  consolidating,  52  n. 
(6)  Sales. 

statutes  authorizing  sales  of  railroads,  145  n. 
statute  prescribing  method  of  authorizing  sale  of  railroads,  148  n. 
662 


INDEX. 

ILLI'NOIS  —  continued, 

(c)  Leases. 

construction  of  statute  of,  authorizing  railroad  leases,  182. 

(d)  Stockholding. 

statute  authorizing  corporate  stockholding,  271  n. 

(e)  Combinations. 

anti-trust  statutes,  405  n. 

anti-trust  statute  unconstitutional,  410. 

exemptions  in  anti-trust  statutes,  410  n. 

improve:ments, 

•whether  exempt  from  taxation,  72. 

whether  lessee  can  recover  for,  made  under  ultra  vires  lease,  245. 

INCIDENTAL   POWER   TO   ACQUIRE   STOCK, 

as  collateral,  278. 

for  investment,  276. 

in  connection  with  consolidation  or  purchase,  279. 

in  exchange  for  corporate  assets,  281. 

in  general,  275. 

in  satisfaction  of  debt,  277. 

miscellaneous  instances,  2S2. 

upon  reorganization,  280. 

(See  also  Corporate  Stockholdixg.) 

INDEPENDENT   CONTRACTS, 

remedies  upon,  of  illegal  combination,  369. 
validity  of,  connected  with  ultra  vires  stockholding,  291. 
(See  also  Collateral  Attack.) 
INDIANA, 

(a)   Consolidation. 

statutes  authorizing  consolidation  of  railroads,  22  n. 
statute  prescribing  method  of  consolidating,  52  n. 
(6)  Sales. 

statutes  authorizing  sales  of  railroads,  145  n. 

statute  conferring  powers  on  corporation  purchasing  railroad,  158  n. 

(c)  Leases. 

construction  of,  statute  authorizing  connecting  railroads  to  make 
contracts,  183. 

(d)  Stockholding. 

statutes  authorizing  corporate  stockholding,  271  n. 

(e)  Combinations. 

anti-trust  statutes,  405  n. 

INDICTMENTS, 

under  federal  anti-trust  statute,  399. 
under  State  anti-trust  statutes,  419. 

INDISPENSABLE   PROPERTY, 

leases  of,  171. 

of  ^liasi-public   corporation  cannot  be  alienated  without  statutory 
authority,  127. 

663 


INDEX. 

INDISPENSABLE   rROVT.RTY  —  continued, 

of  <ywnsi-piiblic  corporation  cannot   be  taken  on  execution  without 
statutory  autliority,  127. 

of  railroad,  cannot  be  sold  without  statutory  authority,  143. 

test  of  indispensability,  128. 
INJUNCTION, 

remedy  of  dissenting  stockholders  by,  in  case  of  invalid  consolida- 
tion, 40,  46,  48. 

remedy  of  State  by,  in  case  of  ultra  vires  consolidation,  40. 

remedy  of  State  by,  in  case  of  ultra  vires  lease,  251. 

remedy  of  State  by,  in  case  of  unlawful  combinations,  374. 

under  federal  anti-trust  statute,  granted  at  instance  of  government 
only,  397.  (See  also  Remedies.) 

INSURANCE   COMBINATIONS, 

application  of  State  anti-trust  statutes  to,  413. 
INTERCORPORATE   RELATIONS, 

distinction  between  relation  of  lessor  and  lessee  and  other,  176. 

distinction  between  relation  of  vendor  and  vendee  and  other,  141. 

nature  of,  1. 

outline  of  consolidation,  2. 

outline  of  corporate  stockholding,  5. 

outline  of  evolution  of  combination,  6. 

outline  of  relations  of  lessor  and  lessee,  4. 

outline  of  relations  of  vendor  and  vendee,  3. 
INTERSTATE   COMMERCE, 

federal  anti-trust  statute  applies  only  to  restraints  upon,  386. 

nature  of,  385. 

prohibitions  of  consolidation  not  regulations  of,  38. 

State  anti-trust  statutes  not  regulations  of,  412. 

statutes  authorizing  consolidation  not  regulations  of,  19. 

when  article  becomes  subject  of,  389. 

when,  begins,  389. 
INTERSTATE    COMMERCE   ACT, 

not  in  conflict  with  federal  anti-trust  statute,  392. 

provision  concerning  connecting  lines,  363  n. 

provision  concerning  pools,  364  n. 
INTERSTATE   CONSOLIDATED   CORPORATION, 

a  domestic  corporation  in  each  State,  101. 

citizenship  of,  106. 

duties  of,  105. 

foreclosure  of  mortgage  of,  107. 

jurisdiction  in  case  of  mortgage  foreclosure,  107. 

management  of,  103. 

rights  and  powers  of,  104. 

stattts  of,  101. 

taxation  of,  105. 

(See  also   Consolidated   Corporation  ;   Coxsolidatiox  ;   In- 
terstate Consolidation.) 
664 


INDEX. 

INTERSTATE    CONSOLIDATION, 

effect  of,  upon  status  of  constituent  corporations,  102. 
how  authorized,  99. 

(See  also  CoNSOLiDATiox;  Foreign  Corporation  ;  Interstate 
Consolidated  Corporation.) 
INTRA   VIRES, 

holdings  of  stock,  incidents  of  ownership  attach  to,  287. 
(See  also  Corporate  Stockholding  ;  Ultra  Vires.) 
INVALID   CONSOLIDATION.     (See  CoxNsolidation.) 
INVALID   LEASES. 

(See  Leases  of  Railroads.) 
INVALID   SALES. 

(See  Sales  of  Property  of  Private  Corporation.) 
INVESTMENTS, 

incidental  power  to  make  corporate,  in  stocks,  27G. 
IOWA, 

(a)  Consolidation. 

statute  authorizing  consolidation  of  railroads,  22  n. 
statute  prescribing  method  of  consolidating,  52  n. 

(b)  Sales. 

statute  authorizing  sales  of  railroads,  145  n. 

(c)  Leases. 

statute  authorizing  mortgage  of  leases,  227  n. 
statute  imposing  liability  upon  lessee  corporation,  230  n. 
((/)   Stockholding. 

statutes  authorizing  corporate  stockholding,  271  n. 
(e)    Combinations. 

anti-trust  statute,  405  n. 
IRREGULAR   CONSOLIDATION. 

(See  also  Collateral  Attack  ;   Consolidation.) 
IRREGULAR   LEASES.     (See  Leases  of  Railroads.) 


JUDICIAL  NOTICE, 

court  may  take,  of   geography  of    State   and  general   direction  of 

railroads,  37. 
court  will  not  take,  of  consolidation,  91. 
JURISDICTION, 

of  foreclosure  of  mortgage  of  interstate  consolidated  corporation,  107. 


K. 
KANSAS, 

(a)   Consolidation. 

statute  authorizing  consolidation  of  railroads,  22  n. 
statute  prescribing  method  of  consolidating,  52  n. 

665 


INDEX. 

KANSAS  —  continued, 

(b)  Sales. 

statute  authorizing  sales  of  railroads,  145  n. 

statute  prescribing  method  of  authorizing  sale  of  railroad,  148  n. 

(c)  Leases. 

statutes  authorizing  railroad  leases,  145  n.,  180  n. 

statute  couceruing  taxation  of  leased  railroad,  224  n. 

statute  prescribing  method  of  adopting  railroad  lease,  193  n. 

statute  relating  to  foreign  lessee  corporations,  2.j4  n. 
(J)   Stockholding. 

statutes  authorizing  corporate  stockholding,  271  n. 
(e)   Combinations. 

anti-trust  statutes,  405  n. 
KENTUCKY, 
(a)   Consolidation. 

constitutional  provision  against  consolidation  of  competing  cor- 
porations, 32  n. 

constitutional  provision  defining  status  of  interstate  consolidated 
corporation,  101  n. 

statute  authorizing  consolidation  of  railroads,  22  n. 

statute  authorizing  consolidation  of  business  corporations,  23  n. 

statute  prescribing  method  of  consolidating,  52  n. 
(6)   Stockholding. 

statutes  authorizing  corporate  stockholding,  271  n. 
(c)   Combinations. 

anti-trust  statute,  405  n. 

constitutional  provision  against  trusts  and  combinations,  405  n. 

L. 

ABOR  ORGANIZATIONS, 

invalidity  of  exemptions  of,  from  State  anti-trust  statutes,  410. 
(See  also  Class  Legislation;   Fourteenth  Amendment.) 
LACHES, 

as   a  defence  to  stockholder's  action  to  prevent  sale  of  corporate 

property,  116. 
of  stockholders  in  restraining  consolidation,  49. 
of  stockholders  may  prevent  attacking  invalid  railroad  lease,  192. 
(See  also  Acquiescence  ;  Estoppel.) 
LEASE, 

distinction  between,  and  consolidation,  14. 
nature  of,  14. 

outline  of  relations  of  lessor  and  lessee,  4. 

statute  authorizing  condemnation  of  stock  for  consolidation  not  ap- 
plicable to,  51. 
whether,  amounts  to  consolidation,  34. 
(See  also  Leases  of  Property  of  Private  Corporations  ;  Leases 
of    Property  of    Quasi-public    Corporations  ;    Leases  of 
Railroads.) 
666 


INDEX. 


LEASES  OF  PROPERTY   OF  PRIVATE   CORPORATIONS, 

distinction  between,  and  leases  of  7««.i-public  corporations,  1^0. 

of  entire  property  of  prosperous  corporation,  166. 

of  entire  property  of  losing  corporation,  167. 

of  entire  property  of  losing  corporation  may  be  made  for  purposes  of 

liquidation,  167. 
power  to  lease  generally,  165. 
power  to  take  a  lease,  165. 
remedies  of  objecting  stockholders,  169. 
voidable  leases,  168. 
LEASES  OF  PROPERTY  OF  QUASI-PUBLIC  CORPORATIONS, 
distinction  between,  and  leases  of  private  corporations,  170. 
of  indispensable  property,  171. 
of  surplus  property,  172. 
LEASES   OF   RAILROADS, 

acknowledgment,  witnesses,  etc.,  195. 

acquiescence  and  laches  may  prevent  stockholder  attacking,  192. 

allegation  and  proof  of  execution  of,  195  n. 

assent  of  stockholders  necessary,  188. 

authority  of  officers  or  agents  to  execute,  195.  .,       ,  . 

authority  to  execute,  must  be  derived  from  State  where  railroad  is 

located,  252. 
by  receiver,  238. 

consideration,  198.  _  n  i    -iq« 

constitutional  provisions  against,  when  competing  cr  parallel,  l«b. 
construction  of  particular,  200. 

construction  of  statutes  authorizing  leases  of  connectmg  lines,  185. 
construction  of  statutes  prescribing  method  of  adopting,  194. 
construction  of  statutory  provisions  authorizing,  182. 
corporation  may  be  estopped  to  allege  irregular  execution,  196. 
covenant  not  to  assign,  206. 
covenant  to  defend  suits,  208. 

covenant  to  make  repairs,  207. 

covenant  to  pay  assessments,  205. 

covenant  to  pay  damages,  208. 

covenant  to  pay  rent,  204. 

covenant  to  pay  taxes,  205. 

delivery  of  possession  under  ultra  vires,  241. 

dependent  and  independent  contracts,  203. 

distinction  between,  and  trackage  contracts,  176,  255. 

distinction  between  relations  under,  and  other  intercorporate  rela- 
tions, 176. 

distinction  between  ultra  vires  and  irregular,  239. 

effect  of  ultra  vires,  upon  stock  subscriptions,  246. 

enforcement  of  executory  ultra  vires,  240. 

essential  elements  of,  175. 

for  longer  term  than  existence  of  corporations  may  be  valid,  201. 

formalities  attending  execution  of,  195. 

667 


INDEX. 

LEASES  OF  RAILROADS  -  eo«^mucc/, 
formal  parts  of,  197. 
form  of,  197. 

for  purpose  of  suppressing  competition  against  public  policy,  249. 
guarantee  of  ultra  vires,  void,  247. 
improvements  made  by  lessee  under  ultra  vires,  245. 
incidental  franchises  pass  to  lessee,  225. 
injunction  by  State,  in  case  of  ultra  rtVes,  251. 
joint  liability  of  lessor  and  lessee,  232. 
legislative  authority  necessary  to  make,  177. 
legislative  authority  necessary  to  take,  178. 
lessor  cannot  avoid  primary  obligations  unless  exempted,  217. 
lessor  cannot  avoid  statutory  obligations  unless  exempted,  216. 
lessor  retains  prerogative  powers,  210. 
liability  of  lessee  for  del)ts  of  lessor,  233. 
liability  of  lessee  for  nuisance,  217,  231. 
liability  of  lessee  for  torts,  231. 

liability  of  lessor  for  negligent  operation  under  authorized,  219. 
liability  of  lessor  for  negligent  operation  under  unauthorized,  218. 
liability  of  lessor  for  nuisance,  217. 
liability  of  lessor  for  reconstruction  and  repairs,  223. 
liability  of  lessor  to  employees  of  lessee,  220. 
liability  of  lessor  upon  contracts  of  lessee,  222. 
liability  of  lessor  when  it  shares  in  control,  221. 
long  term,  not  perpetuities,  187. 

majority  may  authorize,  in  absence  of  controlling  statute,  189. 
meaning  (if  phrase  "  terminal  facilities"  in,  200. 
miscellaneous  covenants  in,  209. 
mortgages  of,  227 
mortgage  of  rent  charge,  213. 

obligation  of  lessee  to  perform  lessor's  public  duties,  229. 
obligation  of  lessor  to  State,  215. 
obligations  of  receiver  after  election  to  assume,  237. 
obligations  of  receiver  after  renunciation  of,  237. 
partial  invalidity  of,  202. 
place  of  execution  of,  195, 
power  to  lease  unfinished  road,  184. 
quo  warranto  in  case  of  ultra  vires,  250. 
receiver  may  elect  to  assume  or  renounce,  235. 
receiver  may  not  abrogate,  as  between  parties,  234. 
receiver  not  assignee  of  term,  234. 

receiver's  obligations  pending  election  to  assume  or  renounce,  236. 
record  of,  195. 

recovery  of  property  after  disaffirmance  of  ultra  vires,  243. 
recovery  on  quantum  meruit  after  disaffirmance  of  ultra  vires,  244. 
remedies  of  dissenting  stockholders,  191. 
remedies  of  lessee,  228. 
remedies  of  lessor,  214. 

668 


INDEX. 

LEASES   OF   RAILROADS  —  con/mueJ, 
requisite  majority  prescribe  terms  of,  190. 
right  and  duty  of  disaffirmance  of  ultra  vires,  242. 
rights  of  lessee,  in  general,  225. 
rights  of  lessee  in  matter  of  tolls,  226. 
rights  of  lessor  when  entitled  to  share  of  earnings,  211. 
rights  of  stockholders  when  rent  is  payable  lu  form  of  dividends,  212. 
rules  of  construction  of,  VJ9. 
rule  of  construction  of  statutes,  181. 
seals  upon,  195. 

status  of  foreign  lessee  corporation,  254. 
statutory  liability  of  lessee,  230. 
statutory  provisions  authorizing,  ISO. 

statutory  provisions  concerning  approval  and  execution  of,  193. 
statutory  provisions  not  authorizing,  183. 
taxation  of  leased  railroads,  224. 
to  foreign  corporations,  252,  253,  254. 
typical  of  leases  of  ^wa.si-public  corporations,  174. 
unauthorized,  validated  by  legislative  ratification,  179. 
voidable,  248. 
void  restrictions,  202. 
■what  constitutes,  175. 

what  constitutes  breach  of  covenant  not  to  assign,  206. 
what  statutory  provisions  authorize,  to  foreign  corporations,  253. 
when  lessee  liable  for  nuisance,  217,  231. 
when  lessor  liable  for  nuisance,  217. 
whether  lessor  liable  for  negligent  operation  under  authorized  lease, 

219. 
whether  lessor  may  have  equitable  lien  upon  earnings,  211. 
whether  right  of  eminent  domain  passes  by,  210. 
whether  unanimous  consent  of  stockholders  is  necessary,  189. 
without  legislative  authority,  against  public  policy,  177. 
without  legislative  authority,  ultra  vires,  177. 

LEGAL  REMEDIES.     (See  Remedies.) 

LEGISLATIVE   AUTHORITY, 
(a)  Consolidation. 

consolidation  without,  against  public  policy,  18. 

consolidation  without,  unlawful  delegation  of  powers,  18. 

consolidation  without,  ultra  vires,  17. 

for  consolidation,  how  expressed,  20. 
(6)  Sales. 

essential  to  purchase  of  franchises,  139. 

essential  to  purchase  of  railroad,  144. 

essential  to  sale  of  franchises,  135. 

essential  to  sale  of  railroad,  143. 

necessary  for  sale  of  indispensable  property  of  ^wasi-public  cor- 
poration, 127. 

sale  of  franchises  without,  against  public  policy,  137. 

669 


INDEX. 

LEGISLATIVE   AUTHORITY  —  continued, 

sale  of  franchises  without,  ultra  rires,  136. 

sale  of  frauchies  without,  unlawful  delegation  of  powers,  138. 

(c)  Leases. 

lease  of  railroad  invalid  without,  177. 

necessary  to  take  a  lease,  178. 

not  necessary  for  execution  of  trackage  contract,  256. 

ratification  of  unauthorized  lease  validates  it,  179. 

to  lease  railroad,  must  be  granted  by  State  where  located,  252. 

(d)  Stockholding. 

necessary  for  corporation  to  purchase  stock,  264. 
necessary  for  corporation  to  subscribe  for  stock,  266. 
rule  in  England  as  to  necessity  for,  to  purchase  stock,  265. 
(See  also  Legislature.) 

LEGISLATURE, 

outstanding  contract  does  not  prevent,  from  authorizing  consolida- 
tion, 19. 

power  of,  to  authorize  consolidation,  19. 

power  of,  to  compel  consolidation,  44. 

power  of,  over  property  devoted  to  public  uses,  406. 

power  of,  to  prohibit  combinations  of  ^uast-public  corporations,  406. 

power  of,  under  reserved  power,  to  change  rights  of  shareholders 
among  themselves,  43. 

power  of,  to  withdraw  right  to  consolidate,  in  absence  of  reservation, 
24. 

power  of,  to  withdraw  right  to  consolidate   in   exercise  of  police 
power,  26. 

power  of,  to  withdraw  right  to  consolidate  in  exercise  of   reserved 
power,  25. 

presumption  of  intention  of,  as  to  succession  by  consolidated  corpo- 
ration to  property  of  constituents,  65. 

(See  also  Legislative  Authority.) 

LESSEE   CORPORATION, 

acquires  incidental  franchises,  225. 
estopped  to  allege  irregular  execution  of  lease,  196. 
joint  liability  of,  and  lessor,  232. 
liability  of,  as  a  common  carrier,  231. 
liability  of,  for  debts  of  lessor,  233. 
liability  of,  for  failure  to  maintain  cattle  guards,  230. 
liability  of,  for  failure  to  maintain  fences,  230. 
liability  of,  for  fires,  230. 
liability  of,  for  negligence,  231. 
liability  of,  for  nuisance,  217,  231. 

liability  of,  for  performance  of  lessor's  public  duties,  229. 
liability  of,  for  torts,  231. 

liability  of  lessor  for  negligence  of,  under  authorized  lease,  219. 
liability  of  lessor  for  negligence  of,  under  unauthorized  lease,  21S. 
liability  of  lessor  upon  contracts  of,  222. 
670 


INDEX. 

LESSEE   CORPORATION  —  con/mwerf, 

may  surrender  ultra  vires  lease  without  liability,  241. 
must  be  expressly  authorized  to  take  lease  of  railroad,  178. 
obligation  of,  to  perform  lessor's  public  duties,  229. 
power  to  mortgage  lease,  227. 
remedies  of,  228. 
rights  of,  in  general,  225. 
rights  of,  in  matter  of  tolls,  226. 
statutory  liability  of  230. 
when,  agent  of  lessor,  222. 
when,  liable  for  debts  of  lessor,  233. 
when,  liable  for  nuisance,  217,  231. 
when,  liable  for  taxes,  22i. 

when,  may  exercise  power  of  eminent  domain  in  its  own  name,  210. 
when,  may  exercise  power  of  eminent  domain  in  name  of  lessor,  210. 
whether,  may  recover  for  improvements  made  under  ultra  pires  lease, 
245. 

LESSOR   CORPORATION, 

cannot  avoid  primary  obligations  unless  exempted,  217. 

cannot  avoid  statutory  obligations  unless  exempted,  216. 

equitable  lien  upon  earnings,  211. 

estopped  to  allege  irregular  execution  of  lease,  196. 

generally  liable  for  taxes  upon  leased  roads,  224. 

joint  liability  of,  and  lessee,  232. 

liable  for  negligent  operation  under  unauthorized  lease,  218. 

liability  of,  for  negligent  operation  of  railroad  under  authorized  lease, 

219. 
liability  of,  for  reconstruction  and  repairs,  223. 
liability  of  lessee  for  debts  of,  233. 

liability  of,  not  affected  by  fact  that  lessee  is  also  liable,  216. 
liability  of,  upon  contracts  of  lessee,  222. 
liability  of,  when  it  shares  in  control,  221. 
liability  of,  for  failure  to  fence  tracks,  216. 
liability  of,  for  failure  to  maintain  cattle  guards,  216. 
liability  of,  for  nuisance,  217. 
liability  of,  to  employees  of  lessee  for  failure  to  perform  statutory  or 

pi-imary  duties,  220. 
may  recover  on   quantum   meruit  after  disaffirmance  of   ultra  vires 

lease,  244. 
may  recover  property  after  disaffirmance  of  lease  by  lessee,  243. 
must  be  expressly  authorized  to  lease  railroad,  177. 
not  liable  to  employees  of  lessee  for  its  negligence,  220. 
obligation  of  lessee  to  perform  public  duties  of,  229. 
obligations  of,  to  State,  215. 
power  to  mortgage  rent  charge,  213. 
primary  duties  of,  217. 
public  duties  of,  215. 
remedies  at  law  of,  214. 

671 


INDEX. 

LESSOR   CORPORATIOX  — eon/inuef/, 
remedies  in  equity  of,  214. 
retains  prerogative  powers,  210. 
retains  right  of  eminent  domain,  210. 
rights  of,  when  entitled  to  sliare  of  earnings,  211. 
statutes  providing  tliat,  shall  be  liable  for  damages,  210  u. 
statutory  liability  of,  21G. 
when  liable  for  injuries  from  fires,  216. 
when  liable  for  nuisance,  217. 

when  power  of  eminent  domain  may  be  exercised  in  name  of,  210. 
whether,  can  recover  property  after  disaffirmance  of  ultra  vires  lease, 
242. 

LESSOR  AND  LESSEE, 

joint  liability  of,  232. 
outline  of  relations  of,  4. 

LICENSE, 

grant  of  power  to  consolidate  is,  24. 
trackage  contract,  in  nature  of,  255. 

(See  also  Trackage  Contracts.) 

LICENSEE  COMPANY, 

liability  of,  under  trackage  contract,  to  employees,  263. 
liability  of,  under  trackage  contract,  to  third  persons,  262. 
(See  also  Trackage  Contracts.) 

LICENSOR  COMPANY. 

(See  Proprietary  Company.) 

LIEN, 

equitable,  of  lessor  when  entitled  to  share  of  earnings,  211. 
effect  of  consolidation  upon  conventional  and  statutory,  84. 
effect  of  consolidation  upon  equitable,  85. 

LIMITATION, 

of  actions  under  federal  anti-trust  statute,  404. 
of  actions  under  State  anti-trust  statutes,  422. 

LOSING   CORPORATION, 

lease  of  entire  property  of,  167. 

sale  of  entire  property  of,  111. 
(See  also  Leases  of  Property  of  Private  Corporations;   Sales 

OF  Property  of  Private  Corporations.) 

LOUISIANA, 

(a)   Consolidation. 

constitutional  provision  defining  status  of  interstate  consolidated 
corporation,  101  n. 

corporate  existence  of  consolidated  corporation  limited  to  ninety- 
nine  years,  77  n. 

statute  authorizing  consolidation  of  business  corporations,  23  n. 

statutes  authorizing  consolidation  of  railroads,  22  n. 

statutes  prescribing  method  of  consolidating,  52  n. 

672 


INDEX. 


LOUISIANA  —  continued, 
(b)    Comhinationx. 

anti-trust  statute,  405  n. 

constitutional  provision  against  combinations,  405  n. 

exemptions  in  anti-trust  statute,  410  n. 


M. 

MAINE, 

(n)  Sales. 

statute  concerning  sales  of  railroads,  145  n. 
(6)  Leases. 

statute  concerning  railroad  leases,  145  n. 

(c)  Stockholding. 

statutes  authorizing  corporate  stockholding,  271  n. 

(d)  Combinations. 

anti-trust  statute,  405  n. 
MAJORITY, 
(a)  Sales. 

Cannot  sell  entire  property  of  prosperous  corporation  for  purposes 

of  speculation,  110. 
distinction  between  acts  ultra  vires  the,  and  acts  xdtra  vires  the 

corporation,  151. 
may  sell  entire  property  of  prosperous  corporation  for  purposes 

of  liquidation,  110. 
obligation  of,  to  minority  in  case  of  sale  of  corporate  property, 

114. 
power  of,  to  sell  entire  property  of  losing  corporation.  111. 
power  of,  to  sell  not  limited  to  failing  concerns,  110. 
whether,  can  authorize  sale  of  railroad,  149. 
(h)   Leases. 

cannot  lease  entire  property  of  prosperous  corporation,  166. 

fiduciary  relation  of,  towards  minority,  168. 

lease  by,  may  be  voidable,  168. 

lease  by,  to  corporation  in  which,  are  interested  may  be  voidable, 

248. 
may  authorize  lease  of  entire  property  of  losing  corporation,  167. 
may  authorize  lease  of  railroad  iu  absence  of  controlling  statute, 

189. 
prescribed,  fix  terms  of  railroad  lease,  190. 
(See  also  Consolidation.) 
MANDAMUS, 

when,  may  be  granted  to  compel  recording  of  consolidation  agree- 
ment, 55. 
MANUFACTURERS, 
associations  of,  360. 

combination  of,  not  in  violation  of  federal  anti-trust  statute,  38&. 
owning  patents,  associations  of,  361. 

43  673 


INDEX. 

MARYLAND, 

(a)  Consolidation. 

statute  authorizing  consolidation  of  business  corporations,  23  n. 
statute  authorizing  consolidation  of  railroads,  22  n. 
statutes  prescribing  method  of  consolidating,  52  n. 

(b)  Sales. 

statute  authorizing  sales  of  railroads,  14.")  n. 

(c)  Leases. 

statute  authorizing  railroad  leases,  145  n.,  180  n. 

(d)  Stockholdiufi . 

statutes  authorizing  corporate  stockholding,  271  n. 

(e)  Conihinnlions. 

constitutional  provision  against  monopolies,  405  n. 
MASSACHUSETTS, 

(a)  Leases. 

statute  authorizing  railroad  leases,  180  n. 

statutes  prescribing  method  of  adopting  railroad  lease,  193  n. 

(b)  Stockholding. 

statutes  authorizing  corporate  stockholding,  271  n. 
MEIUiEll. 

as  a  result  of  consolidation  proceedings,  8,  61. 

definition  of,  11. 

included  in  term  "consolidation,"  11. 

outline  of  process  of,  8. 

statutes  showing,  as  a  result  of  consolidation,  63. 

when,  may  be  elTect  of  consolidation,  58. 

(See  also  Consolidation.) 
MICHIGAN, 

(a)  Consolidation. 

constitutional  provision  against  consolidation  of  competing  cor- 
porations, ."Vi  n. 

statute  authorizing  consolidation  of  railroads,  22  n. 

statute  authorizing  consolidation  of  street  railway,  electric  and 
gas  companies,  23  n. 

statute  prescribing  method  of  consolidating,  52  n. 

statutory  provision  as  to  powers  of  consolidated  corporation,  77  n. 

(b)  Sales. 

statutes  authorizing  sales  of  railroads,  145  n. 

statute  prescribing  method  of  authorizing  sale  of  railroad,  148  n. 

(c)  Leases. 

statute  authorizing  lessee  to  condemn  in  name  of  lessor,  210  n. 

statutes  authorizing  railroad  leases,  145  n,  180  n. 

statute  prescribing  method  of  adopting  railroad  lease,  193  n. 

statute  relating  to  foreign  lessee  corporations,  254  n. 
(c?)   Stockholding. 

statutes  authorizing  corporate  stockholding,  271  n. 
(e)    Combinations. 

anti-trust  statutes,  405  n. 

exemptions  in  anti-trust  statutes,  410  n. 
674 


INDEX. 

MINNESOTA, 

(a)   Consolidation. 

statutes  against  consolidation  of  competing  railroads,  35  n. 

statutes  authorizing  consolidation  of  railroads,  22  n. 

statutes  prescribing  method  of  consolidating,  52  n. 
(6)   Sales. 

statutes  authorizing  sales  of  railroads,  145  n. 

statute    prescribing    method   of    authorizing    sale    of    railroad, 
148  n. 

(c)  Leases. 

statute  authorizing  railroad  leases,  145  n.,  ISO  n. 

statute  prescribing  method  of  adopting  railroad  lease,  193  n. 

(d)  Stockholding. 

statutes  authorizing  corporate  stockholding,  271  n. 

(e)  Combinations. 

anti-trust  statutes,  405  n. 

MINORITY, 

obligation  of  majority  to,  in  case  of  sale  of  corporate  property, 

114. 
remedies  of,  in  case  of  voidable  leases,  248. 
right  of,  to  avoid  leases  authorized  by  majority,  168. 
trust  relation  of  controlling  corporation  to,  300. 
(See  also  Majority.) 

MISSISSIPPI, 

(a)  Consolidation. 

statute  authorizing  consolidation  of  railroads,  22  n. 
statute  prescribing  method  of  consolidating,  52  n. 

(b)  Leases. 

statute  authorizing  railroad  leases,  180  n. 

(c)  Stockholding. 

statutes  authorizing  corporate  stockholding,  271  n. 
((/)    Combinations. 

anti-trust  statutes,  405  n. 

constitutional  provision  against  trusts  and  combinations,  405  n. 

exemptions  in  anti-trust  statute,  410  n. 

MISSOURI, 

(a)   Consolidation. 

constitutional  provision  against  consolidation  of  competing  corpo- 
rations, 32  u. 

constitutional  provision  defining  status  of  interstate  consolidated 
corporation,  101  n. 

statute  authorizing  consolidation  of   manufacturing   companies, 
23  n. 

statutes  authorizing  consolidation  of  railroads,  22  n. 

statutes  prescribing  method  of  consolidating,  52  n. 

statute  providing  that  consolidated  corporation  may  hold  neces- 
sary real  estate,  77  n. 

675 


INDEX. 

MISSOURI  —  continued, 
(ft)  Sales. 

statutes  authorizing  sales  of  railroads,  145  n. 

statute  prescribing  method  of  authorizing  sale  of  railroad,  118  n. 
(c)   Leaseti. 

statute  authorizing  railroad  leases,  145  n.,  180  n. 

statute  concerning  taxation  of  leased  railroad,  224  n. 

statute  prescribing  method  of  adopting  railroad  lease,  193  n. 

statute  relating  to  foreign  lessee  corporations,  254  n. 
(rf)   StocUioldiru/. 

statutes  authorizing  corporate  stockholding,  271  n. 
(e)    Comhinatinns. 

anti-trust  statutes,  405  n. 

MONOPOLIES, 
grcnvtli  of,  330. 
history  of,  330. 
illegality  of,  330. 
modern  use  of  term,  332. 
no  true,  in  United  States,  331. 
patents  and  other  iimisi,  331. 
primary  meaning  of  term,  329. 
test  of  validity  of  combinations,  not  whether  constitute,  333. 

MONOPOLIZE, 

meaning  of  terra  in  federal  anti-trust  statute,  384. 
MONTANA. 

(a)  Comolidalion. 

constitutional  provision  against  consolidation  of  competing  cor- 
porations, 32  n. 

constitutional  provision  defining  status  of  interstate  consolidated 
corporation,  101  n. 

statute  authorizing  eonsolidalion  of  mining  companies,  23  n. 

statutes  authorizing  consolidation  of  railroads,  22  n. 

statutes  prescribing  method  of  consolidating,  52  n. 

(b)  Sales. 

statutes  authorizing  sales  of  railroads,  145  n. 

statutes  prescribing  method  of  authorizing  sale  of  railroad,  148  n. 

(c)  Leases. 

statute  authorizing  railroad  lea.ses,  145  n.,  180  n. 

statute  concerning  taxation  of  leased  railroad,  224  n. 

statute  prescribing  method  of  adopting  railroad  lease,  193  n. 
(rf)  Stockholding. 

statutes  authorizing  corporate  stockholding,  271  n. 
(e)   Combinations. 

anti-trust  statute,  405  n. 

exemptions  in  anti-trust  statute,  410  n. 

MORTGAGES, 

effect  of  consolidation  upon,  84. 

foreclosure  of,  executed  by  interstate  consolidated  corporation,  107. 
676 


INDEX. 

MORTGAGES  —  continued, 

of  leases,  227. 

of  vendee  corporation,  take  priority  over  claims  of  vendor's  creditors, 
126. 

power  of  consolidated  corporation  to  issue  bonds  secured  by,  75. 

whether  lease  comes  within  "  after  acquired  property  "  clause,  227. 
(See  also  Bonds  ;  Bondholders.) 
MUNICIPAL  AID, 

consolidated  corporation  entitled  to,  voted  to  constituents,  70. 

to  railroads  against  present  public  policy,  70. 


N. 

NATIONAL  HARROW   COMPANY, 

formation  and  purpose  of,  349  n. 
NEBRASKA, 

(a)   Consolidation. 

constitutional  provision  against  consolidation  of  competing  cor- 
porations, 32  n. 
statute  authorizing  consolidation  of  railroads,  22  n. 
statute  prescribing  method  of  consolidating,  52  n. 
(6)  Sales. 

statutes  authorizing  sales  of  railroads,  145  n. 

statute  prescribing  method  of  authorizing  sale  of  railroad,  148  n. 
(c)  Leases. 

statute  authorizing  railroad  leases,  145  n.,  180  n. 
statute  concerning  taxation  of  leased  railroad,  224  n. 
statute  prescribing  method  of  adopting  railroad  lease,  193  n. 
statute  relating  to  foreign  lessee  corporations,  254  n. 
(rf)  Stockholding, 

statutes  authoi'izing  corporate  stockholding,  271  n. 
(e)    Combinations. 

anti-trust  statute,  405  n. 
constitutionality  of  anti-trust  statute,  410. 
exemptions  in  anti-trust  statute,  410  n. 
NECESSARIES  OF  LIFE, 

what  articles  constitute,  358. 
NEGLIGENCE, 

liability  of  lessee  for,  231. 

liability  of  lessor  for,  of  lessee  under  authorized  lease,  219. 
liability  of  lessor  for,  of  lessee  under  unauthorized  lease,  218. 
liability  of  lessor  for,  when  it  sliares  in  control,  221. 
liability  of  parties  to  trackage  contracts  for,  261-263. 
liability  of  vendor  for,  154,  155. 
NEVADA, 

(a)   Consolidation. 

statute  authorizing  consolidation  of  corporations  generally,  23  n. 

677 


INDEX. 

NEVADA  —  continued, 

statute  authorizing  consolidatioa  of  railroads,  22  n. 
statutes  prescribing  method  of  consolidating,  5"J  n. 
(6)  Sales. 

statute  authorizing  sales  of  railroads,  145  n. 

statute  conferring  powers   on   corporation   purchasing  railroad, 
158  n. 
(c)  Stockholding. 

statutes  authorizing  corporate  stockholding,  271  n. 

NEW  HAMPSHIRE, 

(a)  Consolidation. 

statute  authorizing  consolidation  of  railroads,  22  a. 

(b)  Leases. 

statutes  authorizing  railroad  leases,  180  n, 
statute  prescribing  method  of  adopting  railroad  lease,  180  n. 
statute  providing  that  lease  shall  nut  affect  lessor's  public  obliga- 
tion, 215  n. 

NEW  JERSEY, 
(a)   Consolidation. 

statute  autliorizing  consolidation  of  business  corporations,  23  n. 

status's  autlu)rizing  consolidation  of  railroads,  22  n. 

statutes  prescribing  method  of  consolidating,  52  n. 
(i)  Sales. 

statute  authorizing  purchase  of  railroad,  145  n. 

statute  prescribing  method  of  authorizing  sale  of  railroad,  148  n. 

(c)  Leases. 

statutes  authorizing  railroad  leases,  180  n. 

statute  prescribing  method  of  adopting  railroad  lease,  180  n. 

(d)  Stockholdinrj. 

statutes  authorizing  corporate  stockholding,  271  n. 

(e)  Combinations. 

statute  authorizing  issue  of  stock  for  property,  319 n. 

NEW  MEXICO, 

(a)  Consolidation. 

statute  authorizing  consolidation  of  railroads,  22  u. 
statutes  prescribing  method  of  consolidating,  52  n. 

(b)  Sales. 

statute  authorizing  purchase  of  railroads,  145  n. 

statute  prescribing  method  of  authorizing  sale  of  railroad,  148  n. 

(c)  Leases. 

statutes  authorizing  railroad  leases,  145  n.,  180  n. 
statute  prescribing  method  of  adopting  railroad  lease,  193  n. 
(rf)   Stockholdinfj. 

statutes  authorizing  corporate  stockholding,  271  n. 

NEW  YORK, 

(a)    Consolidation. 

public  policy  of,  regarding  consolidation  of  non-competing  rail- 
roads, 21. 

678 


INDEX. 

NEW   YOlUv—cojitlnued, 

statute  authorizing  consolidation  of  business  corporations,  23  n. 

statute  authorizing  consolidation  of  railroads,  22  n. 

statutes  prescribing  method  of  consolidating,  52  n. 

statute  prescribing  obligations  of  consolidated  corporation,  79  n. 

statute  relating  to  transmission  of  property  and  franchises  upon 
consolidation,  65. 

statute  regarding  effect  of  consolidation  upon  pending  suits,  89  n. 

statutory  provision  as  to  powers  of  consolidated  business  corpora- 
tion, 77  n. 

(b)  Sales. 

statute  authorizing  acquisition  of  railroad,  115  n. 

(c)  Leases, 

construction  of  statute  of,  authorizing  railroad  leases,  182. 
statute  authorizing  railroad  leases,  180  n. 
statutes  imposing  liabilities  upon  lessee  corporation,  230  n. 
statute  prescribing  method  of  adopting  railroad  lease,  180  n. 

(d)  Stockholding. 

statutes  authorizing  corporate  stockholding,  271  n. 

(e)  Combinations. 

anti-trust  statutes,  405  n. 
NON-COMPETING  RAILROADS, 

public  policy  regarding  consolidation  of,  21. 

NORTH    CAROLINA, 

(a)  Leases. 

statute  authorizing  railroad  leases,  180  n. 

statute  concerning  taxation  of  leased  railroad,  224  n. 

(5)  Stockholding. 

statutes  authorizing  corporate  stockholding,  271  n. 
(c)   Combinations. 

anti-trust  statute,  405  n. 

constitutional  provision  against  monopolies,  405  n. 

exemptions  in  anti-trust  statute,  410  n. 
NORTH    DAKOTA, 
(a)    Consolidation. 

constitutional  provision  against  consolidation  of  competing  cor- 
porations, 32  n. 

statute  authorizing  consolidation  of  railroads,  22  n. 

statute  prescribing  method  of  consolidating,  52  n. 

(6)  Sales. 

statute  authorizing  sales  of  railroads,  145  n. 

statute  prescribing  method  of  authorizing  sale  of  railroad,  148  n. 
(c)  Leases. 

statute  authorizing  railroad  leases,  145  n.,  180  n. 

statute  prescribing  method  of  adopting  railroad  lease,  193  n. 
{d)   Combinations. 

anti-trust  statute,  405  n. 

constitutional  provision  against  combinations,  405  n. 

679 


INDEX. 

NUISANCE, 

joiut  liability  of  lessor  and  lessee  for,  232. 

lessee  liable  for  niaiutainiiig,  217. 

lessor  liable  for  creating,  217. 

liability  of  lessee  for  creating  or  maintaining,  231. 


0. 

OBLIGATIONS, 
(f/)    Consolidation. 

liability  of  consolidated  corporation  after  foreclosure  for,  of  con- 
stituents, 83. 

of  constituents,  assumed  by  consolidated  corporations,  79. 

of  interstate  consolidated  corporation,  105. 

of  subscribers  of  constituents  enforced  by  consolidated  corpora- 
tion, G9. 

pul)lic,  of  constituents  assumed  by  consolidated  corporation,  80. 

settlement  of,  of  constituents  by  consolidated  corporation,  77. 

(b)  Sales. 

of  vendor   not  assumed  by  vendee  upon  purchase  of  railroad, 

16:3. 
vendee  not  generally  liable  upon,  of  vendor,  123. 

(c)  Leases. 

when  lessee  liable  for,  of  lessor,  233. 

(See  also  Chkditors.) 
OHIO, 

(a)   Consolidation. 

statute  authorizing  consolidated  corporation  to  take  and  dispose 

of  stocks  and  bonds,  77  n. 
statute  authorizing  consolidation  of  railroads,  22  n. 
statute  prescribing  method  of  consolidating,  52  n. 
(6)   Sales. 

statute  authorizing  sales  of  railroads,  145  n. 
statute    conferring    powers     on     corporation     purchasing    rail- 
road, 158  n. 
statute  prescribing  method  of  authorizing  sale  of  railroad,  148  n. 

(c)  Leases. 

statute  authorizing  lessee  to  exercise  right  of  eminent  domain, 
210  n. 

statutes  authorizing  railroad  leases,  145  n.,  180  n. 

statute  prescribing  method  of  adopting  railroad  lease,  193  n. 

statute  providing  that  lessor  shall  be  liable  as  if  operating  rail- 
road, 216  n. 

(d)  Stockholding. 

statutes  authorizing  corporate  stockholding,  271  n. 

(e)  Combinations. 

anti-trust  statutes,  405  n. 

680 


INDEX. 

OKLAHOMA, 

(a)   Consolidation. 

statute  authorizing  consolidation  of  railroads,  22  n. 
statute  prescribing  method  of  consolidating,  52  n. 
(6)   Sales. 

statutes  authorizing  sales  of  railroads,  145  n. 
statute  conferring  powers   on   corporation  purchasing  railroad, 
158  n. 
(c)  Leases. 

statute  authorizing  railroad  leases,  145  n.,  180  n. 
(f?)   Combinations. 

anti-trust  statutes,  405  n. 
OREGON, 

statute  authorizing  sales  of  railroads,  145  n. 
statute  authorizing  railroad  leases,  145  n.,  180  n. 


PARALLEL  LINES.     (See  Competing  or  Parallel  Railroads.) 
PARTIES, 

in  stockholders'  actions  to  enjoin  sales,  115. 
necessary,  in  proceedings  under  federal  anti-trust  statute,  402. 
(See  also  Procedure;  Remedies.) 
PATENTS, 

are  ^wast-monopolies,  331. 

associations  of  manufacturers  owning,  361. 

federal  anti-trust  statute  inapplicable  to  monopoly  under,  394. 

PENALTIES, 

under  federal  anti-trust  statute,  399,  400. 
under  State  anti-trust  statutes,  419,  420. 

(See  also  Forfeitures.) 
PENDING   SUITS, 

effect  of  consolidation  upon,  89. 
procedure  regarding,  90. 
PENNSYLVANIA, 
(a)    Consolidation. 

constitutional  provision  against  consolidation  of  competing  cor- 
porations, 32  n. 
statutes  authorizing  consolidation  of  railroads,  22  n. 
statutes  prescribing  method  of  consolidating,  52  n. 
(h)  Sales. 

statute  authorizing  acquisition  of  railroad  franchises  and  prop- 
erty, 145  n. 
statute  conferring   powers  on   corporation  purchasing   railroad, 

158  n. 
statute  prescribing  method  of  authorizing  sale  of  railroad,  148  n. 

681 


INDEX. 

PENNSYLVANIA  -  continued, 
(c)  Leases. 

statute  authorizing  lessee  to  assume  obligatious  of  lessor,  225  a. 

statute  authorizing  railroad  leases,  18(J  n. 
((i)   Stockholding. 

statutes  authorizing  corporate  stockholding,  271  n. 

PERPETUITIES, 

definition  of,  187. 

long  term  leases  not  prohibited  by  statutes  against,  187. 

PLEADINGS, 

allegation  of  execution  of  lease,  195  u. 
allegation  of  consolidation,  91. 

what  alli'gations   necessary    to   dissolve   injunction   restraining   at- 
tempted consolidation,  48. 

(See  also  Puocedure.) 

POLICE   POWER, 

definition  of,  iOO. 

fourteenth  amendment  does  not  conilict  with,  408. 

power  of  State  under,  to  withdraw  right  to  consolidate,  26. 

power  of  State  under,  to  enact  anti-trust  statutes,  409. 

POOLS, 

nature  of,  308. 

New  Hampshire  statute  against,  35  n. 

of  earnings,  308. 

provisions  of  interstate  commerce  act  concerning,  364. 

traffic,  308. 

validity  of  railroad,  364. 

POWERS, 

(a)  Consolidation. 

charter  of  corporation  measure  of,  17. 

miscellaneous,  of  consolidated  corporation,  77. 

of  consolidated  corporation,  eminent  domain,  76. 

of  consolidated  corporation,  in  general,  74. 

of  consolidated  corporation  to  issue  of  mortgage  bonds,  75. 

of  corporation,  how  conferred,  17. 

of  interstate  consolidated  corporation,  101. 

(b)  Sales. 

distinction  between  franchises  of  corporation  and,  133. 
of  private  corporation,  to  purchase  and  sell,  108. 
of  vendor  corporation  after  sale  of  railroad,  153. 

(c)  Leases. 

lessor  corporation  retains  its  prerogative,  210. 
(See   also   Consolidated    Corporation  ;    Consolidation  ;   Cor- 
poration ;    Lessor   Corporation;    Lessee    Corporation; 
Vendor  Corporation;  Vendee  Corporation.) 

PRESERVERS   TRUST,  nature  and  formation  of,  345. 

682 


INDEX. 

PRESUMPTION, 

of  citizenship,  for  jurisdictional  purposes,  101  n. 
of  power  to  hold  stock,  283. 

that  certificate  of  consolidation  has  been  recorded,  55. 
PRIORITY, 

of  purchaser's  mortgage  over  claims  of  vendor's  creditors,  126. 
PRIVATE    CORPORATIONS. 

(See  Corporations.) 
PRIVILEGES   AND    IMMUNITIES, 

constitutional  limitations  upon  transmission  of,  upon  consolidation, 

71. 
whether  special,  pass  upon  consolidation,  73. 
(See  also  Exemptions  from  Taxation;  Franchises;  Rates  of 

Fare.) 
PROCEDURE, 

defences  in  stockholders'  action  to  enjoin  sale  of  corporate  property, 

116. 
in  stockholders'  action  to  enjoin  sale  of  corporate  property,  115. 
in  stockholders'  actions  to  restrain  consolidation,  48. 
in  suits  pending  at  time  of  consolidation,  90. 

(See  also  Evidence;  Parties;  Pleadings;  Remedies.) 

PRODUCERS,  associations  of,  360. 
PROPERTY, 

devoted  to  public  uses,  power  of  State  over,  406. 

issue  of  stock  for,  in  formation  of  corporate  combination,  319. 

(See  also  Corporate  Combination  ;  Corporate  Property.) 
PROPRIETARY   COMPANY, 

liability  of,  under  trackage  contract,  to  employees,  263. 

liability  of,  under  trackage  contract,  to  third  persons,  261. 
(See  also  Trackage  Contracts.) 
PROSPEROUS   CORPORATION, 

lease  of  entire  property  of,  requires  unanimous  consent,  166. 

sale  of  entire  property  of,  requires  unanimous  consent,  110. 

PUBLIC   DUTIES, 

corporation  purchasing  railroad  assumes  accompanying,  162. 

lessor  corporation  must  discharge,  215. 

obligation  of  lessee  to  perform  lessor's,  229. 

obligation  of  consolidated  corporation  to  perform,  of  constituents, 
80. 
PUBLIC   POLICY, 

(a)  Consolulation. 

consolidation  not  dependent  upon  considerations  of,  16. 
consolidation,  without  legislative  authority,  against,  18. 
regarding  consolidation  of  competing  railroads,  31. 
regarding  consolidation  of  non-competing  railroads,  21. 

(b)  Sales. 

unauthorized  sale  of  franchises,  against,  137. 

683 


INDEX. 

PUBLIC    VOLICY  — continued, 

(c)  Leases. 

lease  of  railroad  for  purpose  of  suppressing  competition  against, 

249. 
unauthorized  lease  of  railroad  against,  177. 
unauthorized  taking  of  lease  against,  178. 

(d)  Combinations. 

basis  of,  338. 

basis  of  rules  of,  in  judicial  decisions,  341. 

definition  of,  3.38. 

difficulty  of  formulaticg  rules  of,  concerning  combinations,  340. 

nature  of,  338. 

necessity  for  rules  of,  339. 

regarding  competition,  356. 

regarding  combinations  generally,  6. 

rules  of,  3.r2. 

(See  also  Rules  ok  PrnLic  Policy.) 
PURCHASE   OF   FRANCHISES. 

(See  Fkanchises  ;  Sales  ok  Franchises. ) 
PURCHASE   OF   RAILROADS. 

(See  Sales  ok  Railroacs.) 
PURCHASING   CORPORATION. 

(See  Vendee  Corporation.) 


Q. 

QUANTUM  MERUIT, 

recovery  on,  by  lessor  corporation  after  disaffirmance  of  ultra  vires 
lease,  244. 

(See  also  Leases   ok  Railroads.) 
QUASI-PUBLIC  CORPORATIONS, 

(a)  Consolidation. 

Consolidation  of,  without   legislative  authority,  against  public 

policy,  18. 
railroad  companies  are,  18  n. 

(b)  Sales. 

indispensable   property  of,   cannot  be    sold   without    statutory 

authority,  127. 
indispensable  property  of,  cannot  be  taken  on  execution  without 

statutory  authority,  127. 
legislative  authority  essential  to  purchase  of  franchises  of,  139. 
legislative  authority  essential  to  sale  of  franchises  of,  135. 
nature  of  franchises  of,  133. 
sales  of  surplus  property  of,  129. 
test  of  indispensability  of  property  of,  128. 
transferability  of  franchises  of,  134. 

unauthorized  sales  of  franchises  of,  against  public  policy,  137. 
684 


INDEX. 

QUASI-PUBLTC    CORPORATIONS  —  continued, 

unauthorized  sale  of  franchises  of,  ultra  vires,  136. 
unauthorized  sale  of  franchises  of,  unlawful  delegation  of  powers, 
138. 
(f)  Leases. 

leases  of  franchises  of,  173. 
leases  of  indispensable  property  of,  171. 
leases  of  surplus  property  of,  172. 
railroad  leases  typical  of  leases  of,  174. 
(f/)    Combinations. 

analysis  of  rule  of  public  policy  applicable  to,  359. 

distinction  between  rules  of  public  policy  applicable  to  private 

and,  351. 
power  of  State  to  prohibit  combinations  of,  406. 
rule  of  public  policy  applicable  to,  352. 
QUO   WARRANTO, 

against  combining  corporations,  373. 
against  corporate  combination,  372. 
in  case  of  ultra  vires  consolidation,  40. 
in  case  of  ultra  vires  leases,  250. 
in  case  of  unauthorized  sale,  156. 
judgment  in,  373. 

(See  also  Remedies  ;  State.) 


R. 

RAILROAD  COMPANIES, 

are  i^uasi-public  corporations,  18  n. 
combinations  of,  violate  federal  anti-trust  statute,  392. 
franchises  of,  133. 

power  of  Congress  to  prohibit  combinations  of  competing,  380, 
sketch  of  consolidation  of,  2. 
(See  also  Associations  of  Railroad  Companies;  Consolidation  ; 
Sales  of  Railroads  ;  Leases  op  Railroads  ;   Pools  ;  Track- 
age Contracts.) 
RAILROADS, 

highways,  early  theory,  2  n, 
sketch  of  leases  of,  4. 
sketch  of  sales  of,  3. 

unconstructed,  when  within  provisions  of  consolidation  act,  29. 
unfinished,  when  may  be  leased,  184. 
(See  also  titles  containing  words  "  Railroads  "  or  "  Railroad 
Companies.") 
RAILROAD   LEASES   UNDER   RECEIVERSHIP. 

(See  Leases  of  Railroads  ;  Receivers.) 
RATES   OF   FARE, 

consolidated  corporation  may  exercise  power  of  constituent  regarding, 
77. 

685 


INDEX. 

RATES   OF  TARE  — continued, 
rif^ht  of  lessee  to  fix,  226. 

wliether  chartered  rates  follow  railroad  when  sold,  161. 
whether  right  to  fix,  passes  to  vendee  corporation,  161. 
RATIFICATION, 
(a)   Consolidation. 

legislative  recognition  of  consolidation  equivalent  to,  20. 
(i)  Sales. 

by  stockholders  of  sale  by  directors,  113. 
governed  by  same  principles  as  authorization,  11.3. 
(c)   Leases. 

distinction  between,  by  legislature  and  stockholders,  179. 
legislative,  validates  unauthorized  railroad  lease,  179. 
legislative,  what  constitutes,  179. 

(See  also  Legislative  Authority.) 
REAL  ESTATE, 

transmission  of,  upon  consolidation,  66. 

RECEIVER, 

(a)  Sales. 

when  may  be  appointed  to  follow  corporate  assets,  125. 

(b)  Leases. 

may  elect  within  reasonable  time  to  assume  or  renounce  lease, 

235. 
may  not  abrogate  lease  as  between  parties,  234. 
not  a.ssignee  of  term  of  railroad  lea.se,  231. 
obligations  of,  after  election  to  assume  lease,  237. 
obligations  of,  after  election  to  renounce  lease,  237. 
obligations  of,  pending  eli'ction  to  assume  or  renounce  lease,  236. 
power  to  lease  railroad,  238. 
power  to  take  lease  of  railroad,  238. 

what  constitutes  election  to  assume  or  renounce  lease,  235. 
what  constitutes  reasonable  time  within  which  to  elect  to  assume 

or  renounce  lease,  235. 

(c)  Combinations. 

of  illegal  combination,  rights  and  remedies  of,  368. 
RECOGNITION, 

legislative,  of  consolidated  corporation  validates  organization,  20. 
(See  also  Ratification.) 
RECONSTRUCTION   AND   REPAIRS, 
liability  of  lessor  corporation  for,  223. 
REGRATING, 

definition  of,  358  n. 
REMEDIES, 

(a)   Consolidation. 

against  consolidating  corporations  if  not  dissolved,  88. 
enforcement   of  constitutional   provisions  against  consolidation, 

40. 
equitable,  of  creditors  of  consolidating  corporations,  87. 
686 


INDEX. 

REMEDIES  —  continued, 

legal,  of  creditors  of  consolidating  corporations,  8G. 
of  consolidated  corporation  to  enforce  subscriptions,  G9. 
of  dissenting  stockholder  in  case  of  invalid  consolidation,  46. 
of  dissenting  subscribers  in  case  of  invalid  consolidation,  47. 
procedure  in  stockholders'  actions  to  restrain  consolidation,  48. 
(6)  Sales. 

of  creditors  against  consideration  for  fraudulent  sale,  1'25. 

of  creditors  against  stockholders  of  vendor  corporation,  125. 

of  creditors,  at  law,  in  case  of  fraudulent  sale,  125. 

of  creditors,  in  equity,  in  case  of  fraudulent  sale,  125. 

of  creditors  upon  assumption  clause  in  contract  of  sale,  125. 

of  dissenting  stockholders  in  case  of  invalid  sale,  114. 

of  dissentiug  stockholders  in  case  of  invalid  sale  of  railroad,  151. 

(c)   Leases. 

against  licensee  company  umler  trackage  contract,  2G2,  263. 

against  proprietary  company  under  trackage  contract,  261,  263. 

of  lessee  corporation,  228. 

of  lessor  corporation,  in  equity,  214. 

of  lessor  corporation  after  disaffirmance  of  ultra  vires  lease,  242, 
213,  344. 

of  State,  in  case  of  ultra  vires  leases,  250,  251. 

of  stockholders  in  case  of  unauthorized  i-ailroad  lease,  191. 

of  stockholders  to  restrain  lease,  169. 
((/)   Stockholding. 

of  minority  stockholders  of  controlled  corporation,  301. 

of  State  in  case  of  ultra  vires  stockholding,  293. 

of  stockholders  in  case  of  ultra  vires  stockholding,  293. 

stockholder  may  enjoin  voting  idtra  vires  holdings  of  stock,  2SS. 
(e)    Combinations. 

between  combination  and  its  members,  367. 

collateral  attack  upon  combination,  369. 

injunction  by  State  against  illegal  combination,  374. 

injunction  not  a  substitute  for  quo  toarranto,  374. 

member  of  illegal  combination  cannot  recover  upon,  366. 

of  members  of  illegal  combination,  366. 

of  receivers  and  assignees  of  illegal  combinations,  368. 

of  stockholders  of  combining  corporations,  371. 

quo  toarranto  against  corporate  combination,  372. 

test  of  right  of  member  of  illegal  combination  to  recover,  366. 

under  federal  anti-trust  statute,  390-400. 

under  State  anti-trust  statutes,  420. 

upon  independent  contracts  of  illegal  combination,  369. 

RENT, 

by  stipulation  may  be  paid  to  third  person,  198. 

consideration  of  lease  is,  198. 

covenant  to  pay,  204. 

due  primarily  to  lessor,  198. 

equitable  lien  upon  share  of  earnings,  211. 

687 


INDEX. 

RENT  —  continued, 

share  of  earnings  as,  211. 

rights  of  stockholders  when,  payable  in  form  of  dividends,  212. 
(See  also  Leases  of  Railroads.) 

REORGANIZATION, 

corporation  takes  property  under,  as  successor,  141. 

distinction  between,  and  sale  of  railroad,  141. 

incidental  power  to  take  stock  upon,  280. 
(See  also  Exchange   of   Corporate    Property  for  Stock;   Sales 

OF  Property  of  Private  Corporations.) 
REPAIRS, 

covenant  to  make,  in  railroad  leases,  207. 

what  constitutes  necessary,  207. 
RIGHT   OF   EMINENT   DOMAIN.     (See  Eminent  Do.main.) 
RIGHT  TO   CONTRACT, 

as  affected  by  State  anti-trust  statutes,  408. 

not  absolute,  408. 

under  fifth  amendment,  409. 

under  fourteenth  amendment,  408. 
RIGHT  TO  VOTE, 

corporation  has,  intra  vires  holdings,  287. 

corporation  has  no,  ultra  I'ires  holding,  288. 
RIGHTS   IN   STREETS,  transmission  of,  upon  consolidation,  66. 

RULES  OF  PUBLIC  POLICY, 

analysis  of  rule  applicable  to  7»nsi- public  corporations,  359. 
analysis  of  rule  governing  private  corporations,  354. 
application  of,  to  associations  of  lyuasi-public  corporations,  365. 
application  of,  to  associations  of  dealers,  302. 
application  of,  to  associations  of  manufacturers,  360. 
application  of,  to  associations  of  manufacturers  owning  patents,  361. 
application  of,  to  associations  of  railroad  companies,  363,  364. 
application  of,  to  associations  of  producers,  360. 
basis  of,  in  judicial  decisions,  341. 
basis  of,  case  of  Biscuit  Combination,  349. 
basis  of,  case  of  the  Chicago  Gas  Trust,  346. 
basis  of,  case  of  the  Diamond  Match  Company,  347. 
basis  of,  case  of  the  Glucose  Combination,  348. 
basis  of,  case  of  the  Harrow  Trust,  349. 
basis  of,  case  of  the  National  Lead  Trust,  349. 
basis  of,  case  of  the  Preservers  Trust,  345. 
basis  of,  case  of  the  Standard  Oil  Trust,  343. 
basis  of,  case  of  the  Sugar  Trust,  342. 
basis  of,  Whiskey  Trust  cases,  344. 
basis  of,  cases  of  associations,  349. 
conservative  standards,  353. 
control  of  the  market,  356. 

difficulty  of  formulating,  concerning  combinations,  340. 
688 


INDEX. 

RULES   OF   PUBLIC   VOUCY  —  continued, 

distinction  between,  applicable  to  private  and  ^uo5i-pubIic  corpora- 
tions, 351. 

distinction  between  useful  commodities  and  necessaries  of  life,  358. 

extent  of  territory,  357. 

form  of  combination  immaterial,  354. 

in  general,  350. 

necessity  for,  339. 

objects  and  tendencies  of  combinations,  355. 

stated,  352. 

what  are  necessaries  of  life,  358. 

what  are  useful  commodities,  358. 

(See  also  Combinations;  Public  Policy.) 
RUNNING  POWERS.     (See  Trackage  Contracts.) 


S. 

SALE, 

distinction  between,  and  consolidation,  13. 

outline  of  relations  of  vendor  and  vendee,  3. 
(See  also  Sales  of  Franchises  ;   Sales  of  Property  of   Private 
Corporations;    Sales  of  Property  of   Quasi-public    Cor- 
porations ;   Sales  of  Railroads.) 
SALES  OF   FRANCHISES, 

distinction  between,  and  sale  of  railroad,  142. 

legislative  authority  essential  to,  135. 

legislative  authority  essential  to  purchase,  139. 

of  corporations,  133,  134. 

of  corporation,  does  not  carry  property,  142. 

of  corporations,  nature  of,  134. 

transferability  of  franchise  of  corporate  existence,  132. 

unauthorized,  against  public  policy,  137. 

unauthorized,  ultra  vires,  136. 

unauthorized,  unlawful  delegation  of  powers,  138. 
SALES   OF    PROPERTY   OF   PRIVATE   CORPORATION, 

effect  of  sale  of  entire  corporate  property,  117. 

for  stock,  constructively  fraudulent,  124. 

liability  of  purchasing  corporation  for  debts  of  vendor,  123. 

obligation  of  majority  stockholders  to  minority,  114. 

of  entire  property  by  directors,  112. 

of  entire  property  by  unanimous  consent,  109. 

of  entire  property  of  losing  corporation  by  majority  vote,  111. 

of  entire  property  of  prosperous  corporation  by  majority  vote,  110. 

power  to  purchase  and  sell  generally,  108. 

priority  of  purchaser's  mortgage  over  claims  of  vendor's  creditors, 
126. 

procedure  in  stockholders'  actions,  115. 

ratification  by  stockholders  of  sale  by  directors,  113. 
44  689 


INDEX. 

SALES  OF  PROPERTY  OF  PRIVATE  CORPORATION  —  continued, 

remedies  of  creditors  in  case  of  fraudulent,  125. 

remedies  of  dissenting  stockholders  in  case  of  invalid,  114. 

what  action  necessary  to  authorize,  108. 

when  directors  are  interested  in  vendee  company,  ^Jrtma /«c/e  fraudu- 
lent, 124. 

whether  stock  of  dissenting  stockholders  can  be  appraised,  121. 

(See  also  Exchange  of  Coupokatk  Pkoi'Euty  for  Stock.) 
SALES   OF    PROPERTY   OF   QL'ASI-PUBLIC   CORPORATIONS, 

indispensable  property  cannot  be  alienated  without  legislative  au- 
thority, 127. 

surplus  property,  129. 

test  of  indispensability,  128, 
SALES   OF   RAILROADS, 

acquiescence  of  stockholders  in,  150. 

construction  of  statutes,  140. 

conventional  and  judicial,  distinguished,  140. 

directors  have  no  power  to  authorize,  149. 

distinction  between,  and  reorganization,  141. 

distinction  between,  and  sales  of  franchises,  142. 

do  not  terminate  corporate  existence,  152. 

essential  franchises  pass  upon  sale  of  road,  157. 

liabilities  of  vendor  corporation  after  authorized  sale,  154. 

liabilities  of  vendor  corporation  after  unauthorized  sale,  155. 

method  of  authorizing  and  executing,  148. 

obligations  of  vendee  in  respect  of  vendor's  public  duties,  1G2. 

of  road  alone  carries  necessary  franchises,  142. 

remedies  of  dissenting  stockholders  in  case  of  invalid,  151. 

remedies  of  State  in  case  of  unauthorized,  156. 

rigVits  of  vendee  corporation  in  general,  158. 

rights  of  vendor  corporation  after  sale,  153. 

seller  must  have  authority  to  sell  and  buyer  to  buy,  144. 

status  of  foreign  purchasing  corporation,  104. 

statutes  authorizing,  145. 

statutes  authorizing,  strictly  construed,  146. 

statutory  authority  necessary  to,  143. 

statutory  requisites  for  authorization  and  execution,  148. 

stockholders  may  be  estopped  from  questioning  validity  of,  150. 

to  competing  or  parallel  line  prohibited,  147. 

vendee  not  liable  for  debts  of  vendor,  163. 

whether  approval  of  majority  is  sufficient  in  absence  of  statute,  149. 

whether  chartered  rates  of  fare  follow  the  property,  161. 

whether  exemptions  from  taxation  pass  to  vendee  corporation,  160. 

whether  right  of  eminent  domain  passes  to  vendee,  159. 

whether  sale  of  railroad  carries  franchises,  142. 
SECURITY,  whether  majority  can  effect  consolidation  upon  giving,  50. 

(See  Appraisal.) 
SHERMAN  LAW.     (See  Federal  Anti-trust  Statute.) 
690 


INDEX. 

SPECIFIC   PERFORMANCE,  of  trackage  contracts,  260. 
STANDARD  OIL   TRUST,  nature  and  formation  of,  343. 
SOUTH   CAROLINA, 

(a)  Consolidation. 

constitutional  provision  against  consolidation  of  competing  cor- 
porations, 32  n. 

statutes  authorizing  consolidation  of  railroads,  22  n. 

statutes  prescribing  method  of  consolidating,  52  n. 

statute  providing  that  consolidated  corporation  shall  acquii'e  no 
extraordinary  powers,  77  n. 

(b)  Sales. 

statutes  authorizing  purchase  of  railroads,  145  n. 

(c)  Leases. 

statute  authorizing  railroad  leases,  145  n.,  180  n. 

(d)  Stockholding. 

statutes  authorizing  corporate  stockholding,  271  n. 

(e)  Comhinations. 

anti-trust  statute,  405  n. 

SOUTH   DAKOTA, 

(a)  Consolidation. 

statute  authorizing  consolidation  of  railroads,  22  n. 
statute  prescribing  method  of  consolidating,  52  u. 

(b)  Sales. 

statute  authorizing  sales  of  railroads,  145  n. 

statute  prescribing  method  of  authorizing  sale  of  railroad,  148  n. 

(c)  Leases. 

statute  authorizing  railroad  leases,  145  n.,  180  n. 

statute  concerning  taxation  of  leased  railroad,  224  n. 

statute  prescribing  method  of  adopting  railroad  lease,  193  n. 

statute  relating  to  foreign  lessee  corporations,  254  n. 
(J)   Stockholding. 

statute  authorizing  corporate  stockholding,  271  n. 
(e)    Comhinations. 

anti-trust  statutes,  405  n. 

constitutional  provision  against  monopolies  and  trusts,  405  n. 

exemptions  in  anti-trust  statute,  410  n. 
STATE, 

(o)   Consolidation. 

may  attack  irregular  consolidation,  95. 

status  of  corporation  created  by  joint  legislative  action,  101  n. 
(h)  Leases. 

remedies  of,  in  cases  of  idtra  vires  leases,  250. 

(c)  Sales. 

remedies  of,  in  case  of  unauthorized  sale  of  railroad,  156. 

(d)  Stockholding. 

remedies  of,  in  case  of  ultra  vires  stockholding,  293. 

(e)  Combinations. 

outline  of  power  of,  over  combinations,  6,  423, 

691 


INDEX. 

STATE  —  continued, 

power  of,  over  property  devoted  to  public  uses,  406. 

power  of,  to  prohibit  combinations  of  corporations  in  exercise  of 

reserved  power,  407. 
power  of,  to  prohibit  combiiiatioiis  of  '/uas/  public  corporations, 

40G. 
remedies  of,  in  case  of  unlawful  combinations,  372,  o73,  374. 
(See  also  Quo  Wakkanto.) 
STATE   AXTI-TRU8T    STATUTES, 

applicability  of,  to  foreign  corporations,  414. 

application  of  miscellaneous,  417. 

application  of,  to  insurance  combinations,  413. 

apply  to  continuing  con)biualions,  410. 

civil  remedies  under,  420. 

construction  of  miscellaneous,  417. 

criminal  proceedings  under,  419. 

enacted  in  e.xercise  of  police  power,  409. 

evidence  in  proceedings  under,  421. 

have  no  extraterritorial  effect,  415. 

invalidity  of  class  legislation,  410. 

invalidity  of  exemptions  of  anti-trust  statutes,  410. 

invalidity  of  exemptions  of  agricultural  products.  410. 

invalidity  under,  as  a  ground  for  collateral  attack,  418. 

limitations  of  actions,  422. 

not  regulations  of  interstate  commerce,  412. 

not  retroactive,  416. 

penalties,  419  n. 

power  of  State  to  prohibit  combinations  of  corporations,  in  exercise 

of  reserved  power,  407. 
power  of  State  to  prohibit  combinations  of  lyuast-public  corporations, 

406. 
provisions  that,  may  be  pleaded  as  defence,  418. 
rule  of  construction  of,  411. 
scope  of  State  legislation,  405. 
statutes,  405  n. 

validity  of  provisions  that,  may  be  pleaded  as  defence,  418. 
validity  of,  tested  by  fourteenth  amendment,  408-410. 
when,  may  be  pleaded  as  defence,  418. 
STATUS, 

effect  of  interstate  consolidation  upon,  of  constituent   corporations, 

102. 
of  corporation  as  controlling  stockholder,  299. 
of  foreign  corporations,  101  n. 
of  foreign  vendee  corporation.  164. 
of  interstate  consolidated  corporation,  101. 
(See  also  Cokpouation.) 
STATUTES, 

(a)   Consolidation. 
against  consolidation  of  competing  or  parallel  railroads,  32  n. 
692 


INDEX. 

STATUTES  —continued, 

as  to  transmission  of  property  and  franchises  upon  consol' elation, 
65. 

authorizing  consolidated  corporations  to  issue  mortgage   bonds, 
75  n. 

authorizing  consolidation  not  regulations  of  interstate  commerce, 
19. 

authorizing  consolidation,  not  reti-oactive,  20. 

authorizing  consolidation  of  business  corporations,  23  n. 

authorizing  consolidation  of  railroads,  22  n. 

authorizing  consolidated  corporation  to  exercise  right  of  eminent 
domain,  76. 

Connecticut,  concerning  evidence  of  consolidation,  91  n. 

construction  of  particular,  authorizing  consolidation,  28,  62,  63. 

construction  of,  prescribing  method  of  consolidation,  54:. 

effect  of  consolidation  depends  upon  terms  of,  59. 

enforcement  of,  against  consolidation,  40. 

English,  authorizing  amalgamation,  12. 

for  appraisal  of  stock  in  consolidation  proceedings,  57. 

formal  requirements  of,  for  consolidation,  52. 

Minnesota,  against  consolidation  of  competing  lines,  35  n. 

miscellaneous,  conferring  powers  on  consolidated  corporation,  77  n. 

New   York,   concerning   effect   of    consolidation    upon    pending 
suits,  89  n. 

prescribing  obligations  of  consolidated  corporation,  79  n. 

prohibiting    consolidation   of    competing   railroads   have   no    ex 
post  facto  application,  32. 

relating  to  transmission  of  property  and  franchises,  65. 

rule  of  construction  of,  authorizing  consolidation,  27. 

showing  creation  of  distinct  corporation  as  result  of  consolida- 
tion, 62. 

showing  merger  as  result  of  consolidation,  63. 
(6)  Sales. 

against  purchase  of  competing  or  parallel  railroads,  147. 

authorizing  purchases  of  railroads,  145. 

authorizing  sales  of  railroads,  145. 

construction  of,  relating  to  sales  of  railroads,  146. 

defining  status  of  corporation  purchasing  railroad,  158. 

for  appraisal  of  stock  in  case  of  exchange,  121. 

Pennsylvania,  concerning  dissolution  of  vendor  corporation,  152  n. 

prescribing  method   of   authorizing  and  executing  sales  of  rail- 
roads, 148. 

providing  that  corporation  purchasing  railroad  may  exercise  right 
of  eminent  domain,  159  n. 

providing  that  sale  of  railroad  shall  not  affect  creditors,  163  n. 
(c)  Leases. 

authorizing  leases  of  railroads,  ISO. 

authorizing  lessee  to  exercise  power  of  eminent  domain  in  name 
of  lessor,  210  u. 


INDEX. 

STATUTES  —  continued, 

authorizing  lessee  to  exercise  right  of  eminent  domain,  210  n. 

authorizing  raih'oad  leases,  rule  of  construction  of,  181. 

compelling  railroads  to  make  track  connections,  255. 

concerning  taxation  of  leased  railroads,  224  n. 

construction  of,  authorizing  railroad  leases,  182. 

construction  of,  not  authorizing  railroad  leases,  183. 

imposing  liability  upon  lessee,  230  n. 

prescribing  metliod  of  adopting  lease  of  railroads,  193. 

prohibiting  leases  of  competing  or  parallel  railroads,  186. 

providing  that  railroad  lease  shall  not  affect  public  obligations  of 
lessor,  215. 

relating  to  foreign  lessee  corporations,  254. 
(rf)  Stocklinld'mg. 

autliorizing  corporate  stockholding,  271. 
(e)    Coinh't nations. 

authorizing  issue  of  stock  of  property,  319  n. 

concerning  pools,  364  n. 

federal  anti-trust  statute,  376  n. 

interstate  commerce  act  concerning  connecting  lines,  363  n. 

invalid  exemptions  in  State  anti-trust,  410. 

providing  that  anti-trust,  may  be  pleaded  in  defence,  418. 

State  anti-trust,  -105  n. 

STATUTORY  AUTHORITY.     (See  Lkgislative  Authority.) 

STOCK, 

(a)  Consoli'Iation. 

appraisal  of,  57. 

condemnation  of,  for  purposes  of  consolidation,  51. 

(b)  Sales. 

appraisal  of,  of  dissenting  stockholder  in  case  of  exchange,  121. 

English  statute  for  appraisal  of,  121  n. 

excliange  of  corporate  property  for,  ultra  vires,  119. 

exchange  of  property  for,  infringement  of  rights  of  dissenting 

stockholders,  120. 
received  upon  exchange  belongs  primarily  to  corporation,  122. 
reorganization  plan  involving  payment  of  money  in  lieu  of,  120. 
transfer  of   entire  corporate   property   for,   requires    unanimous 

consent,  118. 

(c)  Stockholding. 

assumption  of  power  to  hold,  in  articles  of  association,  270. 
English  rule  as  to  necessity  for  statutory  authority  to  purchase, 

265. 
expediency  of  purchase  of,  immaterial,  269. 
rule  requiring  statutory  authority  for  corporate  subscriptions  or 

purchases  not  evaded  by  indirection,  267. 
similar  nature  of  corporations  does  not  affect  power  to  hold,  268. 
statutory  authority  necessary  for  corporation  to  purchase,  264. 
statutory  authority  necessary  to  subscribe  for,  266. 

694 


INDEX. 

STOCK  — continued, 
((/)   Combinations. 

issue  of,  for  good-will  in  formation  of  corporate  combination,  320. 

issue  of,  for  property  in  formation  of  corporate  combination,  319. 
(See  also  CuupoKATE  Stockholding;  Stockholders.) 
STOCKHOLDERS, 
(a)   Comolidation. 

assent  of,  to  consolidation,  how  manifested,  45. 

condemnation  of  stock  of,  in  aid  of  consolidation,  51. 

estoppel  of,  of  constituent  corporations  to  deny  regularity  of  organ- 
ization of  de  facto  consolidated  corporation,  96. 

estoppel  of,  of  de  facto  consolidated  corporation  to  deny  regular- 
ity of  organ izatioTi,  90. 

laches  of,  in  restraining  consolidation,  49. 

of  constituent  corporations,  effect  of  consolidation  upon,  64. 

of  constituent  corporations  may  restrain  consolidation  of  compet- 
ing railroads,  40. 

preferred,  of  constituents,  obligations  of  consolidated  corporation 
to,  81. 

procedure  in  actions  of,  to  restrain  consolidation,  48. 

requisite  number  of,  whose  consent  is  necessary  to  consolidation, 
41,  42,  43. 

rights  and  remedies  of  dissenting,  to  enjoin  consolidation,  46. 

statutes  authorizing  condemnation  of  stock  of  dissenting,  in  con- 
solidation proceedings  not  applicable  to  lease,  51. 

when  unanimous  consent  is  necessary  to  consolidation,  42. 

whether  majority  can  effect  consolidation  upon  giving  security,  50. 
(5)  Sales. 

appraisal  of  stock  of  dissenting,  in  case  of  exchange,  121. 

entitled  to  stock  received  upon  exchange  only  upon  distribution, 
122. 

exchange  of  entire  corporate  property  for  stock  requires  unani- 
mous consent  of,   118. 

exchange  of  property  for  stock  infringement  of  rights  of,  120. 

franchise  of  corporate  existence  belongs  to,  131. 

hold  consideration  for  fraudulent  sale  as  trustees  for  creditors, 
125. 

may  be  estopped  by  participation  or  acquiescence  from  question- 
ing validity  of  sale  of  railroad,  150. 

objections  to  plan  of  paying  dissenting,  money  in  lieu  of  shares, 
120. 

procedure  in  actions  of,  to  enjoin  sale  of  corporate  property,  115. 

ratification  by,  of  sale  by  directors,  113. 

remedies  of  dissenting,  in  case  of  invalid  sales,  114. 

remedies  of,  in  case  of  invalid  sale  of  railroad,  151. 

sale  of  property  of  private  corporation,  defences  to  actions  of,  to 
prevent,  116. 

when,  may  directly  receive  stock  in  exchange  for  corporate  prop- 
erty, 122. 

^  695 


INDEX. 

STOCKHOLDERS  -  continued, 

whether  approval  of  majority  of,  sufficient  in  absence  of  statute, 
149. 
(c)   Leases. 

assent  of,  necessary  to  railroad  lease,  188. 
distinction  between  ratification  by,  and  by  legislature,  179. 
laches  of,  may  prevent  attacking  railroad  lease,  192. 
lease  of  entire  property  of  prosperous  corporation  requires  unani- 
mous consent  of,  1G6. 
may  be  estopped  by  acquiescence  from  attacking  invalid  railroad 

lease,  192. 
remedies  of,  in  case  of  unauthorized  railroad  lease,  191. 
remedies  of,  to  restrain  lease  of  corporate  property,  1G9. 
rights  of,  when  rent  is  payable  in  form  of  dividends,  212. 
when  leases  by  directors  or  majority  of,  can  be  set  aside,  168. 
whether  approval  of  lease  by  majority  of,  sufficient  in  absence  of 
statute,  189. 
((/)   Stockholding. 

may  enjoin  voting  of  tdtra  rires  holdings  of  stock,  288. 
remedies  of,  in  case  of  tdtra  cires  stockholding,  293. 
remedies  of  minority,  of  controlled  corporation,  301. 
status  of  corporations,  as  controlling,  299. 
status  of  corporations  as,  281. 
(e)   Combinations. 

in  formation  of  trust  State  regards  acts  of,  as  acts  of  corporation, 

313. 
remedies  of,  of  combining  corporations,  371. 
(See  also  Subscriuers.) 

SUBSCRIBERS, 

action  upon  subscription  by  constituent  corporation  against,  69. 

enforcement  by  consolidated  corporation  of  obligations  of,  to  constit- 
uent corporation,  69. 

remedies  of  dissenting,  in  case  of  invalid  consolidation,  47. 

to  stock  of  constituent  corporation  may  attack  irregular  consolida- 
tion, 9p. 

when,  bound  by  consolidation  proceedings,  68. 

when,  estopped  to  question  regularity  of  consolidation,  96. 
(See  also  Consolidation;  Stockholders.) 

SUBSCRIPTIONS, 

conditional,  enforcement  of  by  consolidated  corporation,  69. 

corporate,  for  stock  in  foreign  corporations,  272. 

corporate,  through  agents  invalid,  267. 

elfect  of  ultj-a  vires  lease  upon,  246. 

necessity  for  statutory  authority  for  corporate,  266. 

remedies  of  consolidated  corporations  to  enforce,  69. 

to  stock  of  constituent  corporations  pass  to  consolidated  corporation, 
68. 
SUGAR   TRUST,  nature  and  formation  of,  342. 
696 


INDEX. 


SUITS.     (See  Remedies.) 
SURPLUS  PROPERTY, 

leases  of,  172. 

sales  of,  129. 

surplus  use  of  tracks,  172. 


T. 

TAXATION, 

exemptions  from.   (Sec  Exemptions  from  Taxation.) 
of  interstate  consolidated  corporation,  105. 
of  leased  railroads,  224. 

TAXES, 

distinction  between,  and  assessments,  205. 
covenant  to  pay,  for  sole  benefit  of  lessor,  205. 
covenant  to  pay  in  railroad  leases,  205. 

TELEGRAPH   COMPANIES, 

constitutional  prohibitions  against  consolidation  of  competing,  39. 
TELEPHONE    COMPANIES, 

constitutional  prohibitions  against  consolidation  of  competing,  39. 
TENNESSEE, 
(a)   Consolidation. 

statutes  authorizing  consolidation  of  railroads,  22  n. 
statutes  prescribing  method  of  consolidating,  52  n. 
(h)  Sales. 

statutes  authorizing  purchase  of  railroads,  145  n. 
statute  prescribing  method  of  authorizing  sale  of  railroad,  148  n. 
(c)   Leases. 

statutes  authorizing  railroad  leases,  145  n.,  180  n. 
statute  prescribing  method  of  adopting  railroad  lease,  193  u. 
{(l)   Combinations. 

anti-trust  statutes,  405  n. 

constitutional  provision  against  monopolies,  405  n. 

exemptions  in  anti-trust  statute,  410  n. 

TERMINAL   FACILITIES,  meaning  of  phrase,  200. 
TEXAS, 

(a)   Consolidation. 

statute  authorizing  consolidation  of  benevolent,  etc.,  corporations, 

23  n. 
statute  concerning  consolidation  of  railroads,  22  n. 
constitutional  provision  against  consolidation  of  competing  corpo- 
rations, 32  n. 
(h)  Leases. 

constitutional  provision  against  consolidation  not  construed  to 

authorize  lease,  183. 
statute  authorizing  railroad  leases,  180  n. 

697 


INDEX. 

TEXAS  —continued, 

statute  providing  that  lease  shall  not  affect  lessor's  public  obliga- 
tion, 215. 
statute  providing  that  lessor  shall  be  liable  as  if  operating  rail- 
road, "JIG  n. 
(c)    StocUioldiinj. 

statutes  authorizing  corporate  stockholding,  271  n. 
((/)   Combinations. 

anti-trust  statutes,  405  n. 

constitutional  provision  against  monopolies,  405  n. 
constitutionality  of  anti-trust  statutes,  410  n. 
exemptions  in  anti-trust  statute,  410  n. 
TORTS, 

liability  of  consolidated  corporation  for,  of  constituents,  82. 
liability  of  lessor  for,  of  lessee,  218-221. 
(See  also  Consolidation;   Lkssee  Couporation;   Lessor  Corpora- 
tion; Negligence.) 
TRACKAGE  CONTRACTS, 
assignability  of,  258. 
construction  of,  259. 

distinction  between,  and  leases,  170,  2.55. 
English  statutes  granting  running  powers,  255. 
execution  of,  256,  257. 
limitations  upon  power  to  execute,  250. 
liability  of  licensee  company  to  employees,  263. 
liability  of  licensee  company  to  third  persons,  262. 
liability  of  proprietary  company  to  employees,  263. 
liability  of  proprietary  company  to  third  persons,  201. 
nature  of,  255. 

nature  of  running  powers,  255. 
specific  performance  of,  260. 

statutory  authority  not  necessary  for  execution  of,  256. 
whether  written  contract  is  necessary,  257. 
TRAFFIC  CONTRACTS. 

(See  Associations  of  Railroad  Companies.) 
TRANSMITTING  COMPANIES, 

constitutional  prohibitions  against  consolidation  of  competing,  39. 
TRANSPORTATION   COMPANIES, 

constitutional  prohibitions  against  consolidation  of  competing,  39. 
TRUST, 

definition  of,  304. 
formation  of,  309. 

in  formation  of.  State  regards  acts  of  stockholders  as  acts  of  corpora- 
tion, 313. 
invalid  as  delegating  corporate  powers,  315. 
invalid  as  involving  partnership  of  corporations,  314. 
invalid  as  involving  practical  consolidation,  316. 
nature  of  trust  certificates,  317. 

698 


INDEX. 

TRi:  ST  — coJitinued, 

popular  use  of  word,  305. 

rights  and  liabilities  of  trustees,  317. 

right  of  trustee,  317. 

transferability  of  certificates,  317. 

(See  also  Combinations.) 
TRUST   CERTIFICATES, 

nature  of,  317. 

transferability  of,  317. 

TRUSTEES, 

rights  and  liabilities  of,  under  industrial  trusts,  317. 


U. 

ULTRA  VIRES, 

consolidation  without  legislative  authority  is,  17. 

contracts  for  purchase  of  stock,  290. 

defence  of,  after  delivery  of  possession  under  lease,  241. 

defence  of,  to  enforcement  of  leases,  240. 

distinction  between  acts,  the  majority  and,  the  corporation,  1.51, 

exchange  of  property  for  stock  is,  119. 

holdings  of  stock,  independent  contracts,  291. 

holdings  of  stock,  liability  for  assessments  upon,  289. 

holdings  of  stock,  what  incidents  of  ownership  attach  to,  288. 

purchase  for  control  without  express  authority  is,  298. 

sale  of  railroad,  remedies  of  dissenting  stockholders  in  case  of,  151. 

unauthorized  lease  of  railroad  is,  177. 

unauthorized  sale  of  franchises  is,  136. 

unauthorizing  taking  of  lease  is,  178. 

ULTRA   VIRES   LEASES, 

distinction  between,  and  irregular,  239. 
effect  of  delivery  of  possession  under,  241. 
effect  of,  upon  stock  subscriptions,  246. 
enforcement  of  executory,  240. 
guarantee  of,  void,  247. 
lessee  may  surrender,  without  liability,  241. 
obligations  of  parties  after  disaffirmance,  242. 
quo  warranto  in  case  of,  250. 

recovery  of  property  after  disaffirmance  by  lessee,  243. 
recovery  on  quanium  vieruU  after  disaffirmance,  244. 
remedy  of  State  by  injunction  in  case  of,  251. 
right  and  duty  of  disaffirmance,  242. 
right  of  lessee  to  disaffirm,  242. 
right  of  lessor  to  disaffirm,  242. 

whether  lessee  can  recover  for  improvements  made  under,  245. 
whether  lessor  can  recover  property  when  it  disaffirms,  242. 
(See  also  Leases  of  Railroads.) 

699 


INDEX. 

UNANIMOUS   CONSENT, 

exchange  of  entire  corporate  property  for  stock  requires,  118. 
lease  of  entire  property  of  prosperous  corporation  requires,  166. 
sale  of  entire  corporate  property  by,  109. 
when  necessary  to  consolidation,  42. 

whether,  necessary  for  lease  of  railroad,  in  absence  of  statute,  189. 
whether,  necessary  for  sale  of  railroad,  in  absence  of  statute,  149. 
(See  also  Majority;  Minority.) 
UNAUTHORIZED   LEASE. 

(See  Leases  of  Railroads;  Lessee  Corporation;  Lessor 
CourcmATioN.) 
UNIVERSITATIS   JURIS,  meaning  of  phrase,  10. 
USEFUL   CO:\IMODITIES, 
use  of  phrase,  350,  351,  358. 
what  are,  358. 
UTAH, 

(a)   Consolidation. 

constitutional  provision  against  consolidation  of  competing  corpo- 
rations, 32  n. 
statute  authorizing  consolidation  of  business  corporations,  23  n. 
statute  authorizing  consolidation  of  railroads,  22  n. 
statutes  prescribing  method  of  consolidating,  52  n. 
(6)  Sales. 

statutes  authorizing  sales  of  railroads,  145  n. 
statute  conferring  powers  on  corporation    purchasing  railroads, 
158  n. 

(c)  Leases. 

statutes  authorizing  railroad  leases,  145  n.,  180  n. 

(d)  Stockholding. 

statutes  authorizing  corporate  stockholding,  271  n. 

(e)  Comlnnadons. 

anti-trust  statutes,  405  n. 

constitutional  provision  against  combinations,  405  n. 


VENDEE   CORPORATION, 

acquires  essential  franchises  upon  purchase  of  railroad,  157. 

generally  not  liable  for  debts  of  vendor,  123. 

may  assume  debts  of  vendor,  123. 

may  assume  obligations  of  vendor,  163. 

may  be  made  liable  by  statute  for  debts  of  vendor,  163. 

mortgage  of,  takes  priority  over  claims  of  vendor's  creditors,  126. 

not  liable  for  debts  of  vendor  unless  assumed  or  imposed  by  law,  163. 

obligations  of,  in  respect  of  vendor's  public  duties,  162. 

rights  oi,  in  general,  158. 

statutes  defining  status  of,  158. 

status  of  foreign,  164. 

700 


INDEX. 

VENDEE   CORPORATION  — con^njueJ, 

whether,  acquires  exemptions  from  taxation  upon  purchase  of  railroad, 

IGO. 
whether,  acquires  right  of  eminent  domain  upon  purchase  of  railroad, 

159. 
whether,  acquires  vendor's  right  to  fix  rates  of  fares,  IGl. 
VENDOR   CORPORATION, 

liabilities  of,  after  autliorized  sale  of  railroad,  154. 
liabilities  of,  after  unauthorized  sale  of  railroad,  155. 
liability  of  vendee  for  debts  of,  123. 

mortgage  of  vendee  takes  priority  over  claims  of  creditors  of,  126. 
obligations  of,  not  assumed  by  vendee  upon  sale  of  railroad,  163. 
obligations  of  vendee  in  respect  of  public  duties  of,  162. 
power  of,  to  sell  property  for  stock,  322. 
powers  of,  after  sale  of  railroad,  153. 

quo  ivarranto  against,  in  case  of  unauthorized  sale  of  railroad,  156. 
sale  of  railroad  does  not  terminate  corporate  existence  of,  152. 
vendee  may  assume  debts  of,  123. 
vendee  may  be  liable  by  statute  for  debts  of,  163. 
vendee  may  expressly  assume  obligations  of,  163. 
VENDOR  AND   VENDEE, 
outline  of  relations  of.  3. 

distinction  between  relation  of,  and  other  intercorporate  relations,  141. 
VERMONT, 

(a)   Consolidation. 

statute  authorizing  consolidation  of  railroads,  22  n. 
(5)  Leases. 

statute  authorizing  railroad  leases,  180  n. 
(c)   StocJcholding. 

statutes  authorizing  corporate  stockholding,  271  n. 
VESTED    RIGHTS, 

legislation  cannot  affect,  26,  266. 
power  to  consolidate  not  a,  24. 
VIRGINIA, 

statutes  authorizing  corporate  stockholding,  271  n. 
VOIDABLE  LEASES, 

may  become  valid  by  acquiescence,  248. 
of  private  corporation,  168. 
of  railroads,  248. 

(See  also  Leases  of  Railroads.) 
VOID   RESTRICTIONS,  in  railroad  leases,  202. 


W. 
WASHINGTON, 

(a)   Consolidation. 

constitutional  provision  against  consolidation  of  competing  cor- 
porations, 32  n. 

701 


INDEX. 

WASHINGTON  —  continued, 

statute  authorizing  consolidation  of  railroads,  22  n. 
statute  prescribing  method  of  consolidating,  52  n. 

(b)  Sales. 

statute  authorizing  purchase  of  railroads,  145  n. 

(c)  Leases. 

statute  authorizing  railroad  leases,  145  n.,  180  n. 
(^d)   Stockholding. 

statutes  authorizing  corporate  stockholding,  271  n. 

(e)  Combinations. 

constitutional  provision  against  monopolies  and  trusts,  405  n. 

"WEST   VIRGINIA, 

(a)  Consolidation. 

constitutional  provision  against  consolidation  of  competing  cor- 
porations, 32  n. 
statutes  authorizing  consolidation  of  railroads,  22  n. 
statutes  prescribing  method  of  consolidating,  52  n. 

(b)  Sales. 

statutes  authorizins  purchase  of  railroads,  145  n. 

statute  prescribing  method  of  authorizing  sale  of  railroad,  148  n. 

(c)  Leases. 

statutes  authorizing  railroad  leases,  180  n. 
statute  prescribing  method  of  adopting  railroad  lease,  193  n. 
(</)   Stockholdincj. 

statutes  authorizing  corporate  stockholding,  271  n. 

WHISKEY   TRUST,  nature  and  formation  of,  344. 

WISCONSIN, 

(a)   Consolidation. 

statute  authorizing  consolidation  of  railroads,  22  n. 
statute  providing  tliat  land  grants  pass  to  consolidated  corpora- 
tion, 77  n. 
statute  prescribing  method  of  consolidating,  52  n. 
(i)  Sales. 

statute  authorizing  sales  of  railroads,  145  n. 

statute   conferring   powers    on   corporation  purchasing  railroad, 
158  n. 

(f)  Leases. 

statute  authorizing  railroad  leases,  145  n.,  180  n. 

(d)  Slockholdinfj . 

statutes  authorizing  corporate  stockholding,  271  n. 

(e)  Combinations. 

anti-trust  statute,  405  n. 

WORDS   AND   PHRASES.     (See  Definitions.) 

AyYO:MING, 

(a)    Consolidation. 

constitutional  provision  against  consolidation  of  competing  cor- 
porations, 32  n. 

702 


INDEX. 

WYOMING  -  continued, 

statutes  authorizing  consolidation  of  railroads,  22  n. 
statutes  prescribing  method  of  consolidating,  52  u. 

(b)  Sales. 

statute  authorizing  sales  of  railroads,  145  n. 

statute  prescribing  method  of  authorizing  sale  of  railroad,  148  n. 

(c)  Leases, 

statute  authorizing  lessee  to  exercise  right  of  eminent  domain, 

210  n. 
statute  authorizing  railroad  leases,  145  n.,  180  n. 
statute  concerning  taxation  of  leased  railroad,  224  n. 
statute  prescribing  method  of  adopting  railroad  lease,  193  n. 
statute  relating  to  foreign  lessee  corporations,  254  n. 

(d)  Stockholding. 

statutes  authorizing  corporate  stockholding,  271  n. 

(e)  Combinations. 

constitutional  provision  against  monopolies,  405  n. 


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